As filed with the Securities and Exchange Commission on December 16, 2021

Registration No. 333-            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

____________________________________

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

____________________________________

SMART FOR LIFE, INC.

(Exact name of registrant as specified in its charter)

____________________________________

Delaware

 

2833

 

81-5360128

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification Number)

____________________________________

990 Biscayne Blvd., Suite 503

Miami, Florida 33132

(786) 749-1221

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

____________________________________

Alfonso J. Cervantes, Jr.

Executive Chairman

990 Biscayne Blvd., Suite 503

Miami, Florida 33132

(786) 749-1221

(Names, address, including zip code, and telephone number, including area code, of agent for service)

____________________________________

Copies to:

Louis A. Bevilacqua, Esq.

Bevilacqua PLLC

1050 Connecticut Avenue, NW, Suite 500

Washington, DC 20036

(202) 869-0888

 

Ralph DeMartino, Esq.
Cavas Pavri, Esq.

Schiff Hardin, LLP

901 K Street NW, Suite 700

Washington, DC 20001

(202) 724-6848

____________________________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

 

☒

           

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 comply with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. ☐

 

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CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered

 

Amount to
be registered

 

Proposed
maximum
aggregate
offering
price
Per unit

 

Proposed
maximum
aggregate
offering
price

 

Amount of
registration
fee

Units consisting of:(1)

 

 —

 

 

 —

 

 

$

20,700,000

 

​(2)(3)(4)

 

$

1,918.89

Shares of common stock, par value $0.0001 per share

 

 —

 

 

 —

 

 

 

   

​(5)

 

 

 —

Series A warrants to purchase common stock

 

 —

 

 

 —

 

 

 

   

​(5)

 

 

 —

Series B warrants to purchase common stock

 

 —

 

 

 —

 

 

 

   

​(5)

 

 

 —

Shares of common stock issuable upon the exercise of the series A warrants:(1)

 

 —

 

 

 —

 

 

$

10,350,000

 

​(2)(3)(4)

 

$

959.45

Shares of common stock issuable upon the exercise of the series B warrants(1)

 

 —

 

 

 —

 

 

$

20,700,000

 

​(2)(3)(4)

 

$

1,918.89

Shares of series B convertible preferred stock, par value $0.0001 per share

 

 —

 

 

 —

 

 

 

   

​(5)

 

 

 —

Shares of common stock issuable upon conversion of the series B convertible preferred stock(1)

 

 —

 

 

 —

 

 

 

   

​(5)

 

 

 —

Shares of common stock registered on behalf of certain selling stockholders(6)

 

26,903,184

 

$

5.00

​(7)

 

$

134,515,920

     

$

12,469.63

TOTAL

     

 

 

 

 

$

186,265,920

     

$

17,266.85

____________

(1)      Pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended, or the Securities Act, this registration statement shall also cover any an indeterminate number of additional shares of the registrant’s common stock as may be issuable because of any future stock dividends, stock distributions, stock splits, similar capital readjustments or other anti-dilution adjustments.

(2)      Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act. The registrant may increase or decrease the size of the offering prior to effectiveness.

(3)      Each unit includes (i) one share of common stock (or, at the purchaser’s election, one share of series B convertible preferred stock), (ii) one series A warrant, and (iii) one series B warrant. The proposed maximum aggregate offering price of the units is $18,000,000. This registration fee table shows a proposed maximum aggregate offering price of $18,000,000 solely for purposes of complying with guidance of the Securities and Exchange Commission, or the SEC, relating to the payment of registration fees, as the registrant is required by the SEC to register separately the units, the shares of common stock included in the units, the warrants included in the units, the shares of common stock issuable upon exercise of the warrants included in the units, the shares of series B convertible preferred stock included in the units, and the shares of common stock underlying the series B convertible preferred stock. The aggregate offering price of the common stock included in the units proposed to be sold in the offering will be reduced on a dollar-for-dollar basis based on the aggregate offering price of the series B convertible preferred stock offered and sold in the offering.

(4)      Includes additional units which may be issued upon the exercise of a 45-day option granted to the underwriters to cover over-allotments, if any, up to 15% of the total number of securities offered.

(5)      Included in the price of the units. No additional registration fee is payable pursuant to Rule 457(g) under the Securities Act.

(6)      Represents (i) up to 11,999,404 shares of common stock issuable upon the conversion of series A convertible preferred stock issued to the selling stockholders named in the resale prospectus; (ii) up to 11,999,404 shares of common stock issuable upon the exercise of warrants issued to the selling stockholders named in the resale prospectus; (iii) up to 2,250,000 shares of common stock issuable upon the conversion of debentures issued to the selling stockholders named in the resale prospectus; and (iv) up to 654,376 shares of common stock issuable to the selling stockholders named in the resale prospectus under future equity agreements.

(7)      Reflects the resale by the selling stockholders set forth herein of up to 26,903,184 shares of common stock, assuming a price of $5.00 per share.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

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EXPLANATORY NOTE

This registration statement contains two prospectuses, as set forth below.

•        Public Offering Prospectus.    A prospectus to be used for the public offering of units through the underwriter named on the cover page of this prospectus, which we refer to as Public Offering Prospectus.

•        The Resale Prospectus.    A prospectus to be used for the resale by selling stockholders of (i) 11,999,404 shares of common stock issuable upon the conversion of series A convertible preferred stock issued to the selling stockholders; (ii) 11,999,404 shares of common stock issuable upon the exercise of warrants issued to the selling stockholders; (iii) 2,250,000 shares of common stock issuable upon the conversion of debentures issued to the selling stockholders; and (iv) 654,376 shares of common stock issuable to the selling stockholders under future equity agreements, which we refer to as the Resale Prospectus.

The Resale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:

•        they contain different front covers;

•        they contain different Offering sections in the Prospectus Summary;

•        they contain different Use of Proceeds sections;

•        the Capitalization and Dilution sections are deleted from the Resale Prospectus;

•        a Selling Stockholders section is included in the Resale Prospectus;

•        the Underwriting section from the Public Offering Prospectus is deleted from the Resale Prospectus and a Plan of Distribution section is inserted in its place; and

•        the Legal Matters section in the Resale Prospectus deletes the reference to counsel for the underwriter.

The registrant has included in this registration statement a set of alternate pages after the back cover page of the Public Offering Prospectus, which we refer to as the Alternate Pages, to reflect the foregoing differences in the Resale Prospectus as compared to the Public Offering Prospectus. The Public Offering Prospectus will exclude the Alternate Pages and will be used for the public offering by the Registrant. The Resale Prospectus will be substantively identical to the Public Offering Prospectus except for the addition or substitution of the Alternate Pages and will be used for the resale offering by the selling stockholders.

 

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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION

 

DATED DECEMBER 16, 2021

Smart for Life, Inc.

               Units consisting of:

Common Stock

Series A Warrants

Series B Warrants

__________________

This is an initial public offering of units of our securities. Prior to this offering, there has been no public market for shares of our common stock. We expect that the initial public offering price will be between $           and $           per unit.

Each unit consists of (i) one share of our common stock (or, at the purchaser’s election, one share of series B convertible preferred stock), (ii) one series A warrant to purchase one share of our common stock at an exercise price equal to $           per share (or 50% of the unit offering price), exercisable until the fifth anniversary of the issuance date, and (iii) one series B warrant to purchase one share of our common stock at an exercise price equal to $           per share (or 100% of the unit offering price), exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions as described in this prospectus. We sometimes refer to the series A warrants and the series B warrants collectively as the warrants. The shares of our common stock and the warrants are immediately separable and will be issued separately but will be purchased together in this offering.

As noted above, we are offering to those purchasers, if any, whose purchase of our common stock in this offering would otherwise result in that purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to substitute series B convertible preferred stock for the shares of common stock included in the units purchased by that investor. Each share of series B convertible preferred stock is being sold together with the same warrants described above being sold with each share of common stock. For each share of series B convertible preferred stock purchased in this offering in lieu of common stock, we will reduce the number of shares of common stock being sold in the offering on a one-for-one basis. Pursuant to this prospectus, we are also offering the shares of common stock issuable upon conversion of the series B convertible preferred stock.

Each share of series B convertible preferred stock is convertible into one share of our common stock (subject to adjustment as provided in the related designation of preferences) at any time at the option of the holder, provided that the holder will be prohibited from converting series B convertible preferred stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of the total number of shares of our common stock then issued and outstanding. However, any holder may increase such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to us. The shares of series B convertible preferred stock will otherwise have the preferences, rights and limitations described under “Description of Securities — Preferred Stock — Series B Convertible Preferred Stock” in this prospectus.

Currently, no public market exists for our common stock. We have applied to list our common stock on the Nasdaq Capital Market, or Nasdaq, under the symbol “          ”. We believe that upon the completion of this offering, we will meet the standards for listing on Nasdaq, and the closing of this offering is contingent upon such listing. We do not intend to apply for any listing of the warrants or series B convertible preferred stock on Nasdaq or any other securities exchange or nationally recognized trading system, and we do not expect a market to develop for the warrants or the series B convertible preferred stock.

We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012, and as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company” and “Risk Factors — Risks Related to this Offering and Ownership of Our Common Stock.”

Investing in our securities is highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 24 of this prospectus for a discussion of information that should be considered before making a decision to purchase our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Per Unit

 

Total

Initial public offering price

 

$

   

$

 

Underwriting discounts and commissions(1)

 

$

   

$

 

Proceeds to us, before expenses

 

$

   

$

 

____________

(1)       The underwriters will receive compensation in addition to the underwriting discount and commissions. See “Underwriting” beginning on page 109 of this prospectus for additional information regarding underwriting compensation.

We have granted the underwriters an option, exercisable one or more times in whole or in part, to purchase up to 15% of additional shares of common stock and/or series A warrants to purchase up to an aggregate of 15% of additional shares of common stock and/or series B warrants to purchase up to an aggregate of 15% additional shares of common stock, in any combinations thereof, from us at $       per share of common stock, $       per series A warrant and $       per series B warrant, less the underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any.

Delivery of the securities is expected to be made on or about           , 2022, subject to customary closing conditions.

DAWSON JAMES SECURITIES, INC.

The date of this prospectus is           , 2022.

 

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TABLE OF CONTENTS

 

Page

Prospectus Summary

 

1

Risk Factors

 

24

Cautionary Statement Regarding Forward-Looking Statements

 

45

Use of Proceeds

 

46

Dividend Policy

 

47

Capitalization

 

48

Dilution

 

50

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

 

52

Corporate History and Structure

 

67

Business

 

70

Management

 

82

Executive Compensation

 

88

Current Relationships and Related Party Transactions

 

92

Principal Stockholders

 

93

Description of Securities

 

94

Shares Eligible for Future Sale

 

103

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

 

104

Underwriting

 

109

Legal Matters

 

114

Experts

 

114

Where You Can Find More Information

 

114

Financial Statements

 

F-1

Please read this prospectus carefully. It describes our business, financial condition, results of operations and prospects, among other things. We are responsible for the information contained in this prospectus and in any free-writing prospectus we have authorized. Neither we nor the underwriters have authorized anyone to provide you with different information, and neither we nor the underwriters take responsibility for any other information others may give you. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of securities. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

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INDUSTRY AND MARKET DATA

We are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications and we believe remains reliable. However, this data involves a number of assumptions and limitations regarding our industry which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” Forward-looking information obtained from these sources is also subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.

TRADEMARKS AND COPYRIGHTS

We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks and trade names or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names.

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in our securities. You should carefully read the entire prospectus, including the risks associated with an investment in our company discussed in the “Risk Factors” section of this prospectus, before making an investment decision. Some of the statements in this prospectus are forward-looking statements. See the section titled “Cautionary Statement Regarding Forward-Looking Statements.”

Unless otherwise indicated by the context, reference in this prospectus to “we,” “us,” “our,” “our company” and similar references are to the combined business of Smart for Life, Inc. (formerly Bonne Santé Group, Inc) and its consolidated subsidiaries.

Our Company

Overview

We are engaged in the development, marketing, manufacturing, acquisition, operation and sale of a broad spectrum of nutritional and related products with an emphasis on health and wellness. Structured as a global holding company, we are executing a buy-and-build strategy with serial accretive acquisitions creating a vertically integrated company with an objective of aggregating companies generating a minimum of $300 million in revenues within the next thirty-six months. To drive growth and earnings, we are developing proprietary products as well as acquiring other profitable companies, encompassing brands, manufacturing and distribution channels.

Our Business Model

We are engaged in a comprehensive program to develop a robust pipeline of prospective acquisitions in addition to the companies currently operated by us. Our management has significant experience in locating and evaluating prospective target operating companies. We have also entered into buy-side agreements with certain advisers and consultants to assist management in identifying and evaluating prospective target operating companies.

We plant to acquire target companies utilizing a combination of cash, promissory notes, earnouts and public company stock, generally at 4x to 6x trailing adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Aside from our first acquisition described below, we intend on paying no more than 60% cash on any acquisition that we execute with a target of 50%. The remainder is allocated between stock and a note and/or earnout with a heavier weighting toward the former. Although the acquisition consideration is structured, we believe that our acquisitions will provide three distinct benefits to the principals of an acquisition. First, a significant liquidity event. Second, the creation of a significant equity position in an emerging growth public company. Third, ongoing employment at customary industry compensation.

Over the next 24 months, we plan to acquire multiple companies aggregating a minimum of $100 million in annualized revenues with the number of prospective acquisitions in the pipeline representing over $50 million in additional revenue. The nutritional products industry is highly fragmented with a large pool of companies generating less than $20 million in revenues representing significant opportunity for industry consolidation.

We do not currently have sufficient capital to complete these acquisitions. We intend to raise capital for additional acquisitions primarily through debt financing at our operating company level, additional equity offerings by our company, or by undertaking a combination of any of the above. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all.

There is no guarantee that we will be able to acquire additional businesses under the terms outlined above or that we will be able to find additional acquisition candidates should we terminate our plans for any of our current acquisition targets.

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Our Corporate History

Our company was incorporated in the State of Delaware on February 2, 2017 under the name Bonne Santé Group, Inc. On August 4, 2021, we changed our name to Smart for Life, Inc. in connection with the acquisition of Doctors Scientific Organica described below.

Acquisition of Bonne Santé Natural Manufacturing

On March 8, 2018, we acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products Inc. for a purchase price of $2,140,272. On October 8, 2019, we entered into an agreement to acquire the remaining 49% of these companies for a purchase price of $100,000, which was completed on October 8, 2019.

On September 30, 2020, we changed the name of Millenium Natural Manufacturing Corp. to Bonne Sante Natural Manufacturing, Inc., or Bonne Santé Natural Manufacturing, and on November 24, 2020, we merged Millenium Natural Health Products Inc. into Bonne Santé Natural Manufacturing to better reflect our vertical integration.

Based in Doral, Florida, Bonne Santé Natural Manufacturing operates a 22,000 square foot manufacturing facility. From inception through September 30, 2021, it has manufactured nutritional products for approximately 240 companies, and from January 1, 2021 to September 30, 2021, it manufactured nutritional products for approximately 26 companies.

Acquisition of Doctors Scientific Organica

On February 11, 2020, we entered into securities purchase agreement, which was amended on July 7, 2020 and June 4, 2021, to acquire Doctors Scientific Organica, LLC d/b/a Smart for Life, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. On July 1, 2021, the acquisition was completed.

The total purchase price was $12,000,000 (subject to adjustment), comprised of (i) $6,000,000 in cash (subject to adjustment), (ii) a 6% secured subordinated convertible promissory note in the principal amount of $3,000,000 and (iii) a 6% secured subordinated promissory note in the principal amount of $3,000,000.

On August 27, 2021, we transferred all of the equity interests of Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. to Doctors Scientific Organica, LLC. As a result, these entities are now wholly owned subsidiaries of Doctors Scientific Organica, LLC. In this prospectus, we collectively refer to Doctors Scientific Organica, LLC and its consolidated subsidiaries as Doctors Scientific Organica.

Doctors Scientific Organica manufactures, sells and owns the Smart for Life brand of natural health and wellness meal replacement products.

Establishment of Canadian Subsidiary

On August 24, 2021, we established Smart for Life Canada Inc. as a wholly owned subsidiary of Doctors Scientific Organica in Canada. This subsidiary sells retail products through a retail store location in Montreal Canada and the same location also acts as distribution center for our international direct to consumer and big box customers. We maintain inventory and employees at this location.

Acquisition of Nexus

On July 21, 2021, we entered into a securities purchase agreement, which was amended on November 8, 2021, to acquire all of the issued and outstanding capital stock of Nexus Offers, Inc., or Nexus. On November 8, 2021, the acquisition was completed.

The total purchase price was $6,000,000 (subject to adjustment), comprised of (i) $2,200,000 in cash (subject to adjustment), (ii) a 5% secured subordinated convertible promissory note in the principal amount of $1,900,000 and (iii) a 5% secured subordinated promissory note in the principal amount of $1,900,000.

Nexus is a network platform in the affiliate marketing space.

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Acquisition of GSP Nutrition

On November 29, 2021, we entered into a contribution and exchange agreement to acquire all of the issued and outstanding capital stock of GSP Nutrition Inc., or GSP Nutrition. On December 6, 2021, the acquisition was completed.

The total purchase price was $425,000, payable in 42,500 shares of our common stock; provided that if the effective price per share of common stock in this offering (as determined in accordance with the contribution and exchange agreement) is less than $10 per share, then we must issue an additional number of shares of common stock equal to an amount determined by dividing the $425,000 purchase price by the effective offering price per share, minus 42,500. In connection with this acquisition, we also issued 14,723 shares of common stock to certain vendors of GSP who agreed to settle accounts payable owed to them into our common stock.

GSP Nutrition is a sports nutrition company that offers nutritional supplements for athletes and active lifestyle consumers under the Sports Illustrated Nutrition brand.

Our Opportunity

The nutraceutical industry focuses on nutritional supplements intended to improve longevity, sports fitness and provide health benefits in addition to the basic nutritional value present in food. Most people are familiar with various nutraceutical products — and have likely used them — even if they are unfamiliar with the industry name. Nutraceuticals comprise such commonly used items as herbal products, specific diet products, vitamins, processed foods and beverages, functional foods, isolated nutrients and other dietary products.

Functional foods are foods that have a potentially positive effect on health beyond basic nutrition. A familiar example of a functional food is oatmeal because it contains soluble fiber that can help lower cholesterol levels. Some foods are also modified to have health benefits. An example is orange juice that has been fortified with calcium for bone health.

The nutraceutical industry has experienced significant growth across the globe, propelled by the increasing age expectancies and associated increases in diseases of aging and lifestyle. A shift in demographics has also allowed manufacturers to benefit in recent years. The number of Americans ages 65 and older is projected to nearly double from 52 million in 2018 to 95 million by 2060, and the 65-and-older age group’s share of the total population will rise from 16% to 23%. Moreover, the Council for Responsible Nutrition, or CRN, reported 77% of U.S. adults take dietary supplements. With respect to the types of supplements being taken, CRN’s 2019 survey found that vitamins and minerals continue to be the most commonly consumed supplement category, with 76% of Americans having taken these products in the past twelve months.

According to a study by Grand View Research, Inc., amid the COVID-19 crisis, the global market for nutraceuticals is projected to grow from $412.7 billion in the year 2020 and reach $722.5 billion by 2027, growing at a compound annual growth rate, or CAGR, of 8.3% over the analysis period. As a specific segment in the overall global nutraceutical market, functional foods accounted for the largest share in 2019 and generated revenue of $187.51 billion on a standalone basis.

The nutraceuticals market in the United States is estimated at $104.5 billion in the year 2021 according to Global Industry Analysts Inc. The U.S. currently accounts for a 34.57% share in the global market. Among the other noteworthy geographic markets are China, Japan and Canada, each forecast to grow at 9.6%, 6.3% and 6.7%, respectively, over the analysis period. Within Europe, Germany is forecast to grow at approximately 7.1% CAGR.

As a result of our acquisition of Nexus, we have also entered the digital marketing industry as a way to promote and sell the products and brands that we sell. Digital marketing is a component of marketing that uses internet and online based digital technologies such as desktop computers, mobile phones and other digital media and platforms to promote products and services.

The COVID-19 pandemic resulted in people staying at home and/or working remotely from home, resulting in huge increase in online traffic. According to Global Industry Analysis, Inc., a leading publisher of off-the-shelf market research, while overall digital marketing spending declined due the pandemic-induced cuts in marketing and advertising budgets during the lockdown, available budgets are being directed at digital marketing initiatives. As a result, the pandemic is driving changes to digital marketing strategies at companies, especially at companies where digital marketing initiatives had relatively low priority.

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According to Global Industry Analysis, Inc., amid the COVID-19 crisis, the global market for digital advertising and marketing is estimated at $350 billion in the year 2020, and is projected to reach $786.2 billion by 2026, growing at a CAGR of 13.9% over the analysis period. The digital advertising and marketing market in the U.S. is estimated at $155.3 billion in the year 2021. We believe that our market share is currently less than 1%.

The markets in which we operate are characterized by rapid technological changes, frequent new product introductions, established and emerging competition, extensive intellectual property disputes and litigation, price competition, aggressive marketing practices, evolving industry standards and changing customer preferences. Accordingly, our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies operating in rapidly changing and competitive markets.

Our Operating Subsidiaries

Bonne Santé Natural Manufacturing

Bonne Santé Natural Manufacturing is a nutraceutical contract manufacturer. Since 1998, our strong manufacturing capabilities and dedication to our clients has enabled us to build relationships with hundreds of customers throughout the United States and around the world, including South America, Central America and Europe. We specialize in a wide variety of products to fill our client’s needs, from the private labeling of vitamins, dietary supplements, nutraceuticals, sport nutrition and broad-spectrum nutritional supplements. Our experienced team of scientists, formulators, and manufacturing experts have the years of knowledge necessary to take our client’s concepts all the way from initial idea to finished product. In addition, we can provide the support for a simple and cost-effective “turn key” solution to manufacturing existing formulations.

To meet the specific demands of any order, we have state-of-the-art manufacturing and packaging lines to decrease cost and maximize efficiencies. We certify that all products and labels meet stringent U.S. Food and Drug Administration, or FDA, requirements and our quality control associates will continually monitor the entire process until products are delivered. Our goal is to exceed our customer’s expectations with respect to product quality, service and price.

Doctors Scientific Organica

Doctors Scientific Organica manufactures, sells and owns the Smart for Life brand of natural health and wellness meal replacement products. The brand includes proprietary hunger suppressing functional foods that are designed to work with the body’s natural ability to lose weight. The program uses an exact protein-to-sugar ratio, a low glycemic index and glycemic load as well as multiple small meals throughout the day to deliver specific amounts of protein, super fibers and complex carbs to suppress hunger, keep sugar and insulin low and trigger the body’s release of the fat releasing hormone glucagon.

Our Smart for Life products deliver:

•        Hunger controlling protein mix

•        No toxins or preservatives

•        The right amount of protein per calorie ratio

•        NO insulin spike, lets glucagon do its job

•        A small amount of essential good fats

•        Right amount of complex carbs

Doctors Scientific Organica also develops premium supplements and commodities that will promote optimal health and wellness. This natural product line uses simple quality ingredients to help create a more sustainable lifestyle. Doctors Scientific Organica has over 15 years of experience providing high-quality products to premium retail locations and companies. All products are packaged in eco-friendly and bio-degradable packaging.

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GSP Nutrition

GSP Nutrition is a sports nutrition company that was incorporated on January 3, 2020. It offers nutritional supplements for athletes and active lifestyle consumers through a variety of wellness solutions and delivery methods, including powders, tablets and soft gels that are formulated to support energy and performance; nutrition and wellness; and focus and clarity.

GSP Nutrition’s initial line of nutritional products are marketed under the Sports Illustrated Nutrition brand. The product line currently consists of whey protein isolate powder, tablet supplements for joint health, nitric oxide, post workout blends, Omega-3 supplements, and pre-workout supplements, among others.

We believe that the Sports Illustrated brand is one of the most recognized brands in sports and athletics. GSP Nutrition has a license for the exclusive use of the Sports Illustrated brand (excluding the Sports Illustrated Swimsuit brand for which it has a right of first offer under the license) in the United States and Canada for certain dietary and nutritional supplements. See “Business — Intellectual Property” for additional details regarding this license.

Nexus

Nexus operates a cost per action/cost per acquisition network. This is an advertising model where publishers are paid for an action that is taken as a direct result of their marketing. Through the publisher’s method of marketing, Nexus sends traffic to one of the advertiser’s product offers listed on the network. Examples of the publishers marketing tactics include but are not limited to native ads, email marketing, SEO and social media traffic. The products on the network come from several different advertisers which pay Nexus a specific amount per sale. A portion of that sale made is paid out to the publisher. Nexus has established long-term relationships with many advertisers and publishers. Nexus also has internal data streams it utilizes to create email lists and produce sales internally to the multitude of advertiser products on the network. Nexus has created a plug-and-play streamlined business that allows for seamless scalability into any vertical, niche or product.

We believe that Nexus is accretive to our other portfolio companies and allows us access to a broad spectrum of marketing tools to be utilized across the entire spectrum of our products.

Our Competitive Strengths

Based on management’s belief and experience in the industry, we believe that the following competitive strengths enable us to compete effectively.

•        Proprietary manufacturing facilities.    Bonne Santé Natural Manufacturing and Doctors Scientific Organica own and operate proprietary manufacturing facilities, which allow for a high level of managerial control over all aspects of production, including sourcing, logistics and maintaining the highest levels of quality during the manufacturing process. Through direct ownership, we are able to optimize our sales and marketing practices and provide a completely integrated approach, all solidified by a single manufacturing platform for capsules, tablets, powders and various other delivery methods for all vitamins and supplements. In addition, as a private label contract manufacturer for third parties, we can provide a turnkey solution for brands and retailers who want to minimize their supply chain disruption and maximize their control over product flow to end customers. In addition, as a middle market-sized contract manufacturer, we are not encumbered by the often overly complex processes that our larger competitors may have. We can be nimble and highly adaptable, “flexing” with our customers’ needs as they change over time, which allows us to better service our ever-expanding international client base. We are able to maintain a competitive advantage due to our vertically integrated operational control. This vertical integration also allows us to minimize intellectual property and data security risks, while also eliminating costs, improving focus, optimizing quality and launching with a faster time-to-market for new products. We retain control over every step of the manufacturing processes, allowing us to establish our own institutional advantages and maximize efficiencies.

•        Established and trusted brands.    Smart for Life, Doctors Scientific Organica and Sports Illustrated Nutrition are well-established brands in the in the health and wellness industry. In particular, Smart for Life products are currently sold in many of the largest big-box retailers in the United States and Canada, including Costco, Walmart, Sam’s Club, BJ’s and Publix, as well as through online channels such as

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Amazon. Doctors Scientific Organica has established a dedicated following of consumers that are strong believers in the high-quality vitamins and supplements it sells to its customers, along with the eco-friendly and bio-degradable packaging, with Amazon sales numbers continuing to increase as a result. We believe that the Sports Illustrated brand is one of the most recognized brands in sports and athletics. In connection with our acquisition of GSP Nutrition, we acquired a license for the exclusive use of the Sports Illustrated brand (excluding the Sports Illustrated Swimsuit brand for which we have a right of first offer under the license) in the United States and Canada for certain dietary and nutritional supplements.

•        Client focused innovative research and development.    We believe that our research and development team adds significant value to our company and our customers and is a differentiating factor for our company. We strive to be technology driven leveraging technology, science, and innovation in our research and development efforts. We work closely with our clients to create and develop new and exciting products. We frequently work directly with our customers in our research and development labs to create innovative solutions that create value for our customers in a timely manner. Our team works closely with physicians to create novel wholesome products that add nutritional and functional value.

•        Ability to market through captive marketing subsidiary.    We believe that our subsidiary, Nexus, allows us access to a broad spectrum of marketing tools to be utilized across the entire spectrum of our products. We believe that having an experienced management team and existing customer base accessible to all of our other brands in our portfolio will allow us to drive sales and revenue of existing products as well as test new product offerings generated through our research and development.

•        Referral only network based on long term relationships.    Nexus operates a referral only network, meaning that all of its publishers are referred. There is no way to get a Nexus account other than being directly referred by a known good account holder. This allows Nexus to stem any fraudulent traffic, which we believe is a substantial competitive advantage for advertisers. Nexus has also established long term relationships with its advertisers and offers competitive bonuses and contests for its affiliate base (publishers) We believe that these factors set Nexus apart from its competition.

Our Growth Strategies

We will strive to grow our business by pursuing the following growth strategies.

•        Acquisition of additional businesses.    Over the next 24 months, we plan to acquire multiple companies aggregating a minimum of $100 million in annualized revenues with the number of prospective acquisitions in the pipeline representing over $50 million in additional revenue. The nutritional products industry is highly fragmented with a large pool of companies generating less than $20 million in revenues representing significant opportunity for industry consolidation. As noted above, we do not currently have sufficient capital to complete these acquisitions. We intend to raise capital for additional acquisitions primarily through debt financing at our operating company level, additional equity offerings by our company, or by undertaking a combination of any of the above. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. There is no guarantee that we will be able to acquire additional businesses under the terms outlined above or that we will be able to find additional acquisition candidates should we terminate our plans for any of our current acquisition targets.

•        Increase sales from existing and new customers.    We expect to continue to drive growth for our consumer products branded business through our increased focus on our top brands and continued expansion in various health and wellness categories, which we expect to result in incremental shelf space with existing customers and new customer additions. We expect that our focus on delivering tangible benefits to consumers through product innovation will not only benefit us but also benefit our customers. Our ability to supply both branded and private label products broadens and deepens our partnerships with key retail customers, providing us more opportunities for category leadership and growth. We view the private label business as an important and valuable service that we provide to key accounts.

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•        Further penetrate international markets.    Our products are currently marketed and sold in the United States and Canada. In fiscal 2020, approximately 18% of our sales (on a pro forma combined basis) were to customers outside the United States. We plan to capitalize on our marketing and distribution capabilities to drive incremental international sales of our consumer product brands in emerging markets, which are characterized by a rising middle class and a strong demand for high quality nutritional and wellness products from U.S.-based manufacturers.

•        Drive productivity through operational efficiencies.    We expect to continue to focus on improving efficiency across our operations to allow us to reduce costs in our manufacturing facilities as well as across our overhead cost areas. Our recent acquisition of Doctors Scientific Organica significantly increased our production capacity. In addition, we have launched an initiative to optimize our product portfolio, which we expect will enable further efficiencies across our manufacturing network. We are also introducing new initiatives that leverage automation, standardization and simplification and are expected to increase productivity across our operations.

Impact of Coronavirus Pandemic

Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world and every state in the United States. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results.

Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. Based on the nature of the business in our facilities in Doral and Riviera Beach, neither facility closed or operated at reduced capacity for our production and packaging operations. However, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit capacity in our facilities in response to guidance from applicable government and public health officials, which could adversely affect our operations and revenues.

In addition, we are dependent upon certain contract manufacturers and suppliers and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain of our manufacturers and suppliers. As a result, we have faced and may continue to face delays or difficulty sourcing certain products and raw materials, which could negatively affect our business and financial results. Even if we are able to find alternate sources for such raw materials, they may cost more, which could adversely impact our profitability and financial condition.

The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact our business and demand for our products. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on our revenue.

The spread of COVID-19 has also adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.

If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, our business operations, including those of our contract manufacturers and suppliers, could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee resources. In addition, our operations could be disrupted if any of our employees were suspected of having COVID-19, which could require quarantine of some or all such employees or closure of our facilities for disinfection. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

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The extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this prospectus, including the effectiveness of vaccines and other treatments for COVID-19, and other new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows. See also “Risk Factors” for more information.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a result, we will be permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

•        have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

•        comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

•        submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

•        disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1.07 billion or more, (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Corporate Information

Our principal executive offices are located at 990 Biscayne Blvd., Suite 503, Miami, Florida 33132, and our telephone number is (786) 749-1221. We maintain a website at www.smartforlifecorp.com. Information available on our website is not incorporated by reference in and is not deemed a part of this prospectus.

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The Offering

Units offered by us:

 

Each unit consists of (i) one share of our common stock (or, at the purchaser’s election, one share of series B convertible preferred stock), (ii) one series A warrant to purchase one share of our common stock at an exercise price equal to $        per share (or 50% of the unit offering price), exercisable until the fifth anniversary of the issuance date, and (iii) one series B warrant to purchase one share of our common stock at an exercise price equal to $        per share (or 100% of the unit offering price), exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions as described herein. Additionally, the holders of series B warrants may exercise such warrants on a “cashless” basis upon the earlier of (i) 10 trading days from the issuance date of such warrant or (ii) the time when $10.0 million of volume is traded in our common stock, if the volume weighted average price, or VWAP, of our common stock on any trading day on or after the date of issuance fails to exceed the exercise price of the series B warrant (subject to adjustment for any stock splits, stock dividends, stock combinations, recapitalizations and similar events). In such event, the aggregate number of shares of common stock issuable in such cashless exercise shall equal the product of (x) the aggregate number of shares of common stock that would be issuable upon exercise of the series B warrant in accordance with its terms if such exercise were by means of a cash exercise rather than a cashless exercise and (y) 1.00. The shares of our common stock and the warrants are immediately separable and will be issued separately but will be purchased together in this offering.

As noted above, we are offering to those purchasers, if any, whose purchase of common stock in this offering would otherwise result in such purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to substitute series B convertible preferred stock for the shares of common stock included in the units purchased by that investor. This prospectus also relates to the offering of shares of common stock issuable upon conversion of the series B convertible preferred stock.

Each share of series B convertible preferred stock is convertible into one share of our common stock (subject to adjustment as provided in the related certificate of designation) at any time at the option of the holder, provided that the holder will be prohibited from converting the series B convertible preferred stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of the total number of shares of our common stock then issued and outstanding. However, any holder may increase such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to us.

In the event of our liquidation, dissolution, or winding up, holders of our series B convertible preferred stock will be entitled to receive the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of series B convertible preferred stock if such shares had been converted to common stock immediately prior to such event (without giving effect for such purposes to any beneficial ownership limitation), subject to the preferential rights of holders of any class or series of our capital stock specifically ranking by its terms senior to the series B convertible preferred stock as to distributions of assets upon such event, whether voluntarily or involuntarily.

The holders of the series B convertible preferred stock have no voting rights, except as required by law. Any amendment to our certificate of incorporation that adversely affects the powers, preferences and rights of the series B convertible preferred stock requires the approval of the holders of a majority of the shares of series B convertible preferred stock then outstanding.

The holders of our series B convertible preferred stock are entitled to receive dividends on shares of series B convertible preferred stock equal (on an as-if-converted-to-common-stock basis, without giving effect for such purposes to

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any beneficial ownership limitation) to and in the same form as dividends actually paid on shares of the common stock when such dividends are specifically declared by our board of directors.

Offering price:

 

We currently estimate that the initial public offering price will be between $    and $         per unit.

Common stock outstanding prior to this offering(1):

 


13,927,223 shares of common stock.

Common stock outstanding after the offering(1)(2):

 


         shares of common stock (or        shares if the underwriters exercise the over-allotment option in full).

____________

(1)      The number of shares of common stock outstanding before and immediately following this offering does not include the following:

•        1,450,000 shares of common stock issuable upon the exercise of outstanding options at an exercise price of $0.01 per share;

•        11,999,404 shares of common stock issuable upon the conversion of our outstanding series A convertible preferred stock;

•        11,999,404 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price per share that is equal to 125% of the initial public offering price for this offering;

•        1,382,441 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price of $0.0001 per share;

•        up to 2,250,000 shares of common stock issuable upon the conversion of 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 that are convertible at the option of the holders into shares of common stock at a conversion price that is equal to 50% of the effective initial public offering price (as described in the debentures); provided that after date on which the registration statement of which this prospectus forms a part is declared effective, the conversion price shall be reduced to the lower of such price and the lowest volume weighted average price during the 10 trading days immediately following the such date; and provided further, that the conversion price shall not be less than $1.00;

•        shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $73,727.01 that is convertible at the option of the holder into shares of common stock at a conversion price that is equal to forty percent (40%) of either (i) the price per share paid by investors in our next priced equity financing, including this offering, or (ii) the volume weighted average price of the common stock for the five trading days from and including the date that the conversion notice is given;

•        shares of common stock issuable upon the exercise of the warrants issued in connection with this offering; and

•        shares of common stock issuable upon the conversion of any shares of series B convertible preferred stock issued in connection with this offering.

(2)      The number of shares of common stock outstanding immediately following this offering includes:

•                 shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $500,000 that will convert concurrent with the closing of this offering at a conversion price equal to 50% of the initial public offering price;

•                 shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $3,000,000 that will convert concurrent with the closing of this offering at a conversion price equal to the initial public offering price;

•                 shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $1,900,000 that will convert concurrent with the closing of this offering at a conversion price equal to the initial public offering price;

•                 shares of common stock to be issued concurrent with the closing of this offering under future equity agreements that we entered into with certain lenders, pursuant to which we agreed to issue to such lenders a number of shares of common stock equal to the stated value described in the future equity agreement, which may be the principal amount of the loan or the principal amount of the loan plus a premium, divided by the initial public offering price, which total stated value, in the aggregate, is $16,825,751;

•                 shares of common stock to be issued concurrent with the closing of this offering under a future equity agreement that we entered into with a lender, pursuant to which we agreed to issue to such lender a number of shares of common stock equal to 75% of all funds advanced by such lender ($1,675,000) divided by the initial public offering price; and

•                 shares of common stock that we have agreed to issue to the former shareholders of GSP Nutrition pursuant to the terms of the contribution and exchange agreement.

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Over-allotment option:

 

We have granted the underwriters an option, exercisable one or more times in whole or in part, to purchase up to 15% of additional shares of common stock and/or series A warrants to purchase up to an aggregate of 15% of additional shares of common stock, and/or series B warrants to purchase up to an aggregate of 15% of additional shares of common stock, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any. See “Underwriting” for additional information.

Because the warrants will not be listed on a national securities exchange or other nationally recognized trading market, the underwriters will be unable to satisfy any overallotment of shares and warrants without exercising the underwriters’ overallotment option with respect to the warrants. As a result, the underwriters will exercise their overallotment option for all of the warrants which are over-allotted, if any, at the time of the initial offering of the shares and the warrants. However, because our common stock is publicly traded, the underwriters may satisfy some or all of the overallotment of shares of our common stock, if any, by purchasing shares in the open market and will have no obligation to exercise the overallotment option with respect to our common stock.

Use of proceeds:

 

We expect to receive net proceeds of approximately $    million from this offering, assuming an initial public offering price of $     per unit (which is the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus) and no exercise of the underwriters’ over-allotment option, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We plan to use the net proceeds of this offering to payoff certain debt and for working capital and general corporate purposes. See “Use of Proceeds” for more information on the use of proceeds.

Risk factors:

 

Investing in our securities involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 24.

Lock-up:

 

We and all of our directors and executive officers have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common stock or securities convertible into or exercisable or exchangeable for our common stock for a period of (i) 12 months after the closing of this offering in the case of our company and (ii) 6 months after the date of this prospectus in the case of our directors and executive officers. See “Underwriting” for more information.

Proposed trading market and symbol:

 


We have applied to list our common stock on Nasdaq under the symbol “        .” The closing of this offering is contingent upon such listing. We do not intend to list the warrants or series B convertible preferred stock on any securities exchange or nationally recognized trading system.

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Summary Financial Information

The following tables summarize certain financial data regarding our business and should be read in conjunction with our financial statements and related notes contained elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

All financial statements included in this prospectus are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP. The summary financial information is only a summary and should be read in conjunction with our historical combined financial statements and related notes contained elsewhere herein. The financial statements contained elsewhere fully represent our financial condition and operations; however, they are not indicative of our future performance.

In accordance with the rules of the U.S. Securities and Exchange Commission, or the SEC, we have not included historical financial statements for GSP Nutrition in this prospectus because the acquisition of GSP Nutrition was not deemed to be significant.

Smart for Life, Inc.

Our summary financial data as of December 31, 2020 and 2019 and for the years then ended are derived from our audited consolidated financial statements included elsewhere in this prospectus. We derived our summary financial data as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020 from our unaudited consolidated financial statements included elsewhere in this prospectus, which include all adjustments, consisting of normal recurring adjustments, that our management considers necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented.

 

Nine Months Ended
September 30,

 

Year Ended
December 31,

   

2021

 

2020

 

2020

 

2019

   

(unaudited)

 

(unaudited)

       

Statements of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

4,794,494

 

 

$

1,406,345

 

 

$

1,959,595

 

 

$

2,364,863

 

Cost of goods sold

 

 

3,328,402

 

 

 

1,232,763

 

 

 

1,831,629

 

 

 

2,316,674

 

Gross profit

 

 

1,466,092

 

 

 

173,582

 

 

 

127,966

 

 

 

48,189

 

Operating expenses

 

 

5,392,865

 

 

 

1,204,756

 

 

 

2,029,700

 

 

 

2,452,092

 

Operating loss

 

 

(3,926,773

)

 

 

(1,031,174

)

 

 

(1,901,734

)

 

 

(2,403,903

)

Total other expense

 

 

(196,116

)

 

 

(394,722

)

 

 

(1,267,284

)

 

 

(611,203

)

Net loss

 

$

(4,122,889

)

 

$

(1,425,896

)

 

$

(3,169,018

)

 

$

(3,015,106

)

 

As of
September 30,
2021

 


As of December 31,

   

2020

 

2019

   

(unaudited)

       

Balance Sheet Data

 

 

   

 

   

 

 

Cash

 

$

690,101

 

$

484,949

 

$

12,212

Total current assets

 

 

4,325,462

 

 

768,217

 

 

716,361

Total assets

 

 

16,301,796

 

 

1,967,369

 

 

2,371,575

Total current liabilities

 

 

11,351,643

 

 

6,960,287

 

 

5,978,164

Total liabilities

 

 

19,550,505

 

 

9,093,195

 

 

6,451,434

Total liabilities and stockholders’ deficit

 

$

16,301,796

 

$

1,967,369

 

$

2,371,575

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Nexus

The summary financial data of Nexus as of December 31, 2020 and 2019 and for the years then ended are derived from the audited financial statements of Nexus included elsewhere in this prospectus. We derived the summary financial data of Nexus as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020 from the unaudited financial statements of Nexus included elsewhere in this prospectus, which include all adjustments, consisting of normal recurring adjustments, that management considers necessary for a fair presentation of the financial position and results of operations of Nexus as of the dates and for the periods presented.

 

Nine Months Ended
September 30,

 

Year Ended
December 31,

   

2021

 

2020

 

2020

 

2019

   

(unaudited)

 

(unaudited)

       

Statements of Operations Data

 

 

 

 

 

 

   

 

 

 

 

 

 

Net sales

 

$

4,238,330

 

 

$

3,876,096

 

$

5,674,946

 

 

$

3,634,159

Cost of goods sold

 

 

3,221,539

 

 

 

2,844,462

 

 

4,353,573

 

 

 

3,109,566

Gross profit

 

 

1,016,791

 

 

 

1,031,634

 

 

1,321,373

 

 

 

524,593

Operating expenses

 

 

914,690

 

 

 

848,474

 

 

1,436,710

 

 

 

437,741

Operating income (loss)

 

 

102,101

 

 

 

183,160

 

 

(115,337

)

 

 

86,852

Income (loss) before income taxes

 

 

102,101

 

 

 

183,160

 

 

(115,337

)

 

 

86,852

Income tax expense

 

 

(3,052

)

 

 

—

 

 

(5,863

)

 

 

—

Net income (loss)

 

$

99,049

 

 

$

183,160

 

$

(121,200

)

 

$

86,852

 

As of
September 30,
2021

 

As of
December 31,

   

2020

 

2019

   

(unaudited)

       

Balance Sheet Data

 

 

   

 

   

 

 

Cash

 

$

44,330

 

$

36,188

 

$

54,917

Total current assets

 

 

169,086

 

 

183,033

 

 

171,526

Total assets

 

 

169,086

 

 

183,033

 

 

171,526

Total current liabilities

 

 

103,396

 

 

216,392

 

 

83,685

Total liabilities

 

 

103,396

 

 

216,392

 

 

83,685

Total liabilities and stockholders’ equity

 

$

169,086

 

$

183,033

 

$

171,526

Doctors Scientific Organica

The summary financial data of Doctors Scientific Organica as of December 31, 2020 and 2019 and for the years then ended are derived from the audited consolidated financial statements of Doctors Scientific Organica included elsewhere in this prospectus.

13

Table of Contents

 

Year Ended December 31,

   

2020

 

2019

Income Statement Data

 

 

 

 

 

 

 

Net sales

 

$

10,782,192

 

 

$

10,048,642

Cost of goods sold

 

 

4,436,389

 

 

 

4,777,392

Gross profit

 

 

6,345,803

 

 

 

5,271,250

Operating expenses

 

 

4,691,117

 

 

 

3,973,143

Operating income

 

 

1,654,686

 

 

 

1,298,107

Total other income (expense)

 

 

(85,307

)

 

 

315,424

Net income

 

$

1,569,379

 

 

$

1,613,531

 

As of December 31,

   

2020

 

2019

Balance Sheet Data

 

 

   

 

 

 

Cash

 

$

—

 

$

82,513

 

Total current assets

 

 

2,154,691

 

 

1,567,988

 

Total assets

 

 

3,139,885

 

 

2,822,810

 

Total current liabilities

 

 

2,160,331

 

 

2,188,673

 

Total liabilities

 

 

2,605,515

 

 

2,861,414

 

Total member’s equity (deficit)

 

 

534,370

 

 

(38,604

)

Total liabilities and member’s equity (deficit)

 

$

3,139,885

 

$

2,822,810

 

14

Table of Contents

Unaudited Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined financial information and related notes present the historical condensed combined financial information of our company after giving effect to the acquisitions of Doctors Scientific Organica that was completed July 1, 2021 and Nexus that was completed on November 8, 2021. The acquisitions were accounted for as business combinations in accordance with the guidance contained in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations, or ASC 805. The unaudited pro forma condensed combined financial information gives effect to the acquisitions of Doctors Scientific Organica and Nexus based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined balance sheet as of September 30, 2021 is presented as if the acquisition of Nexus had occurred on September 30, 2021. The unaudited condensed combined statements of operations for the nine months ended September 30, 2021 and for the year ended December 31, 2020 are presented as if the acquisitions of Doctors Scientific Organica and Nexus had occurred on January 1, 2020.

The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X of the SEC. The unaudited pro forma adjustments reflecting the transaction have been prepared in accordance with the guidance for business combinations presented in ASC 805 and reflect the allocation of our purchase price to the assets acquired and liabilities assumed in the acquisitions based on their estimated fair values. The historical financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (i) directly attributable to the acquisitions; (ii) factually supportable; and (iii) with respect to the condensed combined statements of operations, expected to have a continuing impact on our combined results of operations.

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisitions had been affected on the dates previously set forth, nor is it indicative of the future operating results or financial position in combination. Our purchase price allocation was made using our best estimates of fair value, which are dependent upon certain valuation and other analyses. Further, the unaudited pro forma condensed combined financial information does not give effect to the potential impact of anticipated synergies, operating efficiencies, cost savings or transaction and integration costs that may result from the acquisitions.

The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with the following:

(a)     The unaudited interim condensed consolidated financial statements and related notes of Smart for Life, Inc. for the nine months ended September 30, 2021 and 2020 (which are included elsewhere in this prospectus);

(b)    The audited consolidated financial statements and related notes of Smart for Life, Inc. for the years ended December 31, 2020 and 2019 (which are included elsewhere in this prospectus);

(c)     The unaudited interim financial statements and related notes of Nexus Offers, Inc. for the nine months ended September 30, 2021 and 2020 (which are included elsewhere in this prospectus);

(d)    The audited financial statements and related notes of Nexus Offers, Inc. for the years ended December 31, 2020 and 2019 (which are included elsewhere in this prospectus);

(e)     The unaudited interim financial statements and related notes of Doctors Scientific Organica, LLC for the six months ended June 30, 2021 and 2020 (which are included elsewhere in this prospectus); and

(f)     The audited consolidated financial statements and related notes of Doctors Scientific Organica, LLC for the years ended December 31, 2020 and 2019 (which are included elsewhere in this prospectus).

15

Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2021

 

Historical Information

               
   

Smart for
Life

 

Nexus

 

Combined

 

Pro Forma Adjustments

 

Pro Forma Combined

 

Notes

Current assets:

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Cash

 

$

690,101

 

 

$

44,330

 

$

734,431

 

 

$

—

 

 

$

734,431

 

   

Accounts receivable, net

 

 

160,897

 

 

 

124,756

 

 

285,653

 

 

 

—

 

 

 

285,653

 

   

Inventory

 

 

3,030,957

 

 

 

—

 

 

3,030,957

 

 

 

—

 

 

 

3,030,957

 

   

Related party receivables

 

 

329,883

 

 

 

—

 

 

329,883

 

 

 

—

 

 

 

329,883

 

   

Prepaid expenses and other current assets

 

 

113,624

 

 

 

—

 

 

113,624

 

 

 

—

 

 

 

113,624

 

   

Total current assets

 

 

4,325,462

 

 

 

169,086

 

 

4,494,548

 

 

 

—

 

 

 

4,494,548

 

   
   

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Property and equipment, net

 

 

1,298,451

 

 

 

—

 

 

1,298,451

 

 

 

—

 

 

 

1,298,451

 

   

Intangible assets

 

 

9,848,712

 

 

 

—

 

 

9,848,712

 

 

 

6,037,137

 

 

 

15,885,849

 

 

a

Operating lease right of use asset

 

 

767,294

 

 

 

—

 

 

767,294

 

 

 

—

 

 

 

767,294

 

   

Deposits and other assets

 

 

61,877

 

 

 

—

 

 

61,877

 

 

 

—

 

 

 

61,877

 

   

Total assets

 

$

16,301,796

 

 

$

169,086

 

$

16,470,882

 

 

$

6,037,137

 

 

$

22,508,019

 

   
   

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Current liabilities:

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Accounts payable

 

$

1,928,541

 

 

$

101,628

 

$

2,030,169

 

 

$

—

 

 

$

2,030,169

 

   

Accrued expenses

 

 

1,186,879

 

 

 

1,768

 

 

1,188,647

 

 

 

—

 

 

 

1,188,647

 

   

Related party payable

 

 

83,661

 

 

 

—

 

 

83,661

 

 

 

—

 

 

 

83,661

 

   

Deferred revenues

 

 

225,287

 

 

 

—

 

 

225,287

 

 

 

—

 

 

 

225,287

 

   

Operating lease obligations,
current

 

 

504,541

 

 

 

—

 

 

504,541

 

 

 

—

 

 

 

504,541

 

   

Note payable, current

 

 

7,422,734

 

 

 

—

 

 

7,422,734

 

 

 

—

 

 

 

7,422,734

 

   

Total current liabilities

 

 

11,351,643

 

 

 

103,396

 

 

11,455,039

 

 

 

—

 

 

 

11,455,039

 

   
   

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Long-term liabilities:

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Operating lease obligations, noncurrent

 

 

289,939

 

 

 

—

 

 

289,939

 

 

 

—

 

 

 

289,939

 

   

Note payable, noncurrent

 

 

7,908,923

 

 

 

—

 

 

7,908,923

 

 

 

5,800,000

 

 

 

13,708,923

 

 

c

Total liabilities

 

 

19,550,505

 

 

 

103,396

 

 

19,653,901

 

 

 

5,880,000

 

 

 

25,453,901

 

   
   

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Commitments and contingencies

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   
   

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

   

Preferred stock

 

 

1

 

 

 

—

 

 

1

 

 

 

—

 

 

 

1

 

   

Common stock

 

 

1,387

 

 

 

100

 

 

1,487

 

 

 

(100

)

 

 

1,387

 

 

b

Additional paid-in capital

 

 

8,121,869

 

 

 

—

 

 

8,121,869

 

 

 

—

 

 

 

8,121,869

 

   

Accumulated (deficit)

 

 

(11,371,966

)

 

 

65,590

 

 

(11,306,376

)

 

 

237,237

 

 

 

(11,069,139

)

 

b

Total stockholders’ equity (deficit)

 

 

(3,248,709

)

 

 

65,690

 

 

(3,183,019

)

 

 

237,137

 

 

 

(2,945,882

)

   

Total liabilities and stockholders’ equity
(deficit)

 

$

16,301,796

 

 

$

169,086

 

$

16,470,882

 

 

$

6,037,137

 

 

$

22,508,019

 

   

16

Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

 

Historical Information

               
   

Smart
for Life

 

Doctors
Scientific
Organica
January 1 to
June 30, 2021

 

Nexus

 

Combined

 

Pro
Forma Adjustments

 

Pro
Forma
Combined

 

Notes

Net sales

 

$

4,794,494

 

 

$

4,772,565

 

 

$

4,238,330

 

 

$

13,805,389

 

 

$

—

 

 

$

13,805,389

 

   

Cost of goods sold

 

 

3,328,402

 

 

 

2,042,966

 

 

 

3,221,539

 

 

 

8,592,907

 

 

 

—

 

 

 

8,592,907

 

   

Gross profit

 

 

1,466,092

 

 

 

2,729,599

 

 

 

1,016,791

 

 

 

5,212,482

 

 

 

—

 

 

 

5,212,482

 

   
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

General and administrative

 

 

5,232,937

 

 

 

2,214,741

 

 

 

914,690

 

 

 

8,362,368

 

 

 

—

 

 

 

8,362,368

 

   

Depreciation and amortization expense

 

 

159,928

 

 

 

82,786

 

 

 

—

 

 

 

242,714

 

 

 

2,478,252

 

 

 

2,720,966

 

 

a

Total operating expenses

 

 

5,392,865

 

 

 

2,297,527

 

 

 

914,690

 

 

 

8,605,082

 

 

 

2,478,252

 

 

 

11,083,334

 

   
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Operating (loss) income

 

 

(3,926,773

)

 

 

432,072

 

 

 

102,101

 

 

 

(3,392,600

)

 

 

(2,478,252

)

 

 

(5,870,852

)

   
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Gain on debt extinguishment

 

 

—

 

 

 

842,477

 

 

 

—

 

 

 

842,477

 

 

 

—

 

 

 

842,477

 

   

Other income

 

 

80,311

 

 

 

7,903

 

 

 

—

 

 

 

88,214

 

 

 

—

 

 

 

88,214

 

   

Interest expense

 

 

(276,427

)

 

 

(25,810

)

 

 

—

 

 

 

(302,237

)

 

 

(952,500

)

 

 

(1,254,737

)

 

c

Total other income (expense)

 

 

(196,116

)

 

 

824,570

 

 

 

—

 

 

 

628,454

 

 

 

(952,500

)

 

 

(324,046

)

   

Income (loss) before income taxes

 

 

(4,122,889

)

 

 

1,256,642

 

 

 

102,101

 

 

 

(2,764,146

)

 

 

 

 

 

 

(6,194,898

)

   

Income tax expense

 

 

—

 

 

 

—

 

 

 

(3,052

)

 

 

(3,052

)

 

 

—

 

 

 

(3,052

)

   

Net (loss) income

 

$

(4,122,889

)

 

$

1,256,642

 

 

$

99,049

 

 

$

(2,767,198

)

 

$

(3,430,752

)

 

$

(6,197,950

)

   

Earnings (loss) per share, basic and diluted

 

$

(0.30

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.45

)

   

Weighted average shares outstanding, basic
and diluted

 

 

13,835,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,835,274

 

   

17

Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2020

 

Historical Information

               
   

Smart
for Life

 

Doctors Scientific Organica

 

Nexus

 

Combined

 

Pro
Forma Adjustments

 

Pro
Forma Combined

 

Notes

Net sales

 

$

1,959,595

 

 

$

10,782,192

 

 

$

5,674,946

 

 

$

18,416,733

 

 

$

—

 

 

$

18,416,733

 

   

Cost of goods sold

 

 

1,831,629

 

 

 

4,436,389

 

 

 

4,353,573

 

 

 

10,621,591

 

 

 

—

 

 

 

10,621,591

 

   

Gross profit

 

 

127,966

 

 

 

6,345,803

 

 

 

1,321,373

 

 

 

7,795,142

 

 

 

—

 

 

 

7,795,142

 

   
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

General and administrative

 

 

1,863,087

 

 

 

4,608,331

 

 

 

1,436,710

 

 

 

7,908,128

 

 

 

—

 

 

 

7,908,128

 

   

Depreciation and amortization expense

 

 

166,613

 

 

 

82,786

 

 

 

—

 

 

 

249,399

 

 

 

3,304,337

 

 

 

3,553,736

 

 

a

Total operating expenses

 

 

2,029,700

 

 

 

4,691,117

 

 

 

1,436,710

 

 

 

8,157,527

 

 

 

3,304,337

 

 

 

11,461,864

 

   
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Operating (loss) income

 

 

(1,901,734

)

 

 

1,654,686

 

 

 

(115,337

)

 

 

(362,385

)

 

 

(3,304,337

)

 

 

(3,666,722

)

   
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Other expense

 

 

(14,141

)

 

 

—

 

 

 

—

 

 

 

(14,141

)

 

 

—

 

 

 

(14,141

)

   

Interest expense

 

 

(1,253,143

)

 

 

(85,307

)

 

 

—

 

 

 

(1,338,450

)

 

 

(1,270,000

)

 

 

(2,608,450

)

 

c

Total other income
(expense)

 

 

(1,267,284

)

 

 

(85,307

)

 

 

—

 

 

 

(1,352,591

)

 

 

(1,270,000

)

 

 

(2,622,591

)

   

Income (loss) before income taxes

 

 

(3,169,018

)

 

$

1,569,379

 

 

 

(115,337

)

 

 

(1,714,976

)

 

 

(4,574,337

)

 

 

(6,289,313

)

   

Income tax expense

 

 

—

 

 

 

—

 

 

 

(5,863

)

 

 

(5,863

)

 

 

—

 

 

 

(5,863

)

   

Net income (loss)

 

$

(3,169,018

)

 

$

1,569,379

 

 

$

(121,200

)

 

$

(1,720,839

)

 

$

(4,574,337

)

 

$

(6,295,176

)

   
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Earnings (loss) per share, basic and diluted

 

$

(0.53

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1.04

)

   

Weighted average shares outstanding, basic and diluted

 

 

6,031,685

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,031,685

 

   

18

Table of Contents

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1.    Basis of Pro Forma Presentation

On February 11, 2020, we entered into securities purchase agreement, which was amended on July 7, 2020 and June 4, 2021, to acquire Doctors Scientific Organica. On July 1, 2021, the acquisition was completed.

On July 21, 2021, we entered into a securities purchase agreement, which was amended on November 8, 2021, to acquire Nexus. On November 8, 2021, the acquisition was completed.

The unaudited pro forma condensed combined balance sheet at September 30, 2021 combines our historical condensed consolidated balance sheet with the historical condensed balance sheet of Nexus as if the acquisition had occurred on that date. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and for the year ended December 31, 2020 combine our historical condensed consolidated statements of operations with the condensed consolidated statements of operations of Doctors Scientific Organica and Nexus as if the acquisitions had occurred on January 1, 2020. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (i) directly attributable to the acquisitions; (ii) factually supportable; and (iii) with respect to the condensed combined statements of operations, expected to have a continuing impact on our combined results.

2.    Consideration Transferred

Doctors Scientific Organica

Pursuant to the terms of the securities purchase agreement, we paid $6,000,000 in cash and issued two promissory notes to the member of Doctors Scientific Organica. The first promissory note is a convertible promissory note in the principal amount of $3,000,000 that bears interest at an annual rate of 6% and the second promissory note is also in the principal amount of $3,000,000, is not convertible, and bears interest at an annual rate of 6%.

The table below summarizes the value of the total consideration given in the transaction.

 

Amount

Cash issued

 

$

6,000,000

Debt issued

 

 

6,000,000

Total consideration

 

$

12,000,000

Nexus

Pursuant to the terms of the securities purchase agreement, we paid $2,200,000 in cash and issued two promissory notes to the stockholders of Nexus. The first promissory note is a convertible promissory note in the principal amount of $1,900,00 that bears interest at an annual rate of 5% and the second promissory note is also in the principal amount of $1,900,000, is not convertible, and bears interest at an annual rate of 5%.

The table below summarizes the value of the total consideration given in the transaction.

 

Amount

Cash issued

 

$

2,200,000

Debt issued

 

 

3,800,000

Total consideration

 

$

6,000,000

3.    Purchase Price Allocation

Under the acquisition method of accounting outlined in ASC 805, the identifiable assets acquired and liabilities assumed in the acquisitions are recorded at their acquisition-date fair values and are included in our company’s consolidated financial position. Our unaudited pro forma adjustments are based on the fair value for all assets acquired and liabilities assumed to illustrate the estimated effect of the acquisitions on our condensed consolidated balance sheet at September 30, 2021.

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As part of the acquisitions, we are not assuming any of the debt associated with Doctors Scientific Organica or Nexus, except for accounts payable balances, the operating lease obligations, and the loans obtained under the CARES Act. Accordingly, the debt of Doctors Scientific Organica and Nexus as reported within the proforma balance sheet is excluded from the consolidated balance sheet on a proforma basis.

The following table summarizes the purchase price allocation for the assets acquired and liabilities assumed in connection with the acquisition of Doctors Scientific Organica.

 

Amount

Tangible assets acquired

 

$

3,497,511

 

Liabilities assumed

 

 

(1,102,057

)

Intangible assets

 

 

9,604,546

 

Net assets acquired

 

$

12,000,000

 

The following table summarizes the purchase price allocation for the assets acquired and liabilities assumed in connection with the acquisition of Nexus.

 

Amount

Tangible assets acquired

 

$

44,330

 

Liabilities assumed

 

 

(81,467

)

Intangible assets

 

 

6,037,137

 

Net assets acquired

 

$

6,000,000

 

4.    Pro Forma Adjustments

The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:

(a)     Adjustment to reflect the fair value of the intangible assets acquired in the acquisitions.

The intangible assets acquired from Doctors Scientific Organica have estimated values of:

     

Amount

Non-compete agreements

 

$

540,000

Customer contracts

 

 

6,723,182

Intellectual property

 

 

2,341,364

Total intangible assets

 

$

9,604,546

The estimated useful lives of the acquired intangible assets and the estimated amortization for the periods ended December 31, 2020 and September 30, 2021 are as follows:

 

Asset

 

Useful life (months)

 

Amortization for the year ended December 31, 2020

 

Amortization for the nine months ended September 30, 2021

Non-compete agreements

 

36

 

$

180,000

 

$

135,000

Customer contracts

 

60

 

 

1,344,636

 

 

1,008,477

Intellectual property

 

60

 

 

468,273

 

 

351,205

Total

     

$

1,992,909

 

$

1,494,682

The intangible assets acquired from Nexus have estimated values of:

     

Amount

Non-compete agreements

 

$

780,000

Customer contracts

 

 

5,257,137

Total intangible assets

 

$

6,037,137

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The estimated useful lives of the acquired intangible assets and the estimated amortization for the periods ended December 31, 2020 and September 30, 2021 are as follows:

 

Asset

 

Useful life
(months)

 

Amortization for the year
ended December 31, 2020

 

Amortization for the nine months ended September 30,
2021

Non-compete agreements

 

36

 

$

260,000

 

$

195,000

Customer contracts

 

60

 

 

1,051,427

 

 

788,571

Total

     

$

1,311,427

 

$

983,571

(b)    Adjustment to reflect the elimination of the ownership interest in Nexus acquired from the sellers.

(c)     Adjustment to reflect the interest associated with the note payables associated with the acquisitions of Doctors Scientific Organica and Nexus.

Pursuant to the terms of the Doctors Scientific Organica securities purchase agreement, the purchase price consisted of a combination of a cash payment and a note payable to the seller. The interest rate associated with the note is 6%.

Our company obtained a loan in the principal amount of $3,000,000 from an institutional lender in order to partially finance the Doctors Scientific Organica acquisition. The interest rate associated with this loan is 15% per annum.

The computed interest expense which would have been incurred had the acquisition occurred at the beginning of the respective fiscal periods is included and netted against the eliminated debt interest of Doctors Scientific Organica.

Pursuant to the terms of the Nexus securities purchase agreement, the purchase price consisted of a combination of a cash payment and notes payable to the sellers. The interest rate associated with the note is 5%.

Our company entered into a securities purchase agreement with certain investors in order to partially finance the Nexus acquisition, pursuant to which we sold 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 to such investors for gross proceeds of $2,250,000.

The following table summarized the interest expense calculations presented in the respective periods.

Acquisition

 

Debt

 

Interest
Rate

 

Interest
Expense at
September 30,
2021

 

Interest
Expense at
December 31,
2020

Doctors Scientific Organica

 

$

6,000,000

 

6

%

 

$

270,000

 

$

360,000

Doctors Scientific Organica

 

$

3,000,000

 

15

%

 

$

337,500

 

$

450,000

Nexus

 

$

2,250,000

 

12

%

 

$

202,500

 

$

270,000

Nexus

 

$

3,800,000

 

5

%

 

$

142,500

 

$

190,000

Total

 

 

     

 

 

$

952,500

 

$

1,270,000

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Summary of Risk Factors

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

•        We are an early-stage company with a limited operating history.

•        The COVID-19 pandemic may cause a material adverse effect on our business.

•        Our acquisitions may result in significant transaction expenses, integration and consolidation risks, and we may be unable to profitably operate our consolidated company.

•        Our ability to obtain continued financing is critical to the growth of our business. We will need additional financing to fund operations, which additional financing may not be available on reasonable terms or at all.

•        Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could have a material adverse effect on our business.

•        Our success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.

•        We operate in highly competitive and fast-evolving industries, and our failure to compete effectively could affect our market share, financial condition and growth prospects adversely.

•        Our major customers account for a significant portion of our consolidated net sales and the loss of any major customer could have a material adverse effect on our results of operations.

•        If we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.

•        We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

•        We rely on our manufacturing operations to produce the vast majority of the nutritional supplements that we sell, and disruptions in our manufacturing system or losses of manufacturing certifications could affect our results of operations adversely.

•        We are also dependent on certain third-party contract manufacturers and suppliers.

•        An increase in the price and shortage of supply of key raw materials could adversely affect our business.

•        Our expansion into new business lines and services may result in unseen risks, challenges and uncertainties.

•        Privacy protection is increasingly demanding, and we may be exposed to risks and costs associated with security breaches, data loss, credit card fraud and identity theft that could cause us to incur unexpected expenses and loss of revenue, suffer reputational harm with our customers, as well as other risks.

•        Assertions by third parties of infringement, misappropriation or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.

•        We may be required to indemnify our vendors and/or customers, the payment of which could have a material adverse effect on our business, financial condition and operating results.

•        Compliance with new and existing laws and governmental regulations could increase our costs significantly and adversely affect our results of operations.

•        Our failure to comply with FTC regulations could result in substantial monetary penalties and could adversely affect our operating results.

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•        Our operations are subject to environmental and health and safety laws and regulations that may increase our cost of operations or expose us to environmental liabilities.

•        Economic, political and other risks associated with our international operations could adversely affect our revenues and international growth prospects.

•        We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective.

•        We may not be able to satisfy listing requirements of Nasdaq or obtain or maintain a listing of our common stock on Nasdaq.

•        There is no public market for the series A warrants or series B warrants being offered.

•        Our management has broad discretion as to the use of the net proceeds from this offering allocated to working capital and general corporate purposes.

•        You will experience immediate and substantial dilution as a result of this offering.

•        An investment in this offering may result in uncertain U.S. federal income tax consequences.

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RISK FACTORS

An investment in our securities involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this prospectus, before purchasing our securities. We have listed below (not necessarily in order of importance or probability of occurrence) what we believe to be the most significant risk factors applicable to us, but they do not constitute all of the risks that may be applicable to us. Any of the following factors could harm our business, financial condition, results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section titled “Cautionary Statement Regarding Forward-Looking Statements”.

Risks Related to Our Business and Industry

We are an early-stage company with a limited operating history.

We were organized as a Delaware corporation in February 2017. We have a limited history upon which you can evaluate our business and prospects. Our prospects must be considered in light of the risks encountered by companies in the early stages of development in highly competitive markets, particularly the markets for nutraceuticals and related products. You should consider the frequency with which early-stage businesses encounter unforeseen expenses, difficulties, complications, delays and other adverse factors. These risks are described in more detail below.

We have only recently become profitable as the result of our acquisition of Doctors Scientific Organica, but we cannot guarantee that we will remain profitable, and we may be unable to effectively implement our business model.

We have only recently become profitable as the result of our acquisition of Doctors Scientific Organica. We cannot assure you that we will continue to operate profitably or that we will have adequate working capital to meet our obligations as they become due especially given that we will incur additional expenses relating to becoming a public reporting company. Management believes that our success will depend on our ability to successfully complete additional acquisitions of profitable nutraceutical companies and related products as well as develop our own brands. We cannot guarantee that we will be successful in completing planned acquisitions or any other companies or products, that we will successfully integrate acquired companies, or that we will be able to successfully develop our own brands. We cannot assure you that even if we are successful in completing the acquisitions or in developing our own branded products, we will be successful in profitably managing such companies, acquired assets and brands. We cannot assure you that we will maintain profitability for any period of time or that investors will not lose their entire investment.

The COVID-19 pandemic may cause a material adverse effect on our business.

The COVID-19 pandemic continues to rapidly evolve. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results.

Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. Based on the nature of the business in our facilities in Doral and Riviera Beach, neither facility closed or operated at reduced capacity for our production and packaging operations. However, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit capacity in our facilities in response to guidance from applicable government and public health officials, which could adversely affect our operations and revenues.

In addition, we are dependent upon certain contract manufacturers and suppliers and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain of our manufacturers and suppliers. As a result, we have faced and may continue to face delays or difficulty sourcing certain products and raw materials, which could negatively affect our business and financial results. Even if we are able to find alternate sources for such raw materials, they may cost more, which could adversely impact our profitability and financial condition.

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The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact our business and demand for our products. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on our revenue.

The spread of COVID-19 has also adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.

If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, our business operations, including those of our contract manufacturers and suppliers, could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee resources. In addition, our operations could be disrupted if any of our employees were suspected of having COVID-19, which could require quarantine of some or all such employees or closure of our facilities for disinfection. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

The extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this prospectus, including the effectiveness of vaccines and other treatments for COVID-19, and other new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

If we fail to implement our business plan and complete acquisitions as planned, our mission will fail and our business will suffer accordingly.

Our mission is the creation of a world-class nutraceutical company engaged in the development, manufacture and sales of quality nutraceutical and related health and lifestyle products for distribution to an expanding global marketplace. We expect that our holding company strategy through which we plan to acquire profitable but undervalued target companies and products will enable us to accelerate the development and expansion of our product portfolio, manufacturing capacity and distribution channels. If we are unable execute our strategy of completing acquisitions as planned, including the four planned acquisition currently in our M&A pipeline, we will not be able to fulfill our mission or grow our business.

Our acquisitions may result in significant transaction expenses, integration and consolidation risks, and we may be unable to profitably operate our consolidated company.

We are structured as a holding company and we have executed a buy and hold strategy. We are engaged in the business of acquisition, operation and management of nutraceutical and related products. Our acquisitions may result in significant transaction expenses and present new risks associated with entering additional markets or offering new products and services and integrating the acquired companies. We may not have sufficient management, financial and other resources to integrate companies we acquire or to successfully operate new businesses and we may be unable to profitably operate our expanded company. Moreover, any new businesses that we may acquire, once integrated with our existing operations, may not produce expected or intended results.

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We may not be able to manage future growth effectively.

We expect to continue to experience significant growth. Should we keep growing rapidly, our financial, management and operating resources may not expand sufficiently to adequately manage our growth. If we are unable to manage our growth, our costs may increase disproportionately, our future revenues may not grow or may decline, and we may face dissatisfied customers. Our failure to manage our growth may adversely impact our business and the value of your investment.

Our ability to obtain continued financing is critical to the growth of our business. We will need additional financing to fund operations, which additional financing may not be available on reasonable terms or at all.

Our future growth, including the potential for future market expansion will require additional capital. We will consider raising additional funds through various financing sources, including the procurement of commercial debt financing. However, there can be no assurance that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to execute our growth strategy, and operating results may be adversely affected. Any additional debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility.

Our ability to obtain financing may be impaired by such factors as the capital markets, both generally and specifically in our industry, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, are not sufficient to satisfy our capital needs, we may be required to decrease the pace of, or eliminate, our future product offerings and market expansion opportunities and potentially curtail operations.

Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could have a material adverse effect on our business.

We believe the nutritional supplement market is highly dependent upon consumer perception regarding the safety, efficacy and quality of nutritional supplements generally, as well as of products distributed specifically by us. Consumer perception of our products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, national media attention and other publicity regarding the consumption of nutritional supplements. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the nutritional supplement market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and our business, results of operations, financial condition and cash flows. Our dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on us, the demand for our products, and our business, results of operations, financial condition and cash flows. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of nutritional supplements in general, or our products specifically, or associating the consumption of nutritional supplements with illness, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed.

Our success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.

An adverse change in size or growth rate of the vitamin, mineral and supplement market could have a material adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences, the impact of COVID-19 and other factors that are beyond our control, including media attention and scientific research, which may be positive or negative.

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General economic conditions, including a prolonged macroeconomic downturn, may negatively affect consumer purchases, which could adversely affect our sales, as well as our ability to access credit on terms previously obtained.

Our results are dependent on a number of factors impacting consumer spending, including general economic and business conditions; consumer confidence; wages and employment levels; the housing market; consumer debt levels; availability of consumer credit; credit and interest rates; fuel and energy costs; energy shortages; taxes; and general political conditions, both domestic and abroad. Consumer product purchases, including purchases of our products, may decline during recessionary periods. A prolonged downturn or an uncertain outlook in the economy may materially adversely affect our business, revenues and profits and the market price of our common stock, and we cannot be certain that funding for our capital needs will be available from our existing financial institutions and the credit markets if needed, and if available, to the extent required and on acceptable terms. If we cannot obtain funding when needed, in each case on acceptable terms, we may be unable to adequately fund our operating expenses and fund required capital expenditures, which may have an adverse effect on our revenues and results of operations.

We operate in highly competitive and fast-evolving industries, and our failure to compete effectively could affect our market share, financial condition and growth prospects adversely.

The markets in which we operate are characterized by rapid technological changes, frequent new product introductions, established and emerging competition, extensive intellectual property disputes and litigation, price competition, aggressive marketing practices, evolving industry standards and changing customer preferences. Accordingly, our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies operating in rapidly changing and competitive markets.

The nutritional supplement industry is a large and growing industry and is highly fragmented in terms of both geographical market coverage and product categories. The market for nutritional supplements is highly competitive in all our channels of distribution. We compete with companies that may have broader product lines or larger sales volumes, or both, than we do, and our products compete with nationally advertised brand name products. These national brand companies have resources greater than ours. Numerous companies compete with us in the development, manufacture and marketing of nutritional supplements worldwide. The market is highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market. We also may face competition from low-cost entrants to the industry, including from international markets. Increased competition from companies that distribute through the wholesale channel, especially the private label market, could have a material adverse effect on our business, results of operations, financial condition and cash flows as these competitors may have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities far greater than ours. We are also subject to competition in the attraction and retention of employees. Many of our competitors have greater financial resources and can offer employees compensation packages with which it is difficult for us to compete.

As a result of our acquisition of Nexus, we have also entered the digital marketing industry as a way to promote and sell the products and brands that we sell. We compete with other advertising service providers that may reach our target audience by means that are more effective than our services. Further, if such other providers of advertising have a long operating history, large product and service suites, more capital resources and broad international or local recognition, our operating results may be adversely affected if we cannot successfully compete.

The digital advertising market is rapidly developing. Accordingly, the development of the markets in which we operate makes it difficult to evaluate the viability and sustainability of our business and its acceptance by advertisers and clients. We cannot assure you that we will be profitable every year. We expect that our operating expenses will increase as we expand. Any significant failure to realize anticipated revenue growth could result in operating losses.

We may not be able to compete effectively in some or all our markets, and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to compete effectively could have a material adverse effect on our market share, business, results of operations, financial condition, cash flows and growth prospects.

Our major customers account for a significant portion of our consolidated net sales and the loss of any major customer could have a material adverse effect on our results of operations.

During fiscal 2020 and 2019, Amazon, individually, accounted for 28% and 24% of Doctors Scientific Organica’s net sales, respectively, and 16% and 15% of our pro forma combined net sales, respectively. Additionally, for fiscal 2020, our other significant customer, Costco, individually accounted for 30% of the net sales and 18% of our pro forma combined net sales.

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During fiscal 2020 and 2019, Nexus had four and two significant customers representing a total of 54% and 21% of net sales, respectively, and 17% and 5% of our pro forma combined net sales, respectively.

We do not have a long-term contract with any major customer, and the loss of any major customer could have a material adverse effect on our results of operations. In addition, our results of operations and ability to service our debt obligations would be impacted negatively to the extent that any major customer is unable to make payments to us or does not make timely payments on outstanding accounts receivables.

Failure to develop new products and production technologies or to implement productivity and cost reduction initiatives successfully may harm our competitive position.

Our business depends significantly on the development of commercially viable new products as well as process technologies. If we are unsuccessful in developing new products and production processes in the future, our competitive position and results of operations may be negatively affected. However, as we invest in new technology, we face the risk of unanticipated operational or commercialization difficulties, including an inability to obtain necessary permits or governmental approvals, the development of competing technologies, failure of facilities or processes to operate in accordance with specifications or expectations, construction delays, cost over-runs, the unavailability of financing, required materials or equipment and various other factors. Likewise, our initiatives to improve productivity and performance and to generate cost savings may not be completed or beneficial or the estimated cost savings from such activities may not be realized.

Resources devoted to product innovation may not yield new products that achieve commercial success.

The development of new and innovative products requires significant investment in research and development and testing of new ingredients, formulas and possibly new production processes. The research and development process can be expensive and prolonged and entails considerable uncertainty. Products may appear promising in development but fail to reach market within the expected time frame, or at all. We may face significant challenges with regard to a key product launch. Further, products also may fail to achieve commercial viability due to pricing competitiveness with other retailers, failure to timely bring the product to market, failure to differentiate the product with our competitors and other reasons. Finally, there is no guarantee that our development teams will be able to successfully respond to competitive products that could render some of our offerings obsolete. Development of a new product, from discovery through testing to the store shelf, typically takes between four to seven months, but may require an even longer timeline if clinical trials are involved. Each of these time periods can vary considerably from product to product and therefore the costs and risks of producing a commercially viable product can increase significantly as time passes.

Our failure to appropriately respond to changing consumer preferences and demand for new products and services could harm our customer relationships and product sales significantly.

The nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions. Our failure to accurately predict these trends could negatively impact consumer opinion of us as a source for the latest products, which, in turn, could harm our customer relationships and cause decreases in our net sales. The success of our new product offerings depends upon a number of factors, including our ability to:

•        accurately anticipate customer needs;

•        innovate and develop new products;

•        successfully commercialize new products in a timely manner;

•        price our products competitively;

•        manufacture and deliver our products in sufficient volumes and in a timely manner; and

•        differentiate our product offerings from those of our competitors.

If any new products fail to gain market acceptance, are restricted by regulatory requirements or have quality problems, this would harm our results of operations. If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could be rendered obsolete, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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If we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.

We may be exposed to product recalls and adverse public relations if our products are mislabeled or alleged to cause injury or illness, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

As a manufacturer and distributor of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, dietary supplements and other ingredients that are classified as foods and dietary supplements, and, in most cases, are not necessarily subject to pre-market regulatory approval in the United States. Some of our products contain innovative ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, some of the products we sell are produced by third-party manufacturers. As a marketer of products manufactured by third parties, we also may be liable for various product liability claims for products we do not manufacture. We have been in the past, and may be in the future, subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. A product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which, in turn, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Insurance coverage, even where available, may not be sufficient to cover losses we may incur.

Our business exposes us to the risk of liabilities arising from our operations. For example, we may be liable for claims brought by users of our products or by employees, customers or other third parties for personal injury or property damage occurring in the course of our operations. We seek to minimize these risks through various insurance contracts from third-party insurance carriers. However, our insurance coverage is subject to large individual claim deductibles, individual claim and aggregate policy limits, and other terms and conditions. We retain an insurance risk for the deductible portion of each claim and for any gaps in insurance coverage. We do not view insurance, by itself, as a material mitigant to these business risks.

We cannot assure that our insurance will be sufficient to cover our losses. Any losses that insurance does not substantially cover could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We rely on our manufacturing operations to produce the vast majority of the nutritional supplements that we sell, and disruptions in our manufacturing system or losses of manufacturing certifications could affect our results of operations adversely.

We currently operate manufacturing facilities in Doral and Riviera Beach, Florida. All our domestic and foreign operations manufacturing products for sale to the United States are subject to good manufacturing practices, or GMPs, promulgated by the FDA and other applicable regulatory standards, including in the areas of environmental protection and worker health and safety. Any significant disruption in our operations at any of these facilities, including any disruption due to any regulatory requirement, could affect our ability to respond quickly to changes in consumer demand and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Additionally, we may be exposed to risks relating to the transfer of work between facilities or risks associated with opening new facilities or closing existing facilities that may cause a disruption in our operations. Although we have implemented GMPs in our facilities, there can be no assurance that products manufactured in our plants will not be contaminated or otherwise fail to meet our quality standards. Any such contamination or other quality failures could result in costly recalls, litigation, regulatory actions or damage to our reputation, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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We are also dependent on certain third-party contract manufacturers and suppliers.

Some of our own brand of vitamins and supplements, as well as the products we sell under the Sports Illustrated Nutrition brand, are produced by third party contract manufacturers. We also purchase certain important ingredients and raw materials from third-party suppliers. The principal raw materials required in our operations are vitamins, minerals, herbs, gelatin and packaging components. Real or perceived quality control problems with products manufactured by contract manufacturers or raw materials outsourced from certain suppliers could negatively impact consumer confidence in our products, or expose us to liability. In addition, disruption in the operations of any such manufacturer or supplier or material increases in the price of raw materials, for any reason, such as changes in economic and political conditions, tariffs, trade disputes, regulatory requirements, import restrictions, loss of certifications, power interruptions, fires, hurricanes, drought or other climate-related events, war or other events, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Natural disasters (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, terrorist acts and global political events could cause permanent or temporary facility closures, impair our ability to purchase, receive or replenish raw materials or cause customer traffic to decline, all of which could result in lost sales and otherwise adversely affect our financial performance.

The occurrence of one or more natural disasters, such as hurricanes, fires, floods and earthquakes (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks (including the recent outbreak of COVID-19), terrorist acts or disruptive global political events, such as civil unrest in locations where our facilities, contract manufacturers or suppliers are located, or similar disruptions could adversely affect our operations and financial performance. To the extent these events result in the closure of one or more of our manufacturing facilities or our corporate headquarters, or impact one or more of our contract manufacturers or key suppliers, our operations and financial performance could be materially adversely affected through lost sales. In addition, these events could result in increases in fuel (or other energy) prices or a fuel shortage, the temporary lack of an adequate work force in a market, the temporary or long-term disruption in the supply of products from some local and overseas suppliers, the temporary disruption in the transport of goods from overseas, delay in the delivery of goods to our customers, the temporary reduction in the availability of our products, expiration of inventory, future long-lived asset impairment charges and disruption to our information systems. These events also could have indirect consequences, such as increases in the cost of insurance, if they were to result in significant loss of property or other insurable damage.

An increase in the price and shortage of supply of key raw materials could adversely affect our business.

Our products are composed of certain key raw materials. If the prices of these raw materials were to increase significantly, the costs to manufacture our products or to purchase products from our contract manufacturers could increase significantly and we may not be able to pass on such increases to our customers. Additionally, in the event any of our, or our contract manufacturer’s, third-party suppliers or vendors become unable or unwilling to continue to provide raw materials in the required volumes and quality levels or in a timely manner, we, or our contract manufacturers, would be required to identify and obtain acceptable replacement supply sources. If we, or they, are unable to identify and obtain alternative supply sources in a timely manner or at all, our business could be adversely affected. A significant increase in the price of raw materials that cannot be passed on to customers could have a material adverse effect on our results of operations and financial condition. Events such as COVID-19, the threat of political or social unrest, or the perceived threat thereof, may also have a significant impact on raw material prices and transportation costs for our products. In addition, the interruption in supply of certain key raw materials essential to the manufacturing of our products may have an adverse impact on us and our suppliers’ ability to provide us with the necessary products needed to maintain our customer relationships and an adequate level of sales.

General trade tensions between the U.S. and China have been escalating since 2018, with multiple rounds of U.S. tariffs on Chinese goods taking effect, with some subsequently being de-escalated. Furthermore, China or other countries may institute retaliatory trade measures in response to existing or future tariffs imposed by the U.S. that could have a negative impact on our business. If any of these events continue as described, we may need to seek alternative suppliers or vendors, raise prices, or make changes to our operations, any of which could have a material adverse effect on our sales and profitability, results of operations and financial condition.

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Our expansion into new business lines and services may result in unseen risks, challenges and uncertainties.

As a result of our acquisition of Nexus in November 2021, we have entered the digital marketing business as a way to promote and sell the products and brands that we sell. Such acquisition may result in unseen risks, challenges and uncertainties. We may incur additional capital expenditure to support the expansion of our business and there is no guarantee that we may increase our revenues generated from such new business. Also, our failure to manage costs and expenses and evaluate consumer demands with respect to such new business could materially and adversely affect the prospects of us achieving overall profitability of and recouping our investments in this new business line. Moreover, this new business line may require significant managerial, financial, operational and other resources, as well as the smooth cooperation with our company. We may also face higher regulatory, legal and counterparty risks from entering this business. If we fail to manage the development of this new business line successfully, our growth potential, business and results of operations may be materially and adversely affected.

Declines in foot traffic, rising real estate prices and other costs and risks relating to operating a brick and mortar retail store could affect our results.

On August 24, 2021, we established Smart for Life Canada Inc. as a wholly owned subsidiary of Doctors Scientific Organica in Canada. This subsidiary sells retail products through a retail store location in Montreal Canada and the same location also acts as distribution center for our international direct to consumer and big box customers.

The success of our retail store is affected by (1) the location of the store; (2) surrounding tenants or vacancies; (3) increased competition in the area where the store is located; (4) the amount spent on advertising and promotion to attract consumers to the store; and (5) a shift towards online shopping resulting in a decrease in retail store traffic. Declines in consumer traffic could have a negative impact on our net sales and could materially adversely affect our financial condition and results of operations. Furthermore, declines in traffic could result in store impairment charges if expected future cash flows of the related asset group do not exceed the carrying value.

We rent this store under a three-year lease agreement ending in September 2024. If we fail to negotiate appropriate terms for new leases or lease renewals, we may incur lease costs that are excessive and cause operating margins to be below acceptable levels. We may also make term commitments that are too long or too short, without the option to exit early or extend. Factors such as the condition of local property markets, availability of lease financing, taxes, zoning and environmental issues, and competitive actions may impact the availability of, and our ability to successfully negotiate, leases. Furthermore, the success of the store depends on a number of factors, including the success of the shopping center where our store is located, consumer demographics and consumer shopping patterns. These factors cannot be predicted with complete accuracy. If we fail to profitably operate this new store, our financial performance could be adversely affected.

Our success is dependent on the accuracy, reliability, and proper use of sophisticated and dependable information processing systems and management information technology and any interruption in these systems could have a material adverse effect on our business, financial condition, and results of operations.

Our success is dependent on the accuracy, reliability, and proper use of sophisticated and dependable information processing systems and management information technology. Our information technology systems are designed and selected to facilitate order entry and customer billing, maintain customer records, accurately track purchases, manage accounting, finance and manufacturing operations, generate reports, and provide customer service and technical support. Any interruption in these systems or any interruption associated with the transition of these systems to a new information technology platform could have a material adverse effect on our business, financial condition, and results of operations.

System interruptions or security breaches may affect sales.

Customer access to, and ability to use, our websites affects our sales. If we are unable to maintain and continually enhance the efficiency of our systems, we could experience system interruptions or delays that could affect our operating results negatively. In addition, we could be liable for breaches of security on our websites, loss or misuse of our customers’ personal information or payment data. Although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to prevent or mitigate such fraud or breaches may negatively affect our operating results.

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We must successfully maintain and/or upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition or results of operations.

We rely on various information technology systems to manage our operations. Recently, we have implemented, and we continue to implement, modifications and upgrades to such systems and acquired new systems with new functionality. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have a material adverse effect on our business, financial condition or results of operations.

Privacy protection is increasingly demanding, and we may be exposed to risks and costs associated with security breaches, data loss, credit card fraud and identity theft that could cause us to incur unexpected expenses and loss of revenue, suffer reputational harm with our customers, as well as other risks.

The protection of customer, employee, vendor and other business data is critical to us. We receive confidential customer data, including payment card and personally identifiable information, in the normal course of customer transactions. In order for our sales channels to function, we and other parties involved in processing customer transactions must be able to transmit confidential information, including credit card information, securely over public networks. While we have taken significant steps to protect customer and confidential information, the intentional or negligent actions of employees, business associates or third parties may undermine our security measures and result in unauthorized parties obtaining access to our data systems and misappropriating confidential data. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other developments will prevent a compromise of our customer transaction processing capabilities and personal data. Because the techniques used to obtain unauthorized access to, disable, degrade, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any compromise of our data security could result in a violation of applicable privacy and other laws or standards, significant legal and financial exposure beyond the scope or limits of our insurance coverage, interruption of our operations, increased operating costs associated with remediation, equipment acquisitions or disposal, added personnel, and a loss of confidence in our security measures, which could harm our business or investor confidence. Any security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could attract a substantial amount of media attention, damage our reputation, expose us to risk of litigation and material liability, disrupt our operations and harm our business.

Federal, state, provincial and international laws and regulations govern the collection, retention, sharing and security of data that we receive from and about our employees, customers and vendors. The regulatory environment surrounding information security and privacy has been increasingly demanding in recent years, including the recent implementation of the California Consumer Privacy Act. In Canada, we are subject to Canada’s Personal Information and Protection of Electronic Documents Act, which provides Canadian residents with privacy protections and sets out rules for how companies may collect, use and disclose personal information in the course of commercial activities. The costs of compliance with, and other burdens imposed by, these and other international data privacy and security laws may limit our business and services and could have a materially adverse impact on our business.

We believe that we are in material compliance with all laws, regulations and self-regulatory regimes that are applicable to us. However, the laws, regulations, and self-regulatory regimes may be modified, and new laws may be enacted in the future that may apply to us and affect our business. Further, data protection authorities may interpret existing laws in new ways. We may deploy new services from time to time, which may also require us to change our compliance practices. Any such developments (or developments stemming from enactment or modification of other laws) or the failure to anticipate accurately the application or interpretation of these laws could create liability for us, result in adverse publicity, increase our future compliance costs, make our products and services less attractive to our customers, or cause us to change or limit our business practices, and materially affect our business and operating results. Further, any failure or perceived failure by us or third-party service providers to comply with international data privacy and security laws may lead to regulatory enforcement actions, fines, private lawsuits or reputational damage.

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We may not be able to protect our intellectual property rights.

We regard our trademarks, service marks, copyrights, patents, trade secrets, proprietary technologies, domain names and similar intellectual property as important to our success. We rely on trademark, copyright and patent law, trade secret protection and confidentiality agreements with our future employees, consultants, vendors, customers and others to protect our proprietary rights. Many of the trademarks that we use contain words or terms having a somewhat common usage and, as a result, we may have difficulty registering them in certain jurisdictions. We have not yet obtained registrations for our most important marks. If other companies have registered or have been using in commerce similar trademarks for products similar to ours, we may have difficulty in registering, or enforcing an exclusive right to use, our marks.

There can be no assurance that our efforts to protect our proprietary rights will be sufficient or effective, that any pending or future patent and trademark applications will lead to issued patents and registered trademarks in all instances, that others will not develop or patent similar or superior technologies, products, or that our patents, trademarks, and other intellectual property will not be challenged, invalidated, misappropriated or infringed by others. Additionally, the intellectual property laws and enforcement practices of other countries in which our product is or may in the future be offered may not protect our products and intellectual property rights to the same extent as the laws of the United States. If we are unable to protect our intellectual property from unauthorized use, our brand image may be harmed, and our business and results of operations may suffer.

Assertions by third parties of infringement, misappropriation or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.

In recent years, there has been significant litigation involving intellectual property rights in many technology-based industries. Any infringement, misappropriation or related claims, whether or not meritorious, is time-consuming, diverts technical and management personnel and is costly to resolve. As a result of any such dispute, we may have to develop non-infringing technology, pay damages, enter into royalty or licensing agreements, cease providing our product or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us. Any of these events could result in increases in operating expenses, limit our product offerings or result in a loss of business.

We may be required to indemnify our vendors and/or customers, the payment of which could have a material adverse effect on our business, financial condition, and operating results.

We provide certain rights of indemnification to our vendors and/or customers in certain circumstances. If any plaintiff is successful in certifying a class and thereafter prevailing on the merits of their complaint, such an adverse result could have a material adverse effect on us. In addition, due to the nature and scope of the indemnity and defense we will likely need to provide, the legal fees associated with such indemnification could be significant enough to have a material adverse effect on our cash flows until such matters are fully and finally resolved.

Compliance with new and existing laws and governmental regulations could increase our costs significantly and adversely affect our results of operations.

The processing, formulation, safety, manufacturing, packaging, labeling, advertising and distribution of our products are subject to federal laws and regulation by one or more federal agencies, including the FDA, the Federal Trade Commission, or the FTC, the Consumer Product Safety Commission, or the CPSC, the U.S. Department of Agriculture, or the USDA, and U.S. Environmental Protection Agency, or the EPA. These activities are also regulated by various state, local and international laws and agencies of the states and localities in which our products are sold. Government regulations may prevent or delay the introduction, or require the reformulation, of our products, which could result in lost revenues and increased costs to us. For instance, the FDA regulates, among other things, the composition, safety, manufacture, labeling and marketing of dietary ingredients and dietary supplements (including vitamins, minerals, herbs, and other dietary ingredients for human use). Dietary supplements and dietary ingredients that do not comply with FDA’s regulations and/or the Dietary Supplement Health and Education Act of 1994 will be deemed adulterated or misbranded. Manufacturers and distributors of dietary supplements and dietary ingredients are prohibited from marketing products that are adulterated or misbranded, and the FDA may take enforcement action against any adulterated or misbranded dietary supplement on the market. The FDA has broad enforcement powers. If we violate applicable regulatory requirements, the FDA may bring enforcement actions against us, which could have a material adverse effect on our business, prospects, financial condition, and results of operations. The FDA may not accept the

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evidence of safety for any new ingredient that we may wish to market, may determine that a particular supplement or ingredient presents an unacceptable health risk based on the required submission of serious adverse events or other information, and may determine that a particular claim or statement of nutritional value that we use to support the marketing of a supplement is an impermissible drug claim, is not substantiated, or is an unauthorized version of a “health claim.” See “Business — Regulation — Food and Drug Administration” for additional information. Any of these actions could prevent us from marketing particular nutritional supplement products or making certain claims or statements with respect to those products. The FDA could also require us to remove a particular product from the market. Any future recall or removal would result in additional costs to us, including lost revenues from any products that we are required to remove from the market, any of which could be material. Any product recalls or removals could also lead to an increased risk of litigation and liability, substantial costs, and reduced growth prospects.

Additional or more stringent laws and regulations of dietary supplements and other products have been considered from time to time. These developments could require reformulation of some products to meet new standards, recalls or discontinuance of some products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of some products, additional or different labeling, additional scientific substantiation, or other new requirements. Any of these developments could increase our costs significantly. In addition, regulators’ evolving interpretation of existing laws could have similar effects.

Our failure to comply with FTC regulations could result in substantial monetary penalties and could adversely affect our operating results.

The FTC exercises jurisdiction over the advertising of dietary supplements and requires that all advertising to consumers be truthful and non-misleading. The FTC actively monitors the dietary supplement space and has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. Failure to comply with applicable regulations could result in substantial monetary penalties, which could have a material adverse effect on our financial condition or results of operations.

Our operations are subject to environmental and health and safety laws and regulations that may increase our cost of operations or expose us to environmental liabilities.

We are subject, directly or indirectly, to numerous federal, state, local and foreign environmental and health and safety laws and regulations governing our operations, including the handling, transportation and disposal of our non-hazardous and hazardous substances and wastes, as well as emissions and discharges from our operations into the environment, including discharges to air, surface water and groundwater. Failure to comply with such laws and regulations could result in costs for remedial actions, penalties or the imposition of other liabilities. New laws, changes in existing laws or the interpretation thereof, or the development of new facts or changes in their processes could also cause us to incur additional capital and operating expenditures to maintain compliance with environmental laws and regulations and environmental permits. Any failure by us to comply with environmental, health and safety requirements could result in the limitation or suspension of our operations, including operations at our manufacturing facility. We also could incur monetary fines, civil or criminal sanctions, third-party claims or cleanup or other costs as a result of violations of or liabilities under such requirements.

We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment without regard to fault or knowledge about the condition or action causing the liability. Under certain of these laws and regulations, such liabilities can be imposed for cleanup of previously owned or operated properties, or for properties to which substances or wastes that were sent in connection with current or former operations at our facilities. The presence of contamination from such substances or wastes could also adversely affect our ability to sell or lease our properties, or to use them as collateral for financing.

Failure to comply with federal, state and international privacy, data protection, marketing and consumer protection laws, regulations and industry standards, or the expansion of current or the enactment or adoption of new privacy, data protection, marketing and consumer protection laws, regulations or industry standards, could adversely affect our business.

We are subject to a variety of federal, state and foreign laws, regulations and industry standards regarding privacy, data protection, data security, marketing and consumer protection, which address the collection, storing, sharing, using, processing, disclosure and protection of data relating to individuals, as well as the tracking of consumer behavior

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and other consumer data. We are also subject to laws, regulations and industry standards relating to endorsements and influencer marketing. Many of these laws, regulations and industry standards are changing and may be subject to differing interpretations, are costly to comply with or inconsistent among jurisdictions. For example, the FTC expects companies like ours to comply with guidelines issued under the Federal Trade Commission Act that govern the collection, use, disclosure, and storage of consumer information, and establish principles relating to notice, consent, access and data integrity and security. The laws and regulations in many foreign countries relating to privacy, data protection, data security, marketing and consumer protection often are more restrictive than in the United States, and may in some cases be interpreted to have a greater scope. Additionally, the laws, regulations and industry standards, both foreign and domestic, relating to privacy, data protection, data security, marketing and consumer protection are dynamic and may be expanded or replaced by new laws, regulations or industry standards.

We strive to comply with applicable laws, policies, contractual and other legal obligations and certain applicable industry standards of conduct relating to privacy, data security, data protection, marketing and consumer protection. However, these obligations and standards of conduct often are complex, vague, and difficult to comply with fully, and it is possible that these obligations and standards of conduct may be interpreted and applied in new ways and/or in a manner that is inconsistent with each other or that new laws, regulations or other obligations may be enacted. It is possible that our practices may be argued or held to conflict with applicable laws, policies, contractual or other legal obligations, or applicable industry standards of conduct relating to privacy, data security, data protection, marketing or consumer protection. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, FTC, other regulatory requirements or orders or other federal, state or, as we continue to expand internationally, international privacy, data security, data protection, marketing or consumer protection-related laws, regulations, contractual obligations or self-regulatory principles or other industry standards could result in claims, proceedings or actions against us by governmental entities or others or other liabilities or could result in a loss of consumers. Any of these circumstances could adversely affect our business.

We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. For instance, with the increased focus on the use of data for advertising, the anticipation and expectation of future laws, regulations, standards and other obligations could impact us. In addition, as we expand our data analytics and other data related product offerings there may be increased scrutiny on our use of data and we may be subject to new and unexpected regulations. Future laws, regulations, standards and other obligations could, for example, impair our ability to collect or use information that we utilize to provide targeted digital promotions and media to consumers, thereby impairing our ability to maintain and grow our total customers and increase revenues. Future restrictions on the collection, use, sharing or disclosure of our users’ data or additional requirements for express or implied consent of users for the use and disclosure of such information could require us to modify our solutions, possibly in a material manner, and could limit our ability to develop or outright prohibit new solutions and features. Any such new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws, regulations or other standards may require us to incur additional costs and restrict our business operations. If our measures fail to comply with current or future laws, regulations, policies, legal obligations or industry standards relating to privacy, data protection, data security, marketing or consumer protection, we may be subject to litigation, regulatory investigations, fines or other liabilities, as well as negative publicity and a potential loss of business. Moreover, if future laws, regulations, other legal obligations or industry standards, or any changed interpretations of the foregoing limit our ability to store, process and share personally identifiable information or other data, demand for our products could decrease, our costs could increase, our revenue growth could slow, and our business, financial condition and operating results could be harmed.

We are exposed to potential liability for information on our customers’ websites and for products and services sold through their websites and we may incur significant costs and damage to our reputation as a result of defending against such potential liability.

We are exposed to potential liability for information on our customers’ websites. We could be exposed to liability with respect to such third-party information such as their products, links to third-party websites, advertisements and content provided by customers. Among other things, we may face assertions that, by directly or indirectly providing such third-party content or links to other websites, we should be liable for defamation, negligence, copyright or trademark infringement, or other actions by parties providing such content or operating those websites. We may also face assertions that content on our publishers and advertisers’ websites, including statistics or other data we compile

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internally, or information contained in websites linked to our websites contains false information, errors or omissions, and users and our customers could seek damages for losses incurred as a result of their reliance upon or otherwise relating to incorrect information. We may also be subject to fines and other sanctions by the government for such incorrect information. In addition, our services could be used as a platform for fraudulent transactions and third party products and services sold through us may be defective. The measures we take to guard against liability for third-party content, information, products and services may not be adequate to exonerate us from relevant civil and other liabilities.

Any such claims, with or without merit, could be time-consuming to defend and result in litigation and significant diversion of management’s attention and resources. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims and suffer damage to our reputation.

If the use of third-party cookies or other tracking technology is rejected by Internet users, restricted by third parties outside of our control, or otherwise subject to unfavorable regulation, our performance could decline and we could lose customers and revenue.

We use a number of technologies to collect information about our customers. For instance, we use small text files (referred to as “cookies”), placed through an Internet browser on an Internet user’s machine which corresponds to a data set that we keep on our servers, to gather important data. Our cookies collect anonymous information, such as when an Internet user views an advertisement, clicks on an advertisement, or visits one of our advertisers’ websites. In some countries, including countries in the European Economic Area, this information may be considered personal information under applicable data protection laws. On mobile devices, we may also obtain location-based information about the user’s device through our cookies or other tracking technologies. We use these technologies to achieve our campaign goals, to ensure that the same Internet user does not unintentionally see the same media too frequently, to report aggregate information regarding the performance of our digital promotions and marketing campaigns, and to detect and prevent fraudulent activity throughout our network.

Cookies may easily be deleted or blocked by Internet users. All of the most commonly used Internet browsers (including Chrome, Firefox, Internet Explorer, and Safari) allow Internet users to prevent cookies from being accepted by their browsers. Internet users can also delete cookies from their computers at any time. Some Internet users also download “ad blocking” software that prevents cookies from being stored on a user’s computer. If more Internet users adopt these settings or delete their cookies more frequently than they currently do, our business could be harmed. In addition, the Safari and Firefox browsers blocks third-party cookies by default, and other browsers may do so in the future. Unless such default settings in browsers were altered by Internet users to permit the placement of third-party cookies, we would be able to set fewer of our cookies in users’ browsers, which could adversely affect our business. In addition, companies such as Google have publicly disclosed their intention to move away from cookies to another form of persistent unique identifier, or ID, to identify individual Internet users or Internet-connected devices in the bidding process on advertising exchanges. If companies do not use shared IDs across the entire ecosystem, this could have a negative impact on our ability to find the same anonymous user across different web properties, and reduce the effectiveness of our marketing efforts.

In addition, in the European Union, or EU, Directive 2009/136/EC, commonly referred to as the “Cookie Directive,” directs EU member states to ensure that collecting information on an Internet user’s computer, such as through a cookie, is allowed only if the Internet user has appropriately given his or her prior freely given, specific, informed and unambiguous consent. Similarly, this Directive which also contains specific rules for the sending of marketing communications, limits the use of marketing texts messages and e-mails. Additionally, an e-Privacy Regulation, which will replace the Cookie Directive with requirements that could be stricter in certain respects, apply directly to activities within the EU without the need to be transposed in each member state’s law, and could impose stricter requirements regarding the use of cookies and marketing e-mails and text messages and additional penalties for noncompliance, has been proposed, although at this time it is unclear whether it will be approved as it is currently drafted or when its requirements will be effective. We may experience challenges in obtaining appropriate consent to our use of cookies from consumers or to send marketing communications to consumers within the EU, which may affect our ability to run promotions and our operating results and business in European markets, and we may not be able to develop or implement additional tools that compensate for the lack of data associated with cookies. Moreover, even if we are able to do so, such additional tools may be subject to further regulation, time consuming to develop or costly to obtain, and less effective than our current use of cookies.

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Economic, political and other risks associated with our international operations could adversely affect our revenues and international growth prospects.

On August 24, 2021, we established Smart for Life Canada Inc. as a wholly owned subsidiary of Doctors Scientific Organica in Canada. This subsidiary sells retail products through a retail store location in Montreal Canada and the same location also acts as distribution center for our international direct to consumer and big box customers. We maintain inventory and employees at this location. We have sales outside of the United States. For fiscal 2020, international sales represented approximately 18% of our net sales (on a pro forma combined basis). We intend to expand our international presence as part of our business strategy. Our international operations are subject to a number of risks inherent to operating in foreign countries, and any expansion of our international operations will amplify the effects of these risks, which include, among others:

•        differences in culture, economic and labor conditions and practices;

•        the policies of the U.S. and foreign governments;

•        disruptions in trade relations and economic instability;

•        differences in enforcement of contract and intellectual property rights;

•        social and political unrest;

•        natural disasters, terrorist attacks, pandemics or other catastrophic events;

•        complex, varying and changing government regulations and legal standards and requirements, particularly with respect to tax regulations, price protection, competition practices, export control regulations and restrictions, customs and tax requirements, immigration, anti-boycott regulations, data privacy, intellectual property, anti-corruption and environmental compliance, including the Foreign Corrupt Practices Act;

•        greater difficulty enforcing intellectual property rights and weaker laws protecting such rights; and

•        greater difficulty in accounts receivable collections and longer collection periods;

We are also affected by domestic and international laws and regulations applicable to companies doing business abroad or importing and exporting goods and materials. These include tax laws, laws regulating competition, anti-bribery/anti-corruption and other business practices, and trade regulations, including duties and tariffs. Compliance with these laws is costly, and future changes to these laws may require significant management attention and disrupt our operations. Additionally, while it is difficult to assess what changes may occur and the relative effect on our international tax structure, significant changes in how U.S. and foreign jurisdictions tax cross-border transactions could materially and adversely affect our results of operations and financial position.

Our results of operations and financial position are also impacted by changes in currency exchange rates. Unfavorable currency exchange rates between the US Dollar and foreign currencies, particularly the Canadian dollar, could adversely affect us in the future. Fluctuations in currency exchange rates may present challenges in comparing operating performance from period to period.

There are other risks that are inherent in our Canadian and other international operations, including the potential for changes in socio-economic conditions, laws and regulations, including, among others, competition, import, export, labor and environmental, health and safety laws and regulations, and monetary and fiscal policies, protectionist measures that may prohibit acquisitions or joint ventures, or impact trade volumes, unsettled political conditions; government-imposed plant or other operational shutdowns, backlash from foreign labor organizations related to our restructuring actions, corruption; natural and man-made disasters, hazards and losses, violence, civil and labor unrest, and possible terrorist attacks.

Additionally, if the opportunity arises, we may expand our operations into new and high-growth international markets. However, there is no assurance that we will expand our operations in such markets in our desired time frame. To expand our operations into new international markets, we may enter into business combination transactions, make acquisitions or enter into strategic partnerships, joint ventures or alliances, any of which may be material. We may enter into these transactions to acquire other businesses or products to expand our products or take advantage of new

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developments and potential changes in the industry. Our lack of experience operating in new international markets and our lack of familiarity with local economic, political and regulatory systems could prevent us from achieving the results that we expect on our anticipated time frame or at all. If we are unsuccessful in expanding into new or high-growth international markets, it could adversely affect our operating results and financial condition.

Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various international jurisdictions in which we do business.

Doing business on a worldwide basis requires us to comply with the laws and regulations of the U.S. government and various international jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees, and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act, or the FCPA. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment, and requires us to maintain adequate record- keeping and internal accounting practices to accurately reflect our transactions. As part of our business, we may deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption. As a result of the above activities, we are exposed to the risk of violating anti-corruption laws. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures. We have established policies and procedures designed to assist us and our personnel in complying with applicable U.S. and international laws and regulations. However, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, financial condition and results of operations.

Our success depends on the experience and skill of our board of directors, executive officers and key personnel, whom we may not be able to retain and we may not be able to hire enough additional personnel to meet our needs.

We are dependent on Alfonso J. Cervantes, Jr. (Executive Chairman), Ryan F. Zackon (CEO), Darren C. Minton (President), and Alan B. Bergman (Chief Financial Officer). There can be no assurance that they will continue to be employed by us for a particular period of time. The loss of any member of the board of directors or executive officer or advisors could harm our business, financial condition, cash flow and results of operations.

The success of our strategy will depend on a well-defined management structure and the availability of a management team with proven competencies in the identification, acquisition and integration of complementary companies and assets. To implement our business plan, we will need to keep the personnel that we currently have and, if our business is to grow as planned, we will need additional personnel. We cannot assure you that we will be successful in retaining our present team or in attracting and retaining additional personnel. If we are unable to attract and retain key personnel or are unable to do so in a cost-effective manner, our business may be materially and adversely affected.

Although dependent on certain key personnel, we do not have any key man life insurance policies on any such people.

We are dependent on our management team to conduct our operations and execute our business plan, however, we have not purchased any insurance policies with respect to the management in the event of the death or disability of any of our key managers. Therefore, if any of the members of our management team dies or becomes disabled, we will not receive any compensation to assist with his absence.

We may be a party to lawsuits that arise in the ordinary course of business.

We may be a party to lawsuits in the future (including product liability, false advertising, and intellectual property claims) that arise in the ordinary course of business. The possibility of such litigation, and its timing, is in large part outside our control. It is possible that future litigation could arise that could have material adverse effects on us.

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The obligations associated with being a public company will require significant resources and management attention, and we will incur increased costs as a result of becoming a public company.

As a public company, we will face increased legal, accounting, administrative and other costs and expenses that we have not incurred as a private company, and we expect to incur additional costs related to operating as a public company. After the completion of this offering, we will be subject to the reporting requirements of the Exchange Act, which requires that we file annual, quarterly and current reports with respect to our business and financial condition, and proxy and other information statements, as well as the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Public Company Accounting Oversight Board, and the listing requirements of Nasdaq (if our common stock is approved for listing), each of which imposes additional reporting and other obligations on public companies. As a public company, we will be required to, among other things:

•        prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance with the federal securities laws and rules and Nasdaq rules;

•        expand the roles and duties of our board of directors and committees thereof and management;

•        hire additional financial and accounting personnel and other experienced accounting and finance staff with the expertise to address complex accounting matters applicable to public companies;

•        institute more comprehensive financial reporting and disclosure compliance procedures;

•        involve and retain, to a greater degree, outside counsel and accountants to assist us with the activities listed above;

•        build and maintain an investor relations function;

•        establish new internal policies, including those relating to trading in our securities and disclosure controls and procedures;

•        comply with the initial listing and maintenance requirements of Nasdaq; and

•        comply with the Sarbanes-Oxley Act.

We expect these rules and regulations, and any future changes in laws, regulations and standards relating to corporate governance and public disclosure, which have created uncertainty for public companies, to increase legal and financial compliance costs and make some activities more time consuming and costly. These laws, regulations and standards are subject to varying interpretations, in many cases, due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our investment in compliance with existing and evolving regulatory requirements will result in increased administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities, which could have a material adverse effect on our business, financial condition and results of operations.

We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These increased costs may require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives.

We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer a non-accelerated filer or no longer an emerging growth company if we take advantage of the exemptions available to us through the JOBS Act.

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We are in the very early stages of the costly and challenging process of compiling the system and process documentation necessary to perform the evaluation needed to comply with Section 404. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. As we transition to the requirements of reporting as a public company, we may need to add additional finance staff. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price.

Risks Related to This Offering and Ownership of Our Common Stock

Once our common stock is listed on Nasdaq, there can be no assurance that an active market in which investors can resell their shares of our common stock will develop.

Prior to this offering, there has been no public market for shares of our common stock. As a condition to consummating this offering, our common stock offered in this prospectus must be listed on Nasdaq or another national securities exchange. Accordingly, we have applied to list our common stock on Nasdaq under the symbol “            .” Assuming that our common stock is listed and after the consummation of this offering, there can be no assurance any broker will be interested in trading our stock. Therefore, it may be difficult to sell your shares of common stock if you desire or need to sell them. Our underwriters are not obligated to make a market in our common stock, and even if they make a market, they can discontinue market making at any time without notice. Neither we nor the underwriters can provide any assurance that an active and liquid trading market in our common stock will develop or, if developed, that such market will continue.

The market price of our common stock may fluctuate, and you could lose all or part of your investment.

After this offering, the market price for our common stock is likely to be volatile, in part because our shares have not been traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to several factors, most of which we cannot control, including:

•        actual or anticipated variations in our periodic operating results;

•        increases in market interest rates that lead investors of our common stock to demand a higher investment return;

•        changes in earnings estimates;

•        changes in market valuations of similar companies;

•        actions or announcements by our competitors;

•        adverse market reaction to any increased indebtedness we may incur in the future;

•        additions or departures of key personnel;

•        actions by stockholders;

•        speculation in the media, online forums, or investment community; and

•        our intentions and ability to list our common stock on Nasdaq and our subsequent ability to maintain such listing.

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The public offering price of our units has been determined by negotiations between us and the underwriters based upon many factors and may not be indicative of prices that will prevail following the closing of this offering. Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the initial public offering price. As a result, you may suffer a loss on your investment.

We may not be able to maintain a listing of our common stock on Nasdaq.

If our common stock is listed on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. If we fail to meet any of Nasdaq’s continued listing standards or we violate Nasdaq listing requirements, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment.

There is no public market for the series B convertible preferred stock or warrants being offered.

There is no established public trading market for the series B convertible preferred stock or warrants being offered pursuant to this offering, nor do we expect such a market to develop. We do not intend to apply to list any series B convertible preferred stock or warrants on any securities exchange or other nationally recognized trading system, including Nasdaq. Without an active market, the liquidity of such series B convertible preferred stock and warrants will be limited.

Holders of the warrants purchased pursuant to this offering will have no rights as stockholders until such holders exercise the warrants and acquire our common stock.

Holders of the warrants purchased in this offering only acquire our common stock upon exercise thereof, meaning holders will have no rights with respect to the shares of our common stock underlying such warrants. Upon the exercise of any of the warrants purchased, such holders will be entitled to exercise the rights of a stockholders only as to matters for which the record date occurs after the exercise date. The warrants are speculative in nature. The series A warrants being sold in this offering have an exercise price of $             per share (or 50% of the unit offering price) and will expire on the fifth anniversary from the issuance date and the series B warrants being sold in this offering have an exercise price of $ per share (or 100% of the unit offering price) and will expire on the fifth anniversary from the issuance. In the event our common stock price does not exceed the per share exercise price of the warrants during the period when such warrants are exercisable, such warrants will not have any value.

If you purchase series B convertible preferred stock in lieu of common stock in this offering, as a holder of series B convertible preferred stock, you will have no rights as a common stockholder with respect to the shares of common stock underlying the series B convertible preferred stock until you acquire our common stock.

If you purchase series B convertible preferred stock in lieu of common stock in this offering, until you acquire our common stock upon conversion of your series B convertible preferred stock, you will have no rights with respect to the common stock underlying the series B convertible preferred stock. Upon conversion of your series B convertible preferred stock, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date for actions to be taken by our common stockholders occurs after the date you convert your series B convertible preferred stock.

Our series B convertible preferred stock will rank junior to all our liabilities to third party creditors, and to any class or series of our capital stock created after this offering specifically ranking by its terms senior to the series B convertible preferred stock, in the event of a bankruptcy, liquidation or winding up of our assets.

In the event of bankruptcy, liquidation or winding up, our assets will be available to pay obligations on our series B convertible preferred stock only after all our liabilities have been paid. Our series B convertible preferred stock will effectively rank junior to all existing and future liabilities held by third party creditors. The terms of our series B convertible preferred stock do not restrict our ability to raise additional capital in the future through the issuance of debt or senior series of preferred stock. Our series B convertible preferred stock will also rank junior to any class or

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series of our capital stock created after this offering specifically ranking by its terms senior to the series B convertible preferred stock. In the event of bankruptcy, liquidation or winding up, there may not be sufficient assets remaining, after paying our liabilities, to pay amounts due on any or all of our series B convertible preferred stock then outstanding.

Our management has broad discretion as to the use of the net proceeds from this offering allocated to working capital and general corporate purposes.

Our management will have broad discretion in the application of the net proceeds that are allocated to working capital and general corporate purposes. Accordingly, you will have to rely upon the judgment of our management with respect to the use of these proceeds. Our management may spend a portion or all of the net proceeds from this offering that are allocated to working capital and general corporate purposes in ways that holders of our common stock may not desire or that may not yield a significant return or any return at all. Our management not applying these funds effectively could harm our business. Pending their use, we may also invest the net proceeds from this offering that are allocated to working capital and general corporate purposes in a manner that does not produce income or that loses value. Please see “Use of Proceeds” below for more information.

You will experience immediate and substantial dilution as a result of this offering.

As of September 30, 2021, our pro forma deficiency in net tangible book value was $(13,097,421), or $(0.94) per share. Since the effective price per share of our common stock underlying the units being offered in this offering is substantially higher than the pro forma net deficiency in tangible book value per share of our common stock, you will suffer substantial dilution with respect to the net tangible book value of the common stock underlying the units you purchase in this offering. If the holders of outstanding options or warrants exercise those options or warrants at prices below the offering price, you will incur even further dilution.

In addition, if upon the earlier of (i) 10 trading days from the issuance date of the series B warrants or (ii) the time when $10.0 million of volume is traded in our common stock, if the volume weighted average price of our common stock on any trading day on or after the date of issuance fails to exceed the exercise price of the series B warrants, the series B warrants can be exercised on a “cashless” basis for shares of common stock on a one-for-one basis, regardless of whether the market price of our common stock is above the exercise price, which may result in additional dilution and no additional proceeds to us in connection with such exercises. See “Dilution” for a more complete description of how the value of your investment in our common stock will be diluted upon the completion of this offering.

An investment in this offering may result in uncertain U.S. federal income tax consequences.

An investment in this offering may result in uncertain U.S. federal income tax consequences. For instance, because there are no authorities that directly address instruments similar to the units part of this offering, the allocation an investor makes with respect to the purchase price of a unit between the common stock, the series A warrant and the series B warrant included in each unit could be challenged by the Internal Revenue Service, or IRS, or courts. See “Material U.S. Federal Income Tax Considerations for Non-U.S. Holders” for a summary of the U.S. federal income tax considerations of an investment in our securities. Prospective investors are urged to consult their tax advisors with respect to these and other tax consequences when acquiring, owning or disposing of our securities.

We do not expect to declare or pay dividends in the foreseeable future.

We do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore, holders of our common stock will not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could be negatively affected.

Any trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume

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of our common stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price and market trading volume of our common stock could be negatively affected.

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our common stock to decline and would result in the dilution of your holdings.

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations of lock-up agreements, on the price of our common stock. In all events, future issuances of our common stock would result in the dilution of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties will sell their securities when the lock-ups expire, could adversely affect the market price of our common stock. In connection with this offering, we will enter into a lock-up agreement that prevents us, subject to certain exceptions, from offering additional shares of capital stock for up to 12 months after the closing of this offering, as further described in the section titled “Underwriting.” In addition to any adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, at any time and without notice. If the restrictions under the lock-up agreements are waived, our common stock may become available for resale, subject to applicable law, including without notice, which could reduce the market price for our common stock.

Future issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock.

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our common stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our common stock.

If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

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

Upon the completion of this offering, we will be required to publicly report on an ongoing basis as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act. For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not emerging growth companies, including but not limited to:

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

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

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

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

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

Because we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies, our stockholders could receive less information than they might expect to receive from more mature public companies. We cannot predict if investors will find our common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our common stock.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, and limit attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws include provisions that:

•        permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;

•        provide that directors may only be removed by the majority of the shares of voting stock then outstanding; and

•        establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•        our goals and strategies;

•        our future business development, financial condition and results of operations;

•        expected changes in our revenue, costs or expenditures;

•        growth of and competition trends in our industry;

•        our expectations regarding demand for, and market acceptance of, our products;

•        our expectations regarding our relationships with investors, institutional funding partners and other parties we collaborate with;

•        our expectation regarding the use of proceeds from this offering;

•        fluctuations in general economic and business conditions in the markets in which we operate; and

•        relevant government policies and regulations relating to our industry.

In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Although we will become a public company after this offering and have ongoing disclosure obligations under United States federal securities laws, we do not intend to update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

After deducting the estimated underwriters’ commissions and offering expenses payable by us, we expect to receive net proceeds of approximately $            from this offering (or approximately $            if the underwriters exercise the over-allotment option in full), based on an assumed initial public offering price of $            per unit, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus.

We will not receive any proceeds from the exercise of the warrants unless such warrants are exercised for cash.

Each $1.00 increase or decrease in the assumed initial public offering price of $            per unit, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds that we receive from this offering by approximately $            , assuming that the number of units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

We intend to use the net proceeds from this offering (i) to pay off all debt that we owe to various note holders and term loan holders, including all principal, interest and any prepayment or other fees, and (ii) for working capital and general corporate purposes. The following table sets forth a breakdown of our estimated use of our net proceeds as we currently expect to use them. For purposes of calculation of the loan payoff amounts, we have used a payoff date of             , 2022. Additional interest will accrue at the given rates from             , 2022 to the closing date of this offering.

 

Amount without
Over-Allotment
Option

 

Amount with
Over-Allotment
Option

Repayment of promissory notes(1)

 

$

 

 

$

 

Repayment of term loan(2)

 

 

   

 

 

Repayment of term loan(3)

 

 

   

 

 

Working capital and general corporate

 

 

  

 

 

  

Total use of proceeds

 

$

 

 

$

 

____________

(1)      Since inception, we have issued unsecured promissory notes to various lenders. The proceeds of these loans were used to acquire Bonne Santé Natural Manufacturing in 2018, for machinery purchases and for working capital from 2018 to 2020. These notes accrue interest at rates between 12-15% and have various original maturity dates ranging from March 2019 to March 2023, some of which have been extended to the closing of this offering. We are in the process of extending all maturity dates to the earlier of the closing of this offering or March 2023. Although some of these notes have matured, we have not received any demands for payment, and are therefore not in default under the notes. As of September 30, 2021, the outstanding balance of these notes was $3,916,325.

(2)      On December 18, 2020, we entered into a loan and security agreement with Peah Capital, LLC for a term loan in the principal amount of up to $1,500,000, which was amended on April 27, 2021 to increase the loan amount to $1,625,000. In connection with such amendment, on April 27, 2021, we issued a second amended and restated promissory note to Peah Capital, LLC in the principal amount of $1,625,000. The proceeds of this loan were used for material purchases and for working capital from 2020 to 2021. The loan bears interest at a rate of 17.5% per annum, provided that upon an event of default, such rate shall increase to 25% per annum. The loan is due and payable on the earlier of: (i) eighteen (18) months from the date of the note or (ii) upon completion of this offering. As of September 30, 2021, the outstanding balance of this loan was $1,614,906.

(3)      On July 1, 2021, we entered into a loan agreement with Diamond Creek Capital, LLC for a term loan in the principal amount of up to $3,000,000 and issued a term loan promissory note to Diamond Creek Capital, LLC in the principal amount of $3,000,000. The proceeds of this loan were used to acquire Doctors Scientific Organica. The loan bears interest at a rate of 15.0% per annum, provided that upon an event of default, such rate shall increase by 5%. The loan is due and payable on the earlier of July 1, 2022 or upon completion of this offering. As of September 30, 2021, the outstanding balance of this loan was $3,000,000.

For additional details regarding these loans, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

We have no specific plans for the use of the proceeds allocated to working capital and general corporate purposes and do not plan to use the proceeds to fund any of our planned acquisitions. Our management will retain broad discretion over the allocation of the net proceeds from this offering with respect to working capital and general corporate uses. See “Risk Factors — Risks Related to This Offering and the Ownership of Our Common Stock — Our management has broad discretion as to the use of the net proceeds from this offering allocated to working capital and general corporate purposes.”

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DIVIDEND POLICY

Holders of our series A convertible preferred stock are entitled to receive cumulative dividends at a rate of 7.5% of the stated value per share ($1,000) per annum, which shall increase to 15% per annum after November 23, 2021 and 24% per annum after December 31, 2021; provided, however, that no dividends shall accrue following the date that the registration statement of which this prospectus is a part is declared effective by the SEC.

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the near future. We may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. See also “Risk Factors — Risks Related to This Offering and Ownership of Our Common Stock — We do not expect to declare or pay dividends in the foreseeable future.”

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2021:

•        on an actual basis;

•        on a pro forma basis to reflect the acquisition of Nexus and the related private placement of debentures described herein;

•        on a pro forma basis to reflect the conversion of certain debt and issuance of the following shares concurrent with the closing of this offering:

•                   shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $500,000 that will convert concurrent with the closing of this offering at a conversion price equal to 50% of the initial public offering price;

•                 shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $3,000,000 that will convert concurrent with the closing of this offering at a conversion price equal to the initial public offering price;

•                 shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $1,900,000 that will convert concurrent with the closing of this offering at a conversion price equal to the initial public offering price;

•                 shares of common stock to be issued concurrent with the closing of this offering under future equity agreements that we entered into with certain lenders, pursuant to which we agreed to issue to such lenders a number of shares of common stock equal to the stated value described in the future equity agreement, which may be the principal amount of the loan or the principal amount of the loan plus a premium, divided by the initial public offering price, which total stated value, in the aggregate, is $16,825,751;

•                 shares of common stock to be issued concurrent with the closing of this offering under a future equity agreement that we entered into with a lender, pursuant to which we agreed to issue to such lender a number of shares of common stock equal to 75% of all funds advanced by such lender ($1,675,000) divided by the initial public offering price;

•                 shares of common stock that we have agreed to issue to the former shareholders of GSP Nutrition pursuant to the terms of the contribution and exchange agreement; and

•        on a pro forma as adjusted basis to reflect the sale of             units by us in this offering at an assumed price to the public of $            per unit, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us (assuming no exercise by the underwriters of their option to purchase additional shares and/or warrants from us).

The pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the public offering price of the units and other terms of this offering determined at pricing. You should read this table together with our financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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September 30, 2021

   

Actual

 

Pro Forma – Acquisition

 

Pro Forma – Debt Conversion

 

As Adjusted

Cash

 

$

690,101

 

 

$

734,431

 

 

$

 

 

$

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

   

 

 

Notes payable

 

$

15,331,657

 

 

$

21,131,657

 

 

$

 

 

$

 

Total long-term debt

 

 

 

 

 

 

 

 

 

 

   

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

 

 

   

 

 

Series A convertible preferred Stock, $0.0001 par
value, 8,000 shares authorized; 8,000 shares issued and outstanding, actual, pro forma and as adjusted

 

 

1

 

 

 

1

 

 

 

   

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized, 13,870,000 shares issued and outstanding, actual;                shares issued and outstanding, pro forma (acquisition);                shares issued and outstanding, pro forma (debt conversion) and as adjusted

 

 

1,387

 

 

 

1,387

 

 

 

   

 

 

Additional paid-in capital

 

 

8,121,869

 

 

 

8,121,869

 

 

 

   

 

 

Accumulated deficit

 

 

(11,371,966

)

 

 

(11,069,139

)

 

 

 

 

 

 

Total stockholders’ equity (deficit)

 

 

(3,248,709

)

 

 

(2,945,882

)

 

 

 

 

 

 

Total capitalization

 

$

12,082,948

 

 

$

18,185,775

 

 

$

 

 

$

 

Each $1.00 increase or decrease in the assumed initial public offering price of $            per unit (which is the midpoint of the estimated offering range set forth on the cover page of this prospectus), assuming no change in the number of units to be sold, would increase or decrease the pro forma as adjusted cash and cash equivalents, additional paid-in capital and total stockholders’ equity by approximately $            (or $            if the underwriters exercise the over-allotment option in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The table above excludes the following shares:

•        1,450,000 shares of common stock issuable upon the exercise of outstanding options at an exercise price of $0.01 per share;

•        11,999,404 shares of common stock issuable upon the conversion of our outstanding series A convertible preferred stock;

•        11,999,404 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price per share that is equal to 125% of the initial public offering price for this offering;

•        1,382,441 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price of $0.0001 per share;

•        up to 2,250,000 shares of common stock issuable upon the conversion of 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 that are convertible at the option of the holders into shares of common stock at a conversion price that is equal to 50% of the effective initial public offering price (as described in the debentures); provided that after date on which the registration statement of which this prospectus forms a part is declared effective, the conversion price shall be reduced to the lower of such price and the lowest volume weighted average price during the 10 trading days immediately following the such date; and provided further, that the conversion price shall not be less than $1.00;

•        shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $73,727.01 that is convertible at the option of the holder into shares of common stock at a conversion price that is equal to forty percent (40%) of either (i) the price per share paid by investors in our next priced equity financing, including this offering, or (ii) the volume weighted average price of the common stock for the five trading days from and including the date that the conversion notice is given;

•        shares of common stock issuable upon the exercise of the warrants issued in connection with this offering; and

•        shares of common stock issuable upon the conversion of any shares of series B convertible preferred stock issued in connection with this offering.

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DILUTION

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

Net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the total number of our shares of common stock outstanding. The deficiency in net tangible book value of our common stock as of September 30, 2021 was approximately $(13,097,421), or approximately $(0.94) per share. After giving effect the acquisition of Nexus, as well as the recent private placement of debentures described herein, the pro forma deficiency in net tangible book value of our common stock as of September 30, 2021 is approximately $(18,831,731), or approximately $(1.35) per share.

After giving effect to the sale of            units in this offering at the assumed initial public offering price of $            per unit, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the warrants issued pursuant to this offering, our pro forma as adjusted net tangible book value as of September 30, 2021 would have been approximately $            , or approximately $            per share. This represents an immediate increase in net tangible book value of approximately $            per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of approximately $            per share to purchasers of units in this offering, as illustrated by the following table:

Assumed initial public offering price per unit

 

 

 

 

 

$

 

Historical deficiency in net tangible book value per share as of September 30, 2021

 

$

(0.94

)

 

 

 

Decrease per share attributable to the pro forma adjustments described above

 

 

(0.41

) 

 

 

 

Pro forma deficiency in net tangible book value per share as of September 30, 2021

 

 

(1.35

)

 

 

 

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing units in this offering

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Dilution per share to new investors purchasing units in this offering

 

 

 

 

 

$

 

If the underwriters exercise their option to purchase            additional shares and/or warrants in full, the pro forma as adjusted net tangible book value of our common stock after this offering would be $            per share, representing an immediate increase in net tangible book value of approximately $            per share to existing stockholders and an immediate dilution of $            per share to the investors in this offering, after deducting the underwriting discount and estimated offering expenses payable by us.

To the extent that outstanding options or warrants have been or may be exercised or other shares issued, investors participating in this offering may experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

The following table sets forth the total number of shares of common stock previously issued and sold to existing investors, the total consideration paid for the foregoing and the average price per share of common stock paid, or to be paid, by existing owners and by the new investors. The calculation below is based on the assumed initial public offering price of $           per unit, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus, before deducting estimated underwriter commissions and offering expenses, in each case payable by us, and assumes no exercise of the warrants included in the units.

 


Share Purchased

 

Total Consideration

 

Average
Price
Per Share

   

Number

 

Percent

 

Amount

 

Percent

 

Existing stockholders

         

$

 

     

$

 

New investors

         

$

 

     

$

 

Total

         

$

 

     

 

 

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The number of shares included in “Existing Stockholders” above includes:

•                shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $500,000 that will convert concurrent with the closing of this offering at a conversion price equal to 50% of the initial public offering price;

•                shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $3,000,000 that will convert concurrent with the closing of this offering at a conversion price equal to the initial public offering price;

•                shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $1,900,000 that will convert concurrent with the closing of this offering at a conversion price equal to the initial public offering price;

•                shares of common stock to be issued concurrent with the closing of this offering under future equity agreements that we entered into with certain lenders, pursuant to which we agreed to issue to such lenders a number of shares of common stock equal to the stated value described in the future equity agreement, which may be the principal amount of the loan or the principal amount of the loan plus a premium, divided by the initial public offering price, which total stated value, in the aggregate, is $16,825,751;

•                shares of common stock to be issued concurrent with the closing of this offering under a future equity agreement that we entered into with a lender, pursuant to which we agreed to issue to such lender a number of shares of common stock equal to 75% of all funds advanced by such lender ($1,675,000) divided by the initial public offering price; and

•                 shares of common stock that we have agreed to issue to the former shareholders of GSP Nutrition pursuant to the terms of the contribution and exchange agreement.

However, the table above does not including the following:

•        1,450,000 shares of common stock issuable upon the exercise of outstanding options at an exercise price of $0.01 per share;

•        11,999,404 shares of common stock issuable upon the conversion of our outstanding series A convertible preferred stock;

•        11,999,404 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price per share that is equal to 125% of the initial public offering price for this offering;

•        1,382,441 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price of $0.0001 per share;

•        up to 2,250,000 shares of common stock issuable upon the conversion of 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 that are convertible at the option of the holders into shares of common stock at a conversion price that is equal to 50% of the effective initial public offering price (as described in the debentures); provided that after date on which the registration statement of which this prospectus forms a part is declared effective, the conversion price shall be reduced to the lower of such price and the lowest volume weighted average price during the 10 trading days immediately following the such date; and provided further, that the conversion price shall not be less than $1.00;

•        shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $73,727.01 that is convertible at the option of the holder into shares of common stock at a conversion price that is equal to forty percent (40%) of either (i) the price per share paid by investors in our next priced equity financing, including this offering, or (ii) the volume weighted average price of the common stock for the five trading days from and including the date that the conversion notice is given;

•        shares of common stock issuable upon the exercise of the warrants issued in connection with this offering; and

•        shares of common stock issuable upon the conversion of any shares of series B convertible preferred stock issued in connection with this offering.

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

The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this prospectus. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

Overview

We are engaged in the development, marketing, manufacturing, acquisition, operation and sale of a broad spectrum of nutritional and related products with an emphasis on health and wellness. Structured as a global holding company, we are executing a buy-and-build strategy with serial accretive acquisitions creating a vertically integrated company with an objective of aggregating companies generating a minimum of $300 million in revenues within the next thirty-six months. To drive growth and earnings, we are developing proprietary products as well as acquiring other profitable companies, encompassing brands, manufacturing and distribution channels.

On March 8, 2018, we acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products Inc. On October 9, 2019, we acquired the remaining 49% of these companies. On September 30, 2020, we changed the name of Millenium Natural Manufacturing Corp. to Bonne Santé Natural Manufacturing and on November 24, 2020, we merged Millenium Natural Health Products Inc. into Bonne Santé Natural Manufacturing to better reflect our vertical integration. Based in Doral, Florida, Bonne Santé Natural Manufacturing operates a 22,000 square foot manufacturing facility. From inception through September 30, 2021, it has manufactured nutritional products for approximately 240 companies, and from January 1, 2021 to September 30, 2021, it manufactured nutritional products for approximately 26 companies.

On July 1, 2021, we completed the acquisition of Doctors Scientific Organica. Doctors Scientific Organica manufactures, sells and owns the Smart for Life brand of natural health and wellness meal replacement products.

Recent Developments

Acquisition of Nexus

On November 8, 2021, we completed the acquisition of Nexus for a total purchase price of $6,000,000 (subject to adjustment), comprised of (i) $2,200,000 in cash (subject to adjustment), (ii) a 5% secured subordinated convertible promissory note in the principal amount of $1,900,000 and (iii) a 5% secured subordinated promissory note in the principal amount of $1,900,000.

The 5% secured subordinated convertible promissory note accrues interest at 5% per annum and the outstanding principal and interest are payable in a lump sum on the maturity date, November 8, 2024. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to the initial public offering price.

The 5% secured subordinated promissory note accrues interest at 5% per annum and the outstanding principal and interest will be amortized on a straight-line basis and are payable quarterly in accordance with the amortization schedule attached to the note, with all amounts due and payable on November 8, 2024.

We may prepay all or any portion of these note any time prior to maturity without premium or penalty. These notes contain customary covenants and events of default for loans of this type, including if a default occurs under any senior secured indebtedness to banks and other financial institutions or private equity funds, and are secured by a security interest in all of our assets; provided that such security interest is subordinate to the rights of the lenders under any such senior secured indebtedness.

Please see “Corporate History and Structure — Acquisition of Nexus” for additional details regarding this acquisition. Nexus is a network platform in the affiliate marketing space.

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Private Placement of Debentures

On November 5, 2021, we entered into a securities purchase agreement with certain investors, pursuant to which we sold 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 to such investors for gross proceeds of $2,250,000, the proceeds of which were used to fund the acquisition of Nexus described below.

Interest at a rate of 12% per annum shall accrue on the principal balance of the debentures from the date of issuance until the date that the registration statement of which this prospectus is a part is declared effective by the SEC (which we refer to as the IPO date); provided that upon an event of default, such interest rate shall increase to 18% per annum or the maximum rate permitted under applicable law, and we may be required to pay a default amount in certain circumstances. The debentures are due and payable on the earliest of the maturity date, November 30, 2022, or upon their earlier conversion or redemption.

At any time after the sixth month anniversary of the IPO date, the holders may convert the principal amount of the debentures into shares of common stock at a conversion price that is equal to 50% of the effective initial public offering price (as described in the debentures); provided that after the IPO date, the conversion price shall be reduced to the lower of such price and the lowest volume weighted average price during the 10 trading days immediately following the IPO date; provided further, that the conversion price shall not be less than $1.00. The conversion price is subject to standard equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions, as well as, prior to the IPO date, for future issuances below the conversion price. The debentures also contain beneficial ownership limitations which limit the holders’ beneficial ownership to 9.99% of our outstanding common stock.

At any time after the IPO date, we may redeem some or all of the outstanding principal amount of the debentures for cash in an amount equal to 115% of the outstanding principal amount of the debentures, plus accrued but unpaid interest and any other amounts due under the debentures.

The securities purchase agreement and the debentures contain customary representations, warranties, affirmative and negative covenants and events of default for loans of this type. The debentures are guaranteed by each of our subsidiaries.

Acquisition of GSP Nutrition

On November 29, 2021, we entered into a contribution and exchange agreement to acquire all of the issued and outstanding capital stock of GSP Nutrition. On December 6, 2021, the acquisition was completed.

The total purchase price was $425,000, payable in 42,500 shares of our common stock; provided that if the effective price per share of common stock in this offering (as determined in accordance with the contribution and exchange agreement) is less than $10 per share, then we must issue an additional number of shares of common stock equal to an amount determined by dividing the $425,000 purchase price by the effective offering price per share, minus 42,500. In connection with this acquisition, we also issued 14,723 shares of common stock to certain vendors of GSP who agreed to settle accounts payable owed to them into our common stock.

GSP Nutrition is a sports nutrition company that offers nutritional supplements for athletes and active lifestyle consumers under the Sports Illustrated Nutrition brand.

Impact of Coronavirus Pandemic

The COVID-19 pandemic continues to rapidly evolve. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results.

Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. Based on the nature of the business in our facilities in Doral and Riviera Beach, neither facility closed or operated at reduced capacity for our production and packaging operations. However, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit capacity in our facilities in response to guidance from applicable government and public health officials, which could adversely affect our operations and revenues.

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In addition, we are dependent upon certain contract manufacturers and suppliers and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain of our manufacturers and suppliers. As a result, we have faced and may continue to face delays or difficulty sourcing certain products and raw materials, which could negatively affect our business and financial results. Even if we are able to find alternate sources for such raw materials, they may cost more, which could adversely impact our profitability and financial condition.

The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact our business and demand for our products. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on our revenue.

The spread of COVID-19 has also adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.

If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, our business operations, including those of our contract manufacturers and suppliers, could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee resources. In addition, our operations could be disrupted if any of our employees were suspected of having COVID-19, which could require quarantine of some or all such employees or closure of our facilities for disinfection. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

The extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this prospectus, including the effectiveness of vaccines and other treatments for COVID-19, and other new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows. See also “Risk Factors” for more information.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

•        our ability to acquire new customers or retain existing customers;

•        our ability to offer competitive product pricing;

•        our ability to broaden product offerings;

•        industry demand and competition; and

•        market conditions and our market position.

Emerging Growth Company

Upon the completion of this offering, we will qualify as an “emerging growth company” under the JOBS Act. As a result, we will be permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

•        have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

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•        comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

•        submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

•        disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1.07 billion or more, (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Results of Operations

Smart for Life, Inc.

Comparison of Nine Months Ended September 30, 2021 and 2020

The following table sets forth key components of our results of operations during the nine months ended September 30, 2021 and 2020, both in dollars and as a percentage of our net sales.

 

September 30,
2021

 

September 30,
2020

   

Amount

 

% of
Net Sales

 

Amount

 

% of
Net Sales

Net sales

 

$

4,794,494

 

 

100.00

%

 

$

1,406,345

 

 

100.00

%

Cost of goods sold

 

 

3,328,402

 

 

69.42

%

 

 

1,232,763

 

 

87.66

%

Gross profit

 

 

1,466,092

 

 

30.58

%

 

 

173,582

 

 

12.34

%

Operating expenses

 

 

 

 

   

 

 

 

 

 

   

 

General and administrative

 

 

5,232,937

 

 

109.14

%

 

 

1,122,118

 

 

79.79

%

Depreciation and amortization
expense

 

 

159,928

 

 

3.34

%

 

 

82,638

 

 

5.88

%

Total operating expenses

 

 

5,392,865

 

 

112.48

%

 

 

1,204,756

 

 

85.67

%

Operating loss

 

 

(3,926,773

)

 

(81.90

)%

 

 

(1,031,174

)

 

(73.32

)%

Other income (expense)

 

 

 

 

   

 

 

 

 

 

   

 

Other income

 

 

80,311

 

 

1.68

%

 

 

13,865

 

 

0.99

%

Interest expense

 

 

(276,427

)

 

(5.77

)%

 

 

(408,587

)

 

(29.05

)%

Total other income (expense)

 

 

(196,116

)

 

(4.09

)%

 

 

(394,722

)

 

(28.07

)%

Net loss

 

$

(4,122,889

)

 

(85.99

)%

 

$

(1,425,896

)

 

(101.39

)%

Net sales.    We generate revenue from the sales of our nutritional and related products. Our net sales increased by $3,388,149, or 240.92%, to $4,794,494 for the nine months ended September 30, 2021, which included $2,651,471 from Doctors Scientific Organica from the period from July 1, 2021 (date of acquisition) to September 30, 2021, from $1,406,345 for

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the nine months ended September 30, 2020. Excluding Doctors Scientific Organica, our net sales increased by $736,678, or 52.38%. This increase was primarily due to increased sales of our contract manufacturing services following the easing of pandemic related restrictions. The increase was the result of an increase in the volume of products sold and not due to pricing changes.

Cost of goods sold.    Our cost of goods sold consists of ingredients and packaging materials and labor associated with the production of the products. Our cost of goods sold increased by $2,095,639, or 170.00%, to $3,328,402 for the nine months ended September 30, 2021, which included $1,291,071 from Doctors Scientific Organica from the period from July 1, 2021 (date of acquisition) to September 30, 2021, from $1,232,763 for the nine months ended September 30, 2020. Excluding Doctors Scientific Organica, our cost of goods sold increased by $804,568, or 65.27%. Such increase was due to an increase in the amount of sales during the current period along with increased pricing for the ingredients and packaging materials as a result of supply shortages associated with COVID-19. As a percentage of net sales, our cost of goods decreased from 87.66% in the 2020 period to 69.42% in the 2021 period (or 95.07% excluding Doctors Scientific Organica).

Gross profit.    As a result of the foregoing, our gross profit increased by $1,292,510, or 744.61%, to $1,466,092 for the nine months ended September 30, 2021, which included $1,360,400 from Doctors Scientific Organica from the period from July 1, 2021 (date of acquisition) to September 30, 2021, from $173,582 for the nine months ended September 30, 2020. Excluding Doctors Scientific Organica, our gross profit decreased by $67,890, or 39.11%. As a percentage of net sales, our gross profit increased from 12.34% in the 2020 period to 30.58% in the 2021 period (or 4.93% excluding Doctors Scientific Organica).

General and administrative expenses.    Our general and administrative expenses consist primarily of personnel expenses, including employee salaries and bonuses plus related payroll taxes, advertising expenses, professional advisor fees, bad debts, rent expense, insurance and other expenses incurred in connection with general operations. Our general and administrative expenses increased by $4,110,819, or 366.34%, to $5,232,937 for the nine months ended September 30, 2021, which included $1,533,935 from Doctors Scientific Organica from the period from July 1, 2021 (date of acquisition) to September 30, 2021, from $1,122,118 for the nine months ended September 30, 2020. Excluding Doctors Scientific Organica, our general and administrative expenses increased by $2,576,884, or 229.64%. Such increase in the expense was primarily due to the addition of corporate office personnel. During the current period, we hired a new Chief Executive Officer and Controller, and replaced our then Chief Financial Officer. Additionally, we engaged additional professionals associated with our audits and acquisition targets. As a percentage of net sales, general and administrative expenses increased from 79.79% in the 2020 period to 109.14% in the 2021 period (or 172.61% excluding Doctors Scientific Organica).

Depreciation and amortization.    Depreciation and amortization was $159,928, or 3.34% of net sales, for the nine months ended September 30, 2021, which included $5,392 from Doctors Scientific Organica from the period from July 1, 2021 (date of acquisition) to September 30, 2021, as compared to $82,638, or 5.88% of net sales, for the nine months ended September 30, 2020.

Total other income (expense).    We had $196,116 in total other expense, net, for the nine months ended September 30, 2021, as compared to total other expense, net, of $394,722 for the nine months ended September 30, 2020. Total other expense, net, for the nine months ended September 30, 2021 consisted of interest expense of $276,427, offset by interest income $80,311, while other expense, net, for the nine months ended September 30, 2020 consisted of interest expense of $408,587, offset by other income of $13,865. Other income includes the recognition of collections for previously written-off uncollectible balances.

Net loss.    As a result of the cumulative effect of the factors described above, we had a net loss of $4,122,889 for the nine months ended September 30, 2021, which included $88,348 from Doctors Scientific Organica from the period from July 1, 2021 (date of acquisition) to September 30, 2021, as compared to $1,425,896 for the nine months ended September 30, 2020, an increase of $2,696,993, or 189.14%. Excluding Doctors Scientific Organica, our loss increased by $2,608,645, or 182.95%.

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Comparison of Years Ended December 31, 2020 and 2019

The following table sets forth key components of our results of operations during the years ended December 31, 2020 and 2019, both in dollars and as a percentage of our net sales.

 

December 31,
2020

 

December 31,
2019

   

Amount

 

% of
Net Sales

 

Amount

 

% of
Net Sales

Net sales

 

$

1,959,595

 

 

100.00

%

 

$

2,364,863

 

 

100.00

%

Cost of goods sold

 

 

1,831,629

 

 

93.47

%

 

 

2,316,674

 

 

97.96

%

Gross profit

 

 

127,966

 

 

6.53

%

 

 

48,189

 

 

2.04

%

Operating expenses

 

 

 

 

   

 

 

 

 

 

   

 

General and administrative

 

 

1,863,087

 

 

95.08

%

 

 

2,282,712

 

 

96.53

%

Depreciation and amortization
expense

 

 

166,613

 

 

8.50

%

 

 

169,380

 

 

7.16

%

Total operating expenses

 

 

2,029,700

 

 

103.58

%

 

 

2,452,092

 

 

103.69

%

Operating loss

 

 

(1,901,734

)

 

(97.05

)%

 

 

(2,403,903

)

 

(101.65

)%

Other income (expense)

 

 

 

 

   

 

 

 

 

 

   

 

   

 

 

 

   

 

 

 

 

 

   

 

Other (expense) income

 

 

(14,141

)

 

(0.72

)%

 

 

13,290

 

 

0.56

%

   

 

 

 

   

 

 

 

 

 

   

 

Interest (expense)

 

 

(1,253,143

)

 

(63.95

)%

 

 

(624,493

)

 

(26.41

)%

Total other income (expense)

 

 

(1,267,284

)

 

(64.67

)%

 

 

(611,203

)

 

(25.85

)%

Net loss

 

$

(3,169,018

)

 

(161.72

)%

 

$

(3,015,106

)

 

(127.50

)%

Net sales.    Our net sales decreased by $405,268, or 17.14%, to $1,959,595 for the year ended December 31, 2020 from $2,364,863 for the year ended December 31, 2019. This decrease was due to decreased sales volumes, primarily due to the inability to obtain ingredients and packaging materials due to supply chain disruptions as a result of COVID-19. There is a worldwide shortage of plastic bottles which are used in the packaging of our products.

Cost of goods sold.    Our cost of goods sold decreased by $485,045, or 21%, to $1,831,629 for the year ended December 31, 2020 from $2,316,674 for the year ended December 31, 2019. As a percentage of net sales, cost of goods sold decreased from 98% in 2019 to 93% in 2020. Such decrease was due to the costs associated with various produced compounds during 2020. We manufacture a variety of products for our clients, with varying margins based on the relative cost of the ingredients. The costs of the products manufactured in 2020 were more concentrated and permitted for us to purchase in greater quantities and take advantage of volume discounts on purchased ingredients. Although we produced less items in 2020 as compared to 2019, we were able to obtain the materials at lower costs based on volume purchasing. Our sales contracts do not vary based on the pricing of materials. Therefore, the decreased cost of materials in 2020 were not passed along to the customer.

Gross profit.    As a result of the foregoing, our gross profit decreased by $79,777, or 165.55%, to $127,966 for the year ended December 31, 2020 from $48,189 for the year ended December 31, 2019. As a percentage of net sales, our gross profit increased from 2.04% in 2019 to 6.53% in 2020.

General and administrative expenses.    Our general and administrative expenses decreased by $419,625, or 18.38%, to $1,863,087 for the year ended December 31, 2020 from $2,282,712 for the year ended December 31, 2019. The decrease was primarily due to decreased legal and consulting fees of approximately $200,000 as the legal dispute that we had with the former owner of Bonne Santé Natural Manufacturing was resolved in late 2019. In 2019, there was also bad debt expense of approximately $82,000 and only approximately $10,000 in 2020. In 2020, we moved our corporate office and reduced the related expenses by approximately $75,000. As a percentage of net sales, general and administrative expenses decreased from 96.53% in 2019 to 95.08% in 2020.

Depreciation and amortization.    Depreciation and amortization was $166,613, or 8.50% of net sales, for the year ended December 31, 2020, as compared to $169,380, or 7.16% of net sales, for the year ended December 31, 2019.

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Total other income (expense).    We had $1,267,284 in total other expense, net, for the year ended December 31, 2020, as compared to total other expense, net, of $279,959 for the year ended December 31, 2019. Total other expense, net, for the year ended December 31, 2020 consisted of interest expense of $1,253,143, offset by interest income $12,801, while other expense, net, for the year ended December 31, 2019 consisted of interest expense of $624,493, offset by other income of $344,534. Other income includes the recognition of collections for previously written-off uncollectible balances. The increased interest expense is the result of debt issuances during 2020 used to fund operations and the losses incurred.

Net income (loss).    As a result of the cumulative effect of the factors described above, we had a net loss of $3,169,018 for the year ended December 31, 2020, as compared to $3,015,107 for the year ended December 31, 2019, an increase of $153,912 or 5.10%.

Nexus

Comparison of Nine Months Ended September 30, 2021 and 2020

The following table sets forth key components of the results of operations of Nexus during the nine months ended September 30, 2021 and 2020, both in dollars and as a percentage of net sales.

 

September 30,
2021

 

September 30,
2020

   

Amount

 

% of
Net Sales

 

Amount

 

% of
Net Sales

Net sales

 

$

4,238,330

 

 

100.00

%

 

$

3,876,096

 

100.00

%

Cost of goods sold

 

 

3,221,539

 

 

76.01

%

 

 

2,844,462

 

73.38

%

Gross profit

 

 

1,016,791

 

 

23.99

%

 

 

1,031,634

 

26.62

%

Operating expenses

 

 

 

 

   

 

 

 

     

 

General and administrative

 

 

914,690

 

 

21.58

%

 

 

848,474

 

21.89

%

Total operating expenses

 

 

914,690

 

 

21.58

%

 

 

848,474

 

21.89

%

Operating income

 

 

102,101

 

 

2.41

%

 

 

183,160

 

4.73

%

Income before income taxes

 

 

102,101

 

 

2.41

%

 

 

183,160

 

4.73

%

Income tax expense

 

 

(3,052

)

 

(0.07

)%

 

 

—

 

—

 

Net income

 

$

99,049

 

 

2.34

%

 

$

183,160

 

4.73

%

Net sales.    Nexus primarily generates revenues by sending traffic to one of the advertiser’s products on their websites. Net sales increased by $362,234, or 9.35%, to $4,238,330 for the nine months ended September 30, 2021 from $3,876,096 for the nine months ended September 30, 2020. This increase was primarily due to an increased number of advertisers and the number of advertising placements.

Cost of goods sold.    Cost of goods sold consists of commissions paid to various website publishers for the placement of advertisements. Cost of goods sold increased by $377,077, or 13.26%, to $3,221,539 for the nine months ended September 30, 2021 from $2,844,462 for the nine months ended September 30, 2020. Such increase was primarily due to an increased number of advertisements placed on the publisher’s webpages. As a percentage of net sales, cost of goods increased from 73.38% in the 2020 period to 76.01% in the 2021 period.

Gross profit.    As a result of the foregoing, gross profit decreased by $14,843, or 1.44%, to $1,016,791 for the nine months ended September 30, 2021 from $1,031,634 for the nine months ended September 30, 2020. As a percentage of net sales, gross profit decreased from 26.62% in the 2020 period to 23.99% in the 2021 period.

General and administrative expenses.    General and administrative expenses consist primarily of personnel expenses, including employee salaries and bonuses plus related payroll taxes, advertising expenses, merchant processing fees, professional advisor fees, and other expenses incurred in connection with general operations. General and administrative expenses increased by $66,216, or 7.80%, to $914,690 for the nine months ended September 30, 2021 from $848,474 for the nine months ended September 30, 2020. Such increase in the expense was primarily due to increased employee bonuses. As a percentage of net sales, general and administrative expenses decreased from 21.89% in the 2020 period to 21.58% in the 2021 period.

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Net income.    As a result of the cumulative effect of the factors described above, Nexus had a net income of $99,049 for the nine months ended September 30, 2021, as compared to $183,160 for the nine months ended September 30, 2020.

Comparison of Years Ended December 31, 2020 and 2019

The following table sets forth key components of the results of operations of Nexus during the years ended December 31, 2020 and 2019, both in dollars and as a percentage of net sales.

 

December 31,
2020

 

December 31,
2019

   

Amount

 

% of
Net Sales

 

Amount

 

% of
Net Sales

Net sales

 

$

5,674,946

 

 

100.00

%

 

$

3,634,159

 

100.00

%

Cost of goods sold

 

 

4,353,573

 

 

76.72

%

 

 

3,109,566

 

85.56

%

Gross profit

 

 

1,321,373

 

 

23.28

%

 

 

524,593

 

14.44

%

Operating expenses

 

 

 

 

   

 

 

 

     

 

General and administrative

 

 

1,436,710

 

 

25.32

%

 

 

437,741

 

12.05

%

Total operating expenses

 

 

1,436,710

 

 

25.32

%

 

 

437,741

 

12.05

%

Operating income (loss)

 

 

(115,337

)

 

(2.03

)%

 

 

86,852

 

2.39

%

Income (loss) before income taxes

 

 

(115,337

)

 

(2.03

)%

 

 

86,852

 

2.39

%

Income tax expense

 

 

5,863

 

 

0.10

%

 

 

—

 

—

 

Net income (loss)

 

$

(121,200

)

 

(2.14

)%

 

$

86,852

 

2.39

%

Net sales.    Net sales increased by $2,040,787, or 56.16%, to $5,674,946 for the year ended December 31, 2020 from $3,634,159 for the year ended December 31, 2019. This increase was primarily due to an increased number of advertisers and the number of advertising placements.

Cost of goods sold.    Cost of goods sold increased by $1,244,007, or 40.01%, to $4,353,573 for the year ended December 31, 2020 from $3,109,566 for the year ended December 31, 2019. As a percentage of net sales, cost of goods decreased from 85.56% in 2019 to 76.72% in 2020. Such decrease was primarily due to Nexus’ ability to negotiate more favorable rates for advertising rates on various publishers’ websites.

Gross profit.    As a result of the foregoing, gross profit increased by $796,780, or 151.89%, to $1,321,871 for the year ended December 31, 2020 from $524,593 for the year ended December 31, 2019. As a percentage of net sales, gross profit increased from 14.44% in 2019 to 23.29% in 2020.

General and administrative expenses.    General and administrative expenses increased by $998,969, or 228.21%, to $1,436,710 for the year ended December 31, 2020 from $437,741 for the year ended December 31, 2019. Such increase in the expense was primarily due to additional compensation related expenses. As a percentage of net sales, general and administrative expenses increased from 14.44% in 2019 to 23.28% in 2020.

Income tax expense.    Nexis incurred an income tax expense of $5,863 for the year ended December 31, 2020, as compared to $0 for the year ended December 31, 2019. Such increase was due to taxes recorded as calculated in the year paid.

Net income (loss).    As a result of the cumulative effect of the factors described above, Nexus had a net loss of $121,200 for the year ended December 31, 2020, as compared to a net income of $86,852 for the year ended December 31, 2019.

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Doctors Scientific Organica

Comparison of Years Ended December 31, 2020 and 2019

The following table sets forth key components of the results of operations of Doctors Scientific Organica during the years ended December 31, 2020 and 2019, both in dollars and as a percentage of net sales.

 

December 31,
2020

 

December 31,
2019

   

Amount

 

% of
Net Sales

 

Amount

 

% of
Net Sales

Net sales

 

$

10,782,192

 

 

100.00

%

 

$

10,048,642

 

 

100.00

%

Cost of goods sold

 

 

4,436,389

 

 

41.15

%

 

 

4,777,392

 

 

47.54

%

Gross profit

 

 

6,345,803

 

 

58.85

%

 

 

5,271,250

 

 

52.46

%

Operating expenses

 

 

 

 

   

 

 

 

 

 

   

 

General and administrative

 

 

4,608,331

 

 

42.74

%

 

 

3,875,983

 

 

38.57

%

Depreciation

 

 

82,786

 

 

0.77

%

 

 

97,160

 

 

0.97

%

Total operating expenses

 

 

4,691,117

 

 

43.51

%

 

 

3,973,143

 

 

39.54

%

Operating income

 

 

1,654,686

 

 

15.35

%

 

 

1,298,107

 

 

12.92

%

Other income (expense)

 

 

 

 

   

 

 

 

 

 

   

 

Other income

 

 

—

 

 

—

 

 

 

410,500

 

 

4.09

%

Interest expense

 

 

(85,307

)

 

(0.79

)%

 

 

(95,076

)

 

(0.95

)%

Total other (expense) income

 

 

(85,307

)

 

(0.79

)%

 

 

315,424

 

 

3.14

%

Net income

 

$

1,569,379

 

 

14.56

%

 

$

1,613,531

 

 

16.06

%

Net sales.    Doctors Scientific Organica generates revenue from the sales of our nutritional and related products. Net sales increased by $733,550, or 7.30%, to $10,782,192 for the year ended December 31, 2020 from $10,048,642 for the year ended December 31, 2019. This increase was primarily due to increased sales volumes resulting from additional customer acquisitions due to increased marketing efforts.

Cost of goods sold.    Cost of goods sold consists of ingredients, packaging materials, freight, and labor associated with he production of various products. Cost of goods sold decreased by $341,003, or 7.14%, to $4,436,389 for the year ended December 31, 2020 from $4,777,392 for the year ended December 31, 2019. As a percentage of net sales, cost of goods sold decreased from 47.54% in 2019 to 41.15% in 2020. Such decrease was due to the hiring of a more experienced purchasing manager able to better plan purchases and negotiate with vendors.

Gross profit.    As a result of the foregoing, gross profit increased by $1,074,553, or 20.39%, to $6,345,803 for the year ended December 31, 2020 from $5,271,250 for the year ended December 31, 2019. As a percentage of net sales, gross profit increased from 52.46% in 2019 to 58.85% in 2020.

General and administrative expenses.    General and administrative expenses consist primarily of personnel expenses, including employee salaries and bonuses plus related payroll taxes, advertising expenses, professional advisor fees, bad debts, rent expense, insurance and other expenses incurred in connection with general operations. General and administrative expenses increased by $732,348, or 18.89%, to $4,608,331 for the year ended December 31, 2020 from $3,875,983 for the year ended December 31, 2019. Such increase was primarily due to increased spending on advertising and professional services. Doctors Scientific Organica also increased its online advertising and signed agreements with various social media influencers. In an effort to sell the business, Doctors Scientific Organica increased its professional service expense with the new consultants and accounting professionals. As a percentage of net sales, general and administrative expenses increased from 38.57% in 2019 to 42.74% in 2020.

Depreciation and amortization.    Depreciation and amortization was $82,786, or 0.77% of net sales, for the year ended December 31, 2020, as compared to $97,160, or 0.97% of net sales, for the year ended December 31, 2019.

Total other income (expense).    Doctors Scientific Organica had $83,307 in total other expense, net, for the year ended December 31, 2020, as compared to total other income, net, of $315,500 for the year ended December 31, 2019. Total other expense, net, for the year ended December 31, 2020 consisted of interest expense, while other income, net, for the year ended December 31, 2019 consisted of interest expense of $95,076, offset by income of $410,500 resulting from insurance proceeds of received related to hurricane damages incurred in prior years.

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Net income.    As a result of the cumulative effect of the factors described above, Doctors Scientific Organica had net income of $1,569,379 for the year ended December 31, 2020, as compared to $1,613,531 for the year ended December 31, 2019, a decrease of $44,152, or 2.74%.

Liquidity and Capital Resources

Smart for Life, Inc.

As of September 30, 2021, we had cash of $690,101. To date, we have financed our operations primarily through revenue generated from operations, bank borrowings and private placements of our securities.

Since our inception in 2017 and with the purchase of Bonne Santé Natural Manufacturing, we have experienced losses and as a result have continued to use cash in our operations. We have been dependent upon financing activities as we implement our acquisition strategy.

We believe that our current levels of cash will be sufficient to meet our anticipated cash needs for our operations for at least the next 12 months, including our anticipated costs associated with becoming a public reporting company. We may, however, in the future require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for all financial statement periods presented in this prospectus.

 

Nine Months Ended
September 30,

 

Year Ended
December 31,

   

2021

 

2020

 

2020

 

2019

Net cash used in operating activities

 

$

(6,654,878

)

 

$

(875,461

)

 

$

(1,941,839

)

 

$

(1,745,514

)

Net cash used in investing activities

 

 

(6,001,550

)

 

 

(31,039

)

 

 

(32,966

)

 

 

—

 

Net cash provided by financing activities

 

 

12,861,580

 

 

 

922,686

 

 

 

2,447,542

 

 

 

1,759,235

 

Net change in cash

 

 

205,152

 

 

 

16,186

 

 

 

472,737

 

 

 

13,721

 

Cash and cash equivalents at beginning of period

 

 

484,949

 

 

 

12,212

 

 

 

12,212

 

 

 

(1,509

)

Cash and cash equivalents at end of
period

 

$

690,101

 

 

$

28,398

 

 

$

484,949

 

 

$

12,212

 

Our net cash used in operating activities was $6,654,878 for the nine months ended September 30, 2021, as compared to $875,461 for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, our net loss of $4,122,889, a decrease in inventory of $2,972,531, a decrease in accrued expenses of $247,435 and a decrease in related party receivable of $251,417, offset by an increase in accounts payable of $941,909 and depreciation of $118,466, were the primary drivers for cash used in operations. For the nine months ended September 30, 2020, our net loss of $1,425,896, a decrease in inventory of $271,733 and a decrease in accounts receivable of $249,559, offset an increase in deferred revenues of $943,232, were the primary drivers for cash used in operations.

Our net cash used in operating activities was $1,941,839 for the year ended December 31, 2020, as compared to $1,745,514 for the year ended December 31, 2019. For the year ended December 31, 2020, our net loss of $3,169,018, offset by an increase in inventory of $507,970, an increase in accrued expenses of $476,372, stock issued for services of $122,388 and deprecation of $108,760, were the primary drivers for cash used in operations. For the year ended December 31, 20190, our net loss of $2,522,343 and deferred revenue of $393,987, offset by an increase in accrued expenses of $317,675, an increase in inventory of $212,441, an increase in prepaid expenses and other current assets of $161,740 and depreciation of $111,213, were the primary drivers for cash used in operations.

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Table of Contents

Our net cash used in investing activities was $6,001,550 for the nine months ended September 30, 2021, as compared to $31,039 for the nine months ended September 30, 2020. Net cash used in investing activities for the nine months ended September 30, 2021 consisted of cash paid for the acquisition of Doctors Scientific Organica of $6,000,000 and purchases of property and equipment of $1,550, while the net cash used in investing activities for the nine months ended September 30, 2020 periods consisted entirely of purchases of property and equipment.

Our net cash used in investing activities was $32,966 for the year ended December 31, 2020, which consisted of purchases of property and equipment. We had no investing activities for the year ended December 31, 2019.

Our net cash provided by financing activities was $12,861,580 for the nine months ended September 30, 2021, as compared to $922,686 for the nine months ended September 30, 2020. Net cash provided by financing activities for the nine months ended September 30, 2021 consisted of proceeds of $8,000,000 from the private placement described below, proceeds from the issuance of note payables of $5,547,104, paycheck protection program loan proceeds of $261,164 and a gain on right of use asset and lease liability of $49,069, offset by repayments on notes payable of $995,757, while the net cash provided by financing activities for the nine months ended September 30, 2020 consisted of proceeds from the issuance of note payables of $500,000, and paycheck protection program loan proceeds of $539,286, offset by repayments on notes payable of $116,600.

Our net cash provided by financing activities was $2,447,542 for the year ended December 31, 2020, as compared to $1,759,235 for the year ended December 31, 2019. Net cash provided by financing activities for the year ended December 31, 2020 consisted of proceeds from the issuance of note payables of $2,555,749, paycheck protection program loan proceeds of $318,013 and a gain on right of use asset and lease liability of $63,880, offset by repayments on notes payable of $490,100, while the net cash provided by financing activities for the year ended December 31, 2019 consisted of proceeds from the issuance of note payables of $2,230,000, offset by repayments on notes payable of $385,000 and a loss on right of use asset and lease liability of $85,765.

Debt

On December 18, 2020, we entered into a loan and security agreement with Peah Capital, LLC for a term loan in the principal amount of up to $1,500,000, which was amended on April 27, 2021 to increase the loan amount to $1,625,000. In connection with such amendment, on April 27, 2021, we issued a second amended and restated promissory note to Peah Capital, LLC in the principal amount of $1,625,000. The loan bears interest at a rate of 17.5% per annum, provided that upon an event of default, such rate shall increase to 25% per annum. The loan is due and payable on the earlier of: (i) eighteen (18) months from the date of the note or (ii) upon completion of this offering. The loan is secured by all of our assets and contains customary events of default. As of September 30, 2021, the outstanding balance of this loan was $1,614,906.

On July 1, 2021, we entered into a loan agreement with Diamond Creek Capital, LLC for a term loan in the principal amount of up to $3,000,000 and issued a term loan promissory note to Diamond Creek Capital, LLC in the principal amount of $3,000,000. The loan bears interest at a rate of 15.0% per annum, provided that upon an event of default, such rate shall increase by 5%. The loan is due and payable on the earlier of July 1, 2022 or upon completion of this offering. The loan is secured by all of our assets and contains customary events of default. As of September 30, 2021, the outstanding balance of this loan was $3,000,000.

Since inception, we have issued promissory notes to various lenders. These notes accrue interest at rates between 12-15%. These notes are unsecured and contain customary events of default. As of September 30, 2021, the outstanding balance of these notes was $3,916,325. We have agreed to repay these notes from the proceeds of this offering.

On July 1, 2021, we issued a 6% secured subordinated convertible promissory note in the principal amount of $3,000,000 to Sasson E. Moulavi in connection with the acquisition of Doctors Scientific Organica. This note accrues interest at 6% per annum and matures on July 1, 2024. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to the initial public offering price. This note contains customary covenants and events of default for a loan of this type, including if a default occurs under any senior secured indebtedness to banks and other financial institutions or private equity funds, and is secured by a security interest in all of the assets of Doctors Scientific Organica; provided that such security interest is subordinate to the rights of the lenders under any such senior secured indebtedness. As of September 30, 2021, the outstanding balance of this note was $3,000,000.

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On July 1, 2021, we issued a 6% secured subordinated promissory note in the principal amount of $3,000,000 to Sasson E. Moulavi in connection with the acquisition of Doctors Scientific Organica. This note accrues interest at 6% per annum and the outstanding principal and interest will be amortized on a straight-line basis and are payable quarterly in accordance with the amortization schedule attached to the note, with all amounts due and payable on July 1, 2024. We may prepay all or any portion of this note any time prior to maturity without premium or penalty. This note contains customary covenants and events of default for a loan of this type, including if a default occurs under any senior secured indebtedness to banks and other financial institutions or private equity funds, and is secured by a security interest in all of the assets of Doctors Scientific Organica; provided that such security interest is subordinate to the rights of the lenders under any such senior secured indebtedness. As of September 30, 2021, the outstanding balance of this note was $3,000,000.

In June 2020, pursuant to the economic injury disaster loan, or EIDL, program under the under the provisions of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, we entered into a promissory note with the U.S. Small Business Administration with a principal amount of $300,000. This loan matures in 30 years and bears interest at a rate of 3.75%. The loan is secured by all of our assets. As of September 30, 2021, the outstanding balance of this loan was $300,000.

In May 2020, we received $239,262 in paycheck protection program, or PPP, loans under the CARES Act. This loan bears interest at a rate of 1% per annum and matures in April 2022. As of September 30, 2021, the outstanding balance of this loan was $239,262. The PPP provides that the PPP loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act.

In February 2021, we received an additional $261,164 in PPP loans under the CARES Act. This loan bears interest at a rate of 1% per annum and matures in January 2023. As of September 30, 2021, the outstanding balance of this loan was $261,164. The PPP provides that the PPP loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act.

Private Placement of Series A Convertible Preferred Stock

On July 1, 2021, we completed a private placement in which we sold an aggregate of 6,000 shares of series A convertible preferred stock and warrants for the purchase of an aggregate of 8,999,552 shares of common stock to certain investors for gross proceeds of $6,000,000. On August 18, 2021, we completed an additional closing of this private placement in which we sold 2,000 shares of series A convertible preferred stock and warrants for the purchase of 2,999,852 shares of common stock for gross proceeds of $2,000,000. Please see “Description of Securities” for a description of the series A convertible preferred stock and warrants issued in this private placement.

Nexus

As of September 30, 2021, Nexus had cash of $44,330. To date, it has financed its operations primarily through revenue generated from operations and investments from its shareholders.

Summary of Cash Flow

The following table provides detailed information about the net cash flow for all financial statement periods presented in this prospectus.

 

Nine Months Ended
September 30,

 

Year Ended
December 31,

   

2021

 

2020

 

2020

 

2019

Net cash provided by (used in) operating
activities

 

$

68,042

 

 

$

113,043

 

$

(78,629

)

 

$

36,200

Net cash used in investing activities

 

 

—

 

 

 

—

 

 

—

 

 

 

—

Net cash provided by financing
activities

 

 

(59,900

)

 

 

59,900

 

 

59,900

 

 

 

—

Net change in cash

 

 

8,142

 

 

 

172,943

 

 

(18,729

)

 

 

36,200

Cash and cash equivalents at beginning of period

 

 

36,188

 

 

 

54,917

 

 

54,917

 

 

 

18,717

Cash and cash equivalents at end of
period

 

$

44,330

 

 

$

227,860

 

$

36,188

 

 

$

54,917

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Net cash provided by operating activities was $68,042 for the nine months ended September 30, 2021, as compared to $113,043 for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the net income of $99,049 and an increase in accounts receivable of $22,089, offset by decreases in commissions payable of $28,295 and accrued expenses of $24,801, were the primary drivers for cash provided by operations. For the nine months ended September 30, 2020, the net income of $183,160 and an increase in commissions receivable of $156,761, offset by decreases in accounts receivable of $207,342 and accrued expenses of $165,507, were the primary drivers for cash provided by operations.

Net cash used in operating activities was $78,629 for the year ended December 31, 2020, as compared to $36,200 net cash provided by operating activities for the year ended December 31, 2019. For the year ended December 31, 2020, the net loss of $121,200 and a decrease in accounts receivable of $30,236, offset by an increase in commissions payable of $65,774 and an increase in accrued expenses of $7,033, were the primary drivers for cash used in operations. For the year ended December 31, 2019, the net income of $82,735, an increase in commissions payable of $64,149 and an increase in accrued expenses of $5,925, offset by a decrease in accounts receivable of $116,609, were the primary drivers for cash provided by operations.

Nexus had no investing activities for the nine months ended September 30, 2021 and 2020 or the years ended December 31, 2020 and 2019.

Net cash used in financing activities for the nine months ended September 30, 2021 was $59,900, which consisted of repayment of the EIDL described below. Net cash provided by financing activities for the nine months ended September 30, 2020 and year ended December 31, 2020 was $59,900, which consisted of proceeds from the EIDL described below. Nexus had no financing activities for the year ended December 31, 2019.

Debt

In June 2020, Nexus was granted an EIDL from the U.S. Small Business Administration in the amount of $59,900. The EIDL, which was in the form of a note dated June 19, 2020, bears interest of 3.75% per annum, payable monthly for $2,437 commencing in June of 2021. The EIDL may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the EIDL may only be used as working capital to alleviate economic injury caused by disaster occurring in the month of January 2020, and continuing thereafter, and to pay Uniform Commercial Code lien filing fees. We intend to use the funds from the EIDL for qualifying expenses. These amounts were fully repaid in September 2021 and were therefore listed as short-term.

Doctors Scientific Organica

As of December 31, 2020, Doctors Scientific Organica had cash of $0. To date, it has financed its operations primarily through revenue generated from operations and bank borrowings.

Doctors Scientific Organica is a single member limited liability company with a single member. As such, the member has elected to not keep excess cash generated in the business remaining in the business as various times of the year. The business has continued to generate positive cash flows from operations which have been used for the re-investment in equipment as necessary, with any excess cash distributed to the member.

Summary of Cash Flow

The following table provides detailed information about the net cash flow for all financial statement periods presented in this prospectus.

 

Year Ended
December 31,

   

2020

 

2019

Net cash provided by operating activities

 

$

762,671

 

 

$

1,230,920

 

Net cash used in investing activities

 

 

(15,103

)

 

 

(110,923

)

Net cash used in financing activities

 

 

(830,081

)

 

 

(1,037,484

)

Net change in cash and cash equivalents

 

 

(82,513

)

 

 

82,513

 

Cash and cash equivalents at beginning of period

 

 

82,513

 

 

 

—

 

Cash and cash equivalents at end of period

 

$

—

 

 

$

82,513

 

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The net cash provided by operating activities was $762,671 for the year ended December 31, 2020, as compared to $1,230,920 for the year ended December 31, 2019. For the year ended December 31, 2020, the net income of $1,569,379, offset by a decreased in inventory of $646,942, a decrease in accrued expenses of $219,863 and a decrease in accounts receivable of $138,108, were the primary drivers for cash provided by operations. For the year ended December 31, 2019, the net income of $1,613,531 and an increase in accrued expenses of $173,381, offset by a decrease in accounts payable and cash overdraft of $394,503 and a decrease in inventory of $154,183, were the primary drivers for cash provided by operations.

Net cash used in investing activities was $15,103 for the year ended December 31, 2020, as compared to $110,923 for the year ended December 31, 2019. The net cash used in financing activities for all periods consisted entirely of purchases of property and equipment.

Net cash used in financing activities was $830,081 for the year ended December 31, 2020, as compared to $1,037,484 for the year ended December 31, 2019. The net cash used in financing activities for the year ended December 31, 2020 consisted of member distributions of $3,991,495, payments on line of credit of $1,197,740 and repayments on notes payable of $379,069, offset by contributions from members of $2,407,076, proceeds from line of credit of $1,937,397, paycheck protection program loan proceeds of $352,750 and proceeds from notes payable of $41,000, while the net cash used in financing activities for the year ended December 31, 2019 consisted of member distributions of $5,423,545 and repayments on notes payable of $659,452, offset by member contributions of $4,374,513 and proceeds from notes payable of $671,000.

Debt

On June 26, 2020, Doctors Scientific Organica entered into a revolving line of credit with a bank, which permitted borrowings up to $750,000, and bears interest at 3.5%. As of December 31, 2021, the balance of the line of credit was $739,657.

Contractual Obligations

Our principal commitments consist mostly of obligations under the loans described above, the operating leases described under “Business — Facilities” and pricing/margin structures for products established with our clients. We do not have any purchase obligations with any suppliers.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The following discussion relates to critical accounting policies for our company. The preparation of financial statements in conformity with GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

Revenue Recognition.    Effective January 1, 2019, we evaluate revenue recognition based on the criteria set forth in ASC 606, Revenue from Contracts with Customers. We evaluate and recognize revenue by: identifying the contract(s) with the customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to performance obligations in the contract; and recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer

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of control”). We primarily generate revenues by manufacturing and packaging of nutraceutical products as a contract manufacturer for customers. The majority of our revenue is recognized when we satisfy a single performance obligation by transferring control of our products to a customer. Control is generally transferred when our products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Our general payment terms are short-term in duration. We do not have significant financing components or payment terms. We did not have any material unsatisfied performance obligations at September 30, 2021 or December 31, 2020. Distribution expenses to transport our products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Inventory, net.    Inventory consists of raw materials, work in progress, and finished goods and is valued at the lower of cost (first-in, first-out) (replacement cost or net realizable value). An allowance for inventory obsolescence is provided for slow moving or obsolete inventory to write down historical cost to net realizable value. We primarily perform manufacturing for nutraceuticals in the form of powders, tablets and capsules. The allowance for obsolescence is an estimate established through charges to cost of goods sold. Management’s judgment in determining the adequacy of the allowance is based upon several factors which include, but are not limited to, analysis of slow moving inventory, analysis of the selling price of inventory, the predetermined shelf life of the product, and management’s judgment with respect to current economic conditions. Given the nature of the inventory, it is reasonably possible that our estimate of the allowance for obsolescence will change in the near term.

Long-Lived Assets.    We assess potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. We had no impairment of long-lived assets at September 30, 2021 and December 31, 2020.

Stock-based Compensation.    We recognize expense for stock options and warrants granted over the vesting period based on the fair value of the award at the grant date, are valued using a Black-Scholes option pricing model to determine the fair market value of the stock options. We calculate the amount of tax benefit available by tracking each stock option award on an employee-by-employee basis and on a grant-by-grant basis. We then compare the recorded expense to the tax deduction received for each stock option grant.

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CORPORATE HISTORY AND STRUCTURE

Our company was incorporated in the State of Delaware on February 2, 2017 under the name Bonne Santé Group, Inc. On August 4, 2021, we changed our name to Smart for Life, Inc. in connection with the acquisition of Doctors Scientific Organica described below.

Acquisition of Bonne Santé Natural Manufacturing

On March 8, 2018, we acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products Inc. for a purchase price of $2,140,272. On October 8, 2019, we entered into an agreement to acquire the remaining 49% of these companies for a purchase price of $100,000, which was completed on October 8, 2019.

Millenium Natural Manufacturing Corp. was originally incorporated in the State of Florida on March 12, 1998 under the name Millenium Natural Health Products Inc. On March 24, 2003, its name was changed to Millenium Natural Manufacturing Corp. Millenium Natural Health Products Inc. was originally incorporated in the State of Florida on February 5, 2002 under the name Millenium Natural Manufacturing Corp. On March 24, 2003, its name was changed to Millenium Natural Health Products Inc. On September 30, 2020, we changed the name of Millenium Natural Manufacturing Corp. to Bonne Sante Natural Manufacturing, Inc., or Bonne Santé Natural Manufacturing, and on November 24, 2020, we merged Millenium Natural Health Products Inc. into Bonne Santé Natural Manufacturing to better reflect our vertical integration.

Based in Doral, Florida, Bonne Santé Natural Manufacturing operates a 22,000 square foot manufacturing facility. From inception through September 30, 2021, it has manufactured nutritional products for approximately 240 companies, and from January 1, 2021 to September 30, 2021, it manufactured nutritional products for approximately 26 companies.

Acquisition of Doctors Scientific Organica

On February 11, 2020, we entered into securities purchase agreement, which was amended on July 7, 2020 and June 4, 2021, to acquire Doctors Scientific Organica, LLC d/b/a Smart for Life, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. On July 1, 2021, the acquisition was completed.

The total purchase price was $12,000,000 (subject to adjustment), comprised of (i) $6,000,000 in cash (subject to adjustment), (ii) a 6% secured subordinated convertible promissory note in the principal amount of $3,000,000 and (iii) a 6% secured subordinated promissory note in the principal amount of $3,000,000.

The purchase price is subject to a post-closing working capital adjustment provision. We are required to deliver to the seller a balance sheet as of the closing date and our calculation of the closing working capital (as defined in the securities purchase agreement). If such closing working capital exceeds a minimum working capital equal to the average monthly working capital for the twelve-month period ended April 30, 2021 (subject to certain exceptions set forth in the securities purchase agreement), then then we must promptly (and, in any event, within fifteen (15) days) pay to the seller an amount in cash that is equal to such excess. If such minimum working capital exceeds the closing working capital, then the seller must promptly (and, in any event, within fifteen (15) days) pay to us an amount in cash that is equal to the deficiency.

Doctors Scientific Organica, LLC was originally incorporated in the State of Nevada on February 16, 2006. On September 28, 2015, it converted to a Florida company. Oyster Management Services, Ltd. was originally organized in the State of Florida on April 1, 2003. Lawee Enterprises, L.L.C. was originally organized in the State of Florida on January 3, 2005. U.S. Medical Care Holdings, L.L.C. was originally organized in the State of Florida on April 1, 2003.

On August 27, 2021, we transferred all of the equity interests of Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. to Doctors Scientific Organica, LLC. As a result, these entities are now wholly owned subsidiaries of Doctors Scientific Organica, LLC. In this prospectus, we collectively refer to Doctors Scientific Organica, LLC and its consolidated subsidiaries as Doctors Scientific Organica.

Doctors Scientific Organica manufactures, sells and owns the Smart for Life brand of natural health and wellness meal replacement products.

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Establishment of Canadian Subsidiary

On August 24, 2021, we established Smart for Life Canada Inc. as a wholly owned subsidiary of Doctors Scientific Organica in Canada. This subsidiary sells retail products through a retail store location in Montreal Canada and the same location also acts as distribution center for our international direct to consumer and big box customers. We maintain inventory and employees at this location.

Acquisition of Nexus

On July 21, 2021, we entered into a securities purchase agreement, which was amended on November 8, 2021, to acquire all of the issued and outstanding capital stock of Nexus. On November 8, 2021, the acquisition was completed.

The total purchase price was $6,000,000 (subject to adjustment), comprised of (i) $2,200,000 in cash (subject to adjustment), (ii) a 5% secured subordinated convertible promissory note in the principal amount of $1,900,000 and (iii) a 5% secured subordinated promissory note in the principal amount of $1,900,000.

The purchase price is subject to a post-closing working capital adjustment provision. On or before the 90th day following the closing, we must deliver to the seller a balance sheet as of the closing date and our calculation of the closing working capital (as defined in the securities purchase agreement). If such closing working capital exceeds a minimum working capital equal to the average monthly working capital for the twelve-month period ended July 31, 2021 (subject to certain exceptions set forth in the securities purchase agreement), then then we must promptly (and, in any event, within fifteen (15) days) pay to the seller an amount in cash that is equal to such excess. If such minimum working capital exceeds the closing working capital, then the seller must promptly (and, in any event, within fifteen (15) days) pay to us an amount in cash that is equal to the deficiency.

Nexus was incorporated in the State of Florida on October 10, 2016.

Nexus is a network platform in the affiliate marketing space.

Acquisition of GSP Nutrition

On November 29, 2021, we entered into a contribution and exchange agreement to acquire all of the issued and outstanding capital stock of GSP Nutrition. On December 6, 2021, the acquisition was completed.

The total purchase price was $425,000, payable in 42,500 shares of our common stock; provided that if the effective price per share of common stock in this offering (as determined in accordance with the contribution and exchange agreement) is less than $10 per share, then we must issue an additional number of shares of common stock equal to an amount determined by dividing the $425,000 purchase price by the effective offering price per share, minus 42,500. In connection with this acquisition, we also issued 14,723 shares of common stock to certain vendors of GSP who agreed to settle accounts payable owed to them into our common stock.

GSP Nutrition was incorporated in the State of Delaware on January 3, 2020.

GSP Nutrition is a sports nutrition company that offers nutritional supplements for athletes and active lifestyle consumers under the Sports Illustrated Nutrition brand.

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Corporate Structure

The following charts depict our organization structure before and after this offering.

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BUSINESS

Overview

We are engaged in the development, marketing, manufacturing, acquisition, operation and sale of a broad spectrum of nutritional and related products with an emphasis on health and wellness. Structured as a global holding company, we are executing a buy-and-build strategy with serial accretive acquisitions creating a vertically integrated company with an objective of aggregating companies generating a minimum of $300 million in revenues within the next thirty-six months. To drive growth and earnings, we are developing proprietary products as well as acquiring other profitable companies, encompassing brands, manufacturing and distribution channels.

Our Business Model

We are engaged in a comprehensive program to develop a robust pipeline of prospective acquisitions in addition to the companies currently operated by us. Our management has significant experience in locating and evaluating prospective target operating companies. We have also entered into buy-side agreements with certain advisers and consultants to assist management in identifying and evaluating prospective target operating companies.

We plant to acquire target companies utilizing a combination of cash, promissory notes, earnouts and public company stock, generally at 4x to 6x trailing adjusted EBITDA. Aside from our first acquisition described below, we intend on paying no more than 60% cash on any acquisition that we execute with a target of 50%. The remainder is allocated between stock and a note and/or earnout with a heavier weighting toward the former. Although the acquisition consideration is structured, we believe that our acquisitions will provide three distinct benefits to the principals of an acquisition. First, a significant liquidity event. Second, the creation of a significant equity position in an emerging growth public company. Third, ongoing employment at customary industry compensation.

Over the next 24 months, we plan to acquire multiple companies aggregating a minimum of $100 million in annualized revenues with the number of prospective acquisitions in the pipeline representing over $50 million in additional revenue. The nutritional products industry is highly fragmented with a large pool of companies generating less than $20 million in revenues representing significant opportunity for industry consolidation.

We do not currently have sufficient capital to complete these acquisitions. We intend to raise capital for additional acquisitions primarily through debt financing at our operating company level, additional equity offerings by our company, or by undertaking a combination of any of the above. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all.

There is no guarantee that we will be able to acquire additional businesses under the terms outlined above or that we will be able to find additional acquisition candidates should we terminate our plans for any of our current acquisition targets.

Our Industry

The markets in which we operate are characterized by rapid technological changes, frequent new product introductions, established and emerging competition, extensive intellectual property disputes and litigation, price competition, aggressive marketing practices, evolving industry standards and changing customer preferences. Accordingly, our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies operating in rapidly changing and competitive markets.

Nutraceutical Industry

The nutraceutical industry focuses on nutritional supplements intended to improve longevity, sports fitness and provide health benefits in addition to the basic nutritional value present in food. Most people are familiar with various nutraceutical products — and have likely used them — even if they are unfamiliar with the industry name. Nutraceuticals comprise such commonly used items as herbal products, specific diet products, vitamins, processed

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foods and beverages, functional foods, isolated nutrients and other dietary products. The following table prepared by the Council for Responsible Nutrition (www.crnusa.org), or CRN, depicts the types of supplements taken by the population in the different indicated categories beginning in 2018 and estimated through 2027. We sell products across all of these product categories, and we believe that our market share in each of these categories is currently less than 1%.

SOURCE: Council for Responsible Nutrition

The nutraceutical industry has experienced significant growth across the globe, propelled by the increasing age expectancies and associated increases in diseases of aging and lifestyle. A shift in demographics has also allowed manufacturers to benefit in recent years. The number of Americans ages 65 and older is projected to nearly double from 52 million in 2018 to 95 million by 2060, and the 65-and-older age group’s share of the total population will rise from 16% to 23%. Moreover, the CRN reported 77% of U.S. adults take dietary supplements. With respect to the types of supplements being taken, CRN’s 2019 survey found that vitamins and minerals continue to be the most commonly consumed supplement category, with 76% of Americans having taken these products in the past twelve months.

According to a study by Grand View Research, Inc., amid the COVID-19 crisis, the global market for nutraceuticals is projected to grow from $412.7 billion in the year 2020 and reach $722.5 billion by 2027, growing at a CAGR of 8.3% over the analysis period. As a specific segment in the overall global nutraceutical market, functional foods accounted for the largest share in 2019 and generated revenue of $187.51 billion on a standalone basis.

The nutraceuticals market in the United States is estimated at $104.5 billion in the year 2021 according to Global Industry Analysts Inc. The U.S. currently accounts for a 34.57% share in the global market. Among the other noteworthy geographic markets are China, Japan and Canada, each forecast to grow at 9.6%, 6.3% and 6.7%, respectively, over the analysis period. Within Europe, Germany is forecast to grow at approximately 7.1% CAGR.

Nutraceuticals are garnering immense attention in recent years due to various trends including changing lifestyles, burgeoning middle-class segment across emerging economies, transforming dietary habits, aging population, and increased life expectancy. In addition, the focus of R&D based pharmaceutical sector on expensive specialty drugs is increasing the burden on the healthcare system as well as resulting in higher out-of-pocket costs for drugs driving the focus on prevention than intervention. The self-care trend across the world is driving strong demand for nutraceuticals including superfoods, food and dietary supplements, sports nutrition, and functional foods and beverages. Given the hectic lifestyles and the lack of time for consumption of the required nutrients through regular diet, the need for replenishing such essential nutrients is increasing. In this context, nutraceuticals are emerging to be the solution for meeting this requirement. Nutraceuticals are considered to be the vital link between health and food.

The market is also experiencing strong demand for personalized approaches to wellness that is driving product innovation in the areas of weight management, sports nutrition, and healthy snacking. Other noteworthy trends

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benefiting market prospects in the near term include emergence of clean labeling as a new norm owing to increasing focus of consumers on ingredient list on the product; innovative delivery technologies such as microencapsulation, which protects the product from adverse conditions such as light and air.

To our knowledge, the projections above for future periods do not take into account the effects of the worldwide coronavirus pandemic. Accordingly, those projections may be overstated and should not be given undue weight. At this time, we cannot predict the exact effects of the pandemic.

As the overall population continues to turn to healthier living in hopes of offsetting rising healthcare expenditures and preventing general subpar health conditions, we believe that the demand for nutraceutical industry products will resemble a similar trend.

Digital Marketing

As a result of our acquisition of Nexus, we have entered the digital marketing industry as a way to promote and sell the products and brands that we sell. Digital marketing is a component of marketing that uses internet and online based digital technologies such as desktop computers, mobile phones and other digital media and platforms to promote products and services.

The COVID-19 pandemic resulted in people staying at home and/or working remotely from home, resulting in huge increase in online traffic. According to Global Industry Analysis, Inc., a leading publisher of off-the-shelf market research, while overall digital marketing spending declined due the pandemic-induced cuts in marketing and advertising budgets during the lockdown, available budgets are being directed at digital marketing initiatives. As a result, the pandemic is driving changes to digital marketing strategies at companies, especially at companies where digital marketing initiatives had relatively low priority.

Clicks and display ads are among the most prominent forms of digital marketing initiatives. Clicks are expensive compared to display ads, as clicks ensure the customer is directed to the advertiser’s website. However, clicks provide a better return on investment. The declines in digital marketing budgets across the spectrum resulted in lower costs per click. As a result, marketers are gaining more clicks for the same cost.

According to Global Industry Analysis, Inc., amid the COVID-19 crisis, the global market for digital advertising and marketing is estimated at $350 billion in the year 2020, and is projected to reach $786.2 billion by 2026, growing at a CAGR of 13.9% over the analysis period. The digital advertising and marketing market in the U.S. is estimated at $155.3 billion in the year 2021. We believe that our market share is currently less than 1%.

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Our Operating Subsidiaries

Bonne Santé Natural Manufacturing

Bonne Santé Natural Manufacturing is a nutraceutical contract manufacturer. Since 1998, our strong manufacturing capabilities and dedication to our clients has enabled us to build relationships with hundreds of customers throughout the United States and around the world, including South America, Central America and Europe. We specialize in a wide variety of products to fill our client’s needs, from the private labeling of vitamins, dietary supplements, nutraceuticals, sport nutrition and broad-spectrum nutritional supplements. Our experienced team of scientists, formulators, and manufacturing experts have the years of knowledge necessary to take our client’s concepts all the way from initial idea to finished product. In addition, we can provide the support for a simple and cost-effective “turn key” solution to manufacturing existing formulations.

To meet the specific demands of any order, we have state-of-the-art manufacturing and packaging lines to decrease cost and maximize efficiencies. We certify that all products and labels meet stringent FDA requirements and our quality control associates will continually monitor the entire process until products are delivered. Our goal is to exceed our customer’s expectations with respect to product quality, service and price.

Doctors Scientific Organica

Doctors Scientific Organica manufactures, sells and owns the Smart for Life brand of natural health and wellness meal replacement products. The brand includes proprietary hunger suppressing functional foods that are designed to work with the body’s natural ability to lose weight. The program uses an exact protein-to-sugar ratio, a low glycemic index and glycemic load as well as multiple small meals throughout the day to deliver specific amounts of protein, super fibers and complex carbs to suppress hunger, keep sugar and insulin low and trigger the body’s release of the fat releasing hormone glucagon.

Our Smart for Life products deliver:

•        Hunger controlling protein mix

•        No toxins or preservatives

•        The right amount of protein per calorie ratio

•        NO insulin spike, lets glucagon do its job

•        A small amount of essential good fats

•        Right amount of complex carbs

Doctors Scientific Organica also develops premium supplements and commodities that will promote optimal health and wellness. This natural product line uses simple quality ingredients to help create a more sustainable lifestyle. Doctors Scientific Organica has over 15 years of experience providing high-quality products to premium retail locations and companies. Doctors Scientific Organica branded vitamins and supplements are also being sold through Amazon, and this sales channel is becoming a major contributor to the growth of the brand online. All products are packaged in eco-friendly and bio-degradable packaging.

GSP Nutrition

GSP Nutrition is a sports nutrition company that was incorporated on January 3, 2020. It offers nutritional supplements for athletes and active lifestyle consumers through a variety of wellness solutions and delivery methods, including powders, tablets and soft gels that are formulated to support energy and performance; nutrition and wellness; and focus and clarity.

GSP Nutrition’s initial line of nutritional products are marketed under the Sports Illustrated Nutrition brand. The product line currently consists of whey protein isolate powder, tablet supplements for joint health, nitric oxide, post workout blends, Omega-3 supplements, and pre-workout supplements, among others.

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We believe that the Sports Illustrated brand is one of the most recognized brands in sports and athletics. GSP Nutrition has a license for the exclusive use of the Sports Illustrated brand (excluding the Sports Illustrated Swimsuit brand for which it has a right of first offer under the license) in the United States and Canada for certain dietary and nutritional supplements.

Nexus

Nexus operates a cost per action/cost per acquisition network. This is an advertising model where publishers are paid for an action that is taken as a direct result of their marketing. Through the publisher’s method of marketing, Nexus sends traffic to one of the advertiser’s product offers listed on the network. Examples of the publishers marketing tactics include but are not limited to native ads, email marketing, SEO and social media traffic. The products on the network come from several different advertisers which pay Nexus a specific amount per sale. A portion of that sale made is paid out to the publisher. Nexus has established long-term relationships with many advertisers and publishers. Nexus also has internal data streams it utilizes to create email lists and produce sales internally to the multitude of advertiser products on the network. Nexus has created a plug-and-play streamlined business that allows for seamless scalability into any vertical, niche or product.

We believe that Nexus is accretive to our other portfolio companies and allows us access to a broad spectrum of marketing tools to be utilized across the entire spectrum of our products.

Manufacturing, Distribution and Quality Control

Bonne Santé Natural Manufacturing operates a 22,000 square foot manufacturing facility in Doral, Florida. This facility primarily focuses on the contract manufacturing of vitamins and supplements, with a particular emphasis on the production of tablets, capsules and powders, along with turn-key solutions for packaging these health and wellness products in a wide variety of bottles, jars, sachets and stick packs. From inception through September 30, 2021, it has manufactured nutritional products for approximately 240 companies, and from January 1, 2021 to September 30, 2021, it manufactured nutritional products for approximately 26 companies.

Doctors Scientific Organica operates a 30,000 square foot manufacturing facility in Riviera Beach, Florida. This facility is primarily focused on the production of natural health and wellness meal replacement products, including nutrition bars, cookies, soups and shakes, as well as some vitamin and supplement capabilities such as powders.

GSP Nutrition relies on third-party contract manufacturers to manufacture its products.

All our manufacturing operations are subject to GMPs promulgated by the FDA and other applicable regulatory standards. We believe our manufacturing processes comply with the GMPs for dietary supplements or foods, and our manufacturing and distribution facilities generally have sufficient capacity to meet our current business requirements and our currently anticipated sales. We place special emphasis on quality control. We assign lot numbers to all raw materials and initially hold them in quarantine while our quality department evaluates them for compliance with established specifications. Once released, we retain samples and process the material according to approved formulas by blending, mixing and technically processing as necessary. We manufacture products in final delivery form as a capsule, tablet, powder, or nutrition bar. After a product is manufactured, our laboratory analysts test its weight, purity, potency, disintegration and dissolution, if applicable, utilizing both internal equipment and third-party labs. We hold the product in quarantine until we complete the quality evaluation and determine that the product meets all applicable specifications before packaging. When the manufactured product meets all specifications, our automated packaging equipment packages the product with at least one tamper-evident safety seal and affixes a label, an indelible lot number and, in most cases, the expiration or “best by” date.

Our manufacturing operations are designed to allow low-cost production of a wide variety of products of different quantities, physical sizes and packaging formats, while maintaining a high level of customer service and quality. Flexible production line changeover capabilities and reduced cycle times allow us to respond quickly to changes in manufacturing schedules and customer demands.

We have inventory control systems at our facilities that track each manufacturing and packaging component as we receive it from our supply sources through manufacturing and shipment of each product to customers. To facilitate this tracking, most products we sell are bar coded. We believe our distribution capabilities increase our flexibility in responding to our customers’ delivery requirements.

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Raw Materials and Suppliers

In fiscal 2020, we spent approximately $1,110,000 on raw materials, excluding packaging and similar product materials. The principal raw materials required in our operations are vitamins, minerals, herbs, and gelatin. We believe that there are adequate sources of supply for all our principal raw materials, and in general we maintain two to three suppliers for many of our raw materials. From time to time, weather or unpredictable fluctuations in the supply and demand may affect price, quantity, availability, or selection of raw materials. We believe that our strong relationships with our suppliers yield high quality, competitive pricing, and overall good service to our customers. Although we cannot be sure that our sources of supply for our principal raw materials will be adequate in all circumstances, we believe that we can develop alternate sources in a timely and cost-effective manner if our current sources become inadequate. During fiscal 2020, no one raw material supplier accounted for more than 10% of our raw material purchases. Due to availability of numerous alternative raw material suppliers, we do not believe that the loss of any single raw material supplier would have a material adverse effect on our consolidated financial condition or results of operations. See “Risk Factors — Risks Related to Our Business and Industry — An increase in the price and shortage of supply of key raw materials could adversely affect our business.”

Sales and Marketing

We employ many different techniques and strategies within our marketing initiatives. These include direct to consumer outreach, use of influencers, Facebook targeting, focused e-mail campaigns, TV/Video spots and traditional media. Our marketing goal is always to increase visibility and relevance of our brands in the minds of our customers and potential customers. We hope to expand our programs to include experimental marketing techniques in the future.

We recently acquired Nexus, which we believe will become a value-added component of our marketing strategies. Nexus has established long-term relationships with many advertisers and publishers. It also has internal data streams it utilizes to create email lists and produce sales internally to the multitude of advertiser products on the network.

Customers

Bonne Santé Natural Manufacturing, Doctors Scientific Organica and GSP Nutrition sell products to customers under individual purchase orders placed by them under their standard terms and conditions of sale. These terms and conditions generally include insurance requirements, representations by us with respect to the quality of our products and our manufacturing process, our obligations to comply with law, and indemnifications by us if we breach our representations or obligations. There is no commitment from any customer to purchase from us, or from us to sell to them, any minimum amount of product.

During fiscal 2020 and 2019, Amazon, individually, accounted for 28% and 24% of Doctors Scientific Organica’s net sales, respectively, and 16% and 15% of our pro forma combined net sales, respectively. Additionally, during fiscal 2020 and 2019, Costco, individually, accounted for 30% and 0% of Doctors Scientific Organica’s net sales, respectively, and 18% and 0% of our pro forma combined net sales, respectively.

Nexus’ customers include advertisers and publishers. An advertiser is a company that has products for sale and is looking for increased sales through digital marketing avenues from publishers. Publishers are people that do the digital marketing who are looking for commissions based on performance of their digital marketing efforts. An example of a publisher is someone who has strong Facebook following, or a strong knowledge of Facebook ad marketing. Other examples include google ad marketing or email marketers who send marketing messages to an opted in list of subscribers. Each sale they make from any digital marketing avenue results in a nonrefundable commission.

During fiscal 2020 and 2019, Nexus had four and two significant customers representing a total of 54% and 21% of net sales, respectively, and 17% and 5% of our pro forma combined net sales, respectively.

The loss of any major customer would have a material adverse effect on us if we were unable to replace that customer. See “Risk Factors — Risks Related to Our Business and Industry — Our major customers account for a significant portion of our consolidated net sales and the loss of any major customer could have a material adverse effect on our results of operations.”

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Competition

The nutraceutical industry is highly competitive. Our competitors include a number of large, nationally known brands such as Nature Made (Pharmavite), Nature’s Bounty, GNC, Spectrum (Hain Celestial), Country Life, Garden of Life and Jarrow Formulas, and many smaller brands, manufacturers and distributors. The sales of products through online marketplace platforms such as Amazon and firms’ websites continue to expand. Private label products also provide competition to our products. Whole Foods Market, Walmart, CVS, Walgreens and many health stores also sell a portion of their nutritional supplement offerings under their own private labels. Private label products are often sold at a discount to branded products. We also compete with distributors that sell products to health stores as well as mass market retailers such as United Natural Foods and KeHE Distributors. In addition, several major pharmaceutical companies continue to offer nutritional supplement lines in the mass market, including Centrum (Pfizer and GSK) and One-A-Day (Bayer). Pharmaceutical companies also offer prescription and over-the-counter products that are or may be competitive with nutritional supplements, particularly with regard to certain categories of products. Finally, as the nutraceutical market generally has low barriers to entry, additional competitors enter the market regularly.

Nexus’ competitors would be any digital marketing agency in the cost per acquisition space looking to acquire exclusive advertiser offers and high end publishers who can send high amounts of traffic through digital marketing media. Examples include Ca$hNetwork, OfferBlueprint and MaxBounty.

Competitive Strengths

Based on management’s belief and experience in the industry, we believe that the following competitive strengths enable us to compete effectively.

•        Proprietary manufacturing facilities.    Bonne Santé Natural Manufacturing and Doctors Scientific Organica own and operate proprietary manufacturing facilities, which allow for a high level of managerial control over all aspects of production, including sourcing, logistics and maintaining the highest levels of quality during the manufacturing process. Through direct ownership, we are able to optimize our sales and marketing practices and provide a completely integrated approach, all solidified by a single manufacturing platform for capsules, tablets, powders and various other delivery methods for all vitamins and supplements. In addition, as a private label contract manufacturer for third parties, we can provide a turnkey solution for brands and retailers who want to minimize their supply chain disruption and maximize their control over product flow to end customers. In addition, as a middle market-sized contract manufacturer, we are not encumbered by the often overly complex processes that our larger competitors may have. We can be nimble and highly adaptable, “flexing” with our customers’ needs as they change over time, which allows us to better service our ever-expanding international client base. We are able to maintain a competitive advantage due to our vertically integrated operational control. This vertical integration also allows us to minimize intellectual property and data security risks, while also eliminating costs, improving focus, optimizing quality and launching with a faster time-to-market for new products. We retain control over every step of the manufacturing processes, allowing us to establish our own institutional advantages and maximize efficiencies.

•        Established and trusted brands.    Smart for Life, Doctors Scientific Organica and Sports Illustrated Nutrition are well-established brands in the in the health and wellness industry. In particular, Smart for Life products are currently sold in many of the largest big-box retailers in the United States and Canada, including Costco, Walmart, Sam’s Club, BJ’s and Publix, as well as through online channels such as Amazon. Doctors Scientific Organica has established a dedicated following of consumers that are strong believers in the high-quality vitamins and supplements it sells to its customers, along with the eco-friendly and bio-degradable packaging, with Amazon sales numbers continuing to increase as a result. We believe that the Sports Illustrated brand is one of the most recognized brands in sports and athletics. In connection with our acquisition of GSP Nutrition, we acquired a license for the exclusive use of the Sports Illustrated brand (excluding the Sports Illustrated Swimsuit brand for which we have a right of first offer under the license) in the United States and Canada for certain dietary and nutritional supplements.

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•        Client focused innovative research and development.    We believe that our research and development team adds significant value to our company and our customers and is a differentiating factor for our company. We strive to be technology driven leveraging technology, science, and innovation in our research and development efforts. We work closely with our clients to create and develop new and exciting products. We frequently work directly with our customers in our research and development labs to create innovative solutions that create value for our customers in a timely manner. Our team works closely with physicians to create novel wholesome products that add nutritional and functional value.

•        Ability to market through captive marketing subsidiary.    We believe that our subsidiary, Nexus, allows us access to a broad spectrum of marketing tools to be utilized across the entire spectrum of our products. We believe that having an experienced management team and existing customer base accessible to all of our other brands in our portfolio will allow us to drive sales and revenue of existing products as well as test new product offerings generated through our research and development.

•        Referral only network based on long term relationships.    Nexus operates a referral only network, meaning that all of its publishers are referred. There is no way to get a Nexus account other than being directly referred by a known good account holder. This allows Nexus to stem any fraudulent traffic, which we believe is a substantial competitive advantage for advertisers. Nexus has also established long term relationships with its advertisers and offers competitive bonuses and contests for its affiliate base (publishers) We believe that these factors set Nexus apart from its competition.

Growth Strategies

We will strive to grow our business by pursuing the following growth strategies.

•        Acquisition of additional businesses.    Over the next 24 months, we plan to acquire multiple companies aggregating a minimum of $100 million in annualized revenues with the number of prospective acquisitions in the pipeline representing over $50 million in additional revenue. The nutritional products industry is highly fragmented with a large pool of companies generating less than $20 million in revenues representing significant opportunity for industry consolidation. As noted above, we do not currently have sufficient capital to complete these acquisitions. We intend to raise capital for additional acquisitions primarily through debt financing at our operating company level, additional equity offerings by our company, or by undertaking a combination of any of the above. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. There is no guarantee that we will be able to acquire additional businesses under the terms outlined above or that we will be able to find additional acquisition candidates should we terminate our plans for any of our current acquisition targets.

•        Increase sales from existing and new customers.    We expect to continue to drive growth for our consumer products branded business through our increased focus on our top brands and continued expansion in various health and wellness categories, which we expect to result in incremental shelf space with existing customers and new customer additions. We expect that our focus on delivering tangible benefits to consumers through product innovation will not only benefit us but also benefit our customers. Our ability to supply both branded and private label products broadens and deepens our partnerships with key retail customers, providing us more opportunities for category leadership and growth. We view the private label business as an important and valuable service that we provide to key accounts.

•        Further penetrate international markets.    Our products are currently marketed and sold in approximately two countries. In fiscal 2020, approximately 18% of our sales (on a pro forma combined basis) were to customers outside the United States. We plan to capitalize on our marketing and distribution capabilities to drive incremental international sales of our consumer product brands in emerging markets, which are characterized by a rising middle class and a strong demand for high quality nutritional and wellness products from U.S.-based manufacturers.

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•        Drive productivity through operational efficiencies.    We expect to continue to focus on improving efficiency across our operations to allow us to reduce costs in our manufacturing facilities as well as across our overhead cost areas. Our recent acquisition of Doctors Scientific Organica significantly increased our production capacity. In addition, we have launched an initiative to optimize our product portfolio, which we expect will enable further efficiencies across our manufacturing network. We are also introducing new initiatives that leverage automation, standardization and simplification and are expected to increase productivity across our operations.

Intellectual Property

We believe trademark protection is particularly important to the maintenance of the recognized brand names under which we market our products. We own or have rights to material trademarks or trade names that we use in conjunction with the sale of our products, including the Smart for Life, Doctors Scientific Organica and Sports Illustrated Nutrition brand names. We also own website domain names and have proprietary methodologies that we use in our manufacturing businesses. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.

In January 2020, GSP Nutrition entered into a license agreement for the exclusive use of the Sports Illustrated brand (excluding the Sports Illustrated Swimsuit brand for which GSP Nutrition has a right of first offer under the license) in the United States and Canada for dietary and nutritional supplements in the form of capsules, softgel tablets, chewable tablets, lozenges, gummies, protein bars, and protein powders and concentrates for preparing sports drinks or energy drinks, and the non-exclusive right to use the brand for the production and sale of shaker bottles. The license, as amended from time to time, has a term of five years ending on December 31, 2024, with a right to renew for an additional five-year term by providing written notice of renewal between June 1, 2023 and July 31, 2023. As consideration for the license, GSP Nutrition must pay royalties with certain amounts guaranteed in advance. In addition, GSP Nutrition must contribute a percentage of its net sales to a common marketing fund, to be spent on an annual basis on marketing efforts, including advertising and promotional campaigns.

We protect our intellectual property rights through a variety of methods, including trademark, patent and trade secret laws, as well as confidentiality agreements and proprietary information agreements with vendors, employees, consultants and others who have access to our proprietary information. Protection of our intellectual property often affords us the opportunity to enhance our position in the marketplace by precluding our competitors from using or otherwise exploiting our technology and brands. We are also a party to several intellectual property license agreements relating to certain of our products. The duration of our trademark registrations is generally 10, 15 or 20 years, depending on the country in which the marks are registered, and we can renew the registrations. The scope and duration of our intellectual property protection varies throughout the world by jurisdiction and by individual product. Our global trademark portfolio, with the aforementioned registration durations, consists of our core marks for our business and our proprietary product brands which drive significant brand awareness for all of our businesses. Our proprietary product formulas and recipes, maintained as trade secrets, are significant to our growth and success as they form the foundation for our production and sales of effective, high quality products.

Facilities

Our corporate offices are located at 990 Biscayne Blvd., Suite 503, Miami, Florida 33132.

Bonne Santé Natural Manufacturing is located at 10575 N.W. 37th Terrace, Doral, Florida 33178. It operates a 22,000 square foot manufacturing facility at this address. The building housing this manufacturing facility is under a 5-year lease ending in June 2022, at the rental rate of $325,000 per year. Bonne Santé Natural Manufacturing has an option to renew this lease for an additional three years with a 3% annual increase in the rental amount.

Doctors Scientific Organica’s manufacturing and corporate offices are located at 1210 W 13th St, Riviera Beach, Florida 33404. It operates a 30,000 square foot manufacturing facility at this address. The building housing this manufacturing facility is under a five-year lease ending in August 2023 at the rental rate of $296,040 per year. Doctors Scientific Organica has an option to renew this lease for an additional three years with a 3% annual increase in the rental amount.

Our Canadian subsidiary Smart for Life Canada Inc. operates a retail store located at 6525 Décarie Boulevard, Suite GR-3, Montreal, Quebec, Canada H3W-3E3. This location also acts as a distribution center for our international direct to consumer and big box customers. Smart for Life Canada Inc. rents this facility under a three-year lease agreement ending in September 2024 at the rental rate of C$37,570.50 per year (approximately US$46,734), plus its 3.53% proportionate share of real estate taxes and operating expenses.

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We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.

Employees

Across all operating units, we currently have approximately 107 employees with approximately 70 of such employees being engaged in our manufacturing operations and the balance being engaged in management or middle management. None of our employees are represented by labor unions, and we believe that we have an excellent relationship with our employees.

Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Regulation

Our business is subject to varying degrees of regulation by a number of government authorities in the United States, including the FDA, the FTC, the CPSC, the USDA and the EPA. Various agencies of the state and localities in which we operate and in which our products are sold also regulate our business.

The areas of our business that these and other authorities regulate include, among others:

•        product claims and advertising;

•        product labels;

•        product ingredients; and

•        how we manufacture, package, distribute, import, export, sell and store our products.

In addition, our products sold in foreign countries are also subject to regulation under various national, local and international laws that include provisions governing, among other things, the formulation, manufacturing, packaging, labeling, advertising and distribution of dietary supplements and over-the-counter drugs.

As a result of the acquisition of Nexus, we are also subject to laws and regulations generally applicable to providers of digital marketing services, including federal and state laws and regulations governing data security and privacy, unfair and deceptive acts and practices, advertising and content regulation.

We are also subject to a variety of other regulations in the United States, including those relating to taxes, employment, import and export, and intellectual property.

Food and Drug Administration

The Dietary Supplement Health and Education Act of 1994, or DSHEA, amended the Federal Food, Drug, and Cosmetic Act, or the FDC Act, to establish a new framework governing the composition, safety, labeling, manufacturing and marketing of dietary supplements. Generally, under the FDC Act, dietary ingredients (i.e., vitamins; minerals; herb or other botanical; amino acids; or dietary substances for use by humans to supplement diet by increasing total dietary intake; or any concentrate, metabolite, constituent, extract or combination of any of the above) that were marketed in the United States prior to October 15, 1994 may be used in dietary supplements without notifying the FDA. New dietary ingredients (i.e., dietary ingredients that were not marketed in the United States before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” A new dietary ingredient notification must provide the FDA evidence of a “history of use or other evidence of safety” establishing that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. The FDA may determine that a new dietary ingredient notification does not provide an adequate basis to conclude that a dietary ingredient is reasonably expected to be safe. Such a determination could prevent the marketing of such dietary ingredient.

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In 2011 and 2016, the FDA issued draft guidance setting forth recommendations for complying with the new dietary ingredient notification requirement. Although FDA guidance is non-binding and does not establish legally enforceable responsibilities, and companies are free to use an alternative approach if the approach satisfies the requirements of applicable laws and regulations, FDA guidance is a strong indication of the FDA’s current thinking on the topic discussed in the guidance, including its position on enforcement. At this time, it is difficult to determine whether the 2016 draft guidance (which replaced the 2011 draft guidance), if finalized, would have a material impact on our operations. However, if the FDA were to enforce the applicable statutes and regulations in accordance with the draft guidance as written, such enforcement could require us to incur additional expenses, which could be significant, and negatively impact our business in several ways, including, but not limited to, enjoining the manufacturing of our products until the FDA determines that we are in compliance and can resume manufacturing, increasing our liability and reducing our growth prospects.

The FDA or other agencies could take actions against products or product ingredients that, in their determination, present an unreasonable health risk to consumers that would make it illegal for us to sell such products. In addition, the FDA could issue consumer warnings with respect to the products or ingredients in such products that are sold in our stores. Such actions or warnings could be based on information received through FDC Act-mandated reporting of serious adverse events.

We take a number of actions to ensure the products we sell comply with the FDC Act. Some of these actions include maintaining and continuously updating a list of restricted ingredients that will be prohibited from inclusion in any products that we sell. In addition, we have developed and maintain a list of ingredients that we believe comply with the applicable provisions of the FDC Act. As is common in our industry, we rely on some third-party vendors to ensure that the products they manufacture and sell to us comply with all applicable regulatory and legislative requirements. In general, we seek representations and warranties, indemnification and/or insurance from our vendors. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in our products. In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from the market, which in certain cases could materially and adversely affect our business, financial condition and results of operations. A removal or recall could also result in negative publicity and damage to our reputation that could reduce future demand for our products. In the past, we have attempted to offset any losses related to recalls and removals with reformulated or alternative products; however, there can be no assurance that we would be able to offset all or any portion of losses related to any future removal or recall.

The FDC Act permits structure/function claims to be included in labels and labeling for dietary supplements without FDA pre-market approval. However, companies must have substantiation that the claims are “truthful and not misleading”, and must submit a notification with the text of the claims to the FDA no later than 30 days after marketing the dietary supplement with the claims. Permissible structure/function claims may describe how a particular nutrient or dietary ingredient affects the structure, function or general well-being of the body, or characterize the documented mechanism of action by which a nutrient or dietary ingredient acts to maintain such structure or function. The label or labeling of a product marketed as a dietary supplement may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat or prevent a disease (i.e. a disease claim). If the FDA determines that a particular structure/function claim is an unacceptable disease claim that causes the product to be regulated as a drug, a conventional food claim or an unauthorized version of a “health claim,” or, if the FDA determines that a particular claim is not adequately supported by existing scientific data or is false or misleading in any particular, we would be prevented from using the claim and would have to update our product labels and labeling accordingly.

In addition, DSHEA provides that so-called “third-party literature,” e.g., “a publication, including an article, a chapter in a book, or an official abstract of a peer-reviewed scientific publication that appears in an article and was prepared by the author or the editors of the publication” supplements, when reprinted in its entirety, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. Such literature: (1) must not be false or misleading; (2) may not “promote” a particular manufacturer or brand of dietary supplement; (3) must present a balanced view or is displayed or presented with other such items on the same subject matter so as to present a balanced view of the available scientific information; (4) if displayed in an establishment, must be physically separate from the dietary supplements; and (5) should not have appended to it any information by sticker or any other method. If the literature fails to satisfy each of these requirements, we may be prevented from disseminating such literature with our products, and any continued dissemination could subject our product to regulatory action as an illegal drug.

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In June 2007, pursuant to the authority granted by the FDC Act as amended by DSHEA, the FDA published detailed GMP regulations that govern the manufacturing, packaging, labeling and holding operations of dietary supplement manufacturers. The GMP regulations, among other things, impose significant recordkeeping requirements on manufacturers. The GMP requirements are in effect for all dietary supplement manufacturers, and the FDA conducts inspections of dietary supplement manufacturers pursuant to these requirements. There remains considerable uncertainty with respect to the FDA’s interpretation of the regulations and their actual implementation in manufacturing facilities.

In addition, the FDA’s interpretation of the regulations governing dietary supplements will likely change over time as the agency becomes more familiar with the industry and the regulations. The failure of a manufacturing facility to comply with the GMP regulations renders products manufactured in such facility “adulterated,” and subjects such products and the manufacturer to a variety of potential FDA enforcement actions. In addition, under the Food Safety Modernization Act, or FSMA, which was enacted in January 2011, the manufacturing of dietary ingredients contained in dietary supplements will be subject to similar or even more burdensome manufacturing requirements, which will likely increase the costs of dietary ingredients and will subject suppliers of such ingredients to more rigorous inspections and enforcement. The FSMA will also require importers of food, including dietary supplements and dietary ingredients, to conduct verification activities to ensure that the food they might import meets applicable domestic requirements.

The FDA has broad authority to enforce the provisions of federal law applicable to dietary supplements, including powers to issue a public warning or notice of violation letter to a company, publicize information about illegal products, detain products intended for import, require the reporting of serious adverse events, require a recall of illegal or unsafe products from the market, and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution in the United States courts.

The FSMA expands the reach and regulatory powers of the FDA with respect to the production and importation of food, including dietary supplements. The expanded reach and regulatory powers include the FDA’s ability to order mandatory recalls, administratively detain domestic products, and require certification of compliance with domestic requirements for imported foods associated with safety issues. FMSA also gave FDA the authority to administratively revoke manufacturing facility registrations, effectively enjoining manufacturing of dietary ingredients and dietary supplements without judicial process. The regulation of dietary supplements may increase or become more restrictive in the future.

Federal Trade Commission

The FTC exercises jurisdiction over the advertising of dietary supplements and other health-related products and requires that all advertising to consumers be truthful and non-misleading. The FTC actively monitors the dietary supplement space and has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. FTC enforcement actions may result in consent decrees, cease and desist orders, judicial injunctions and the payment of fines with respect to advertising claims that are found to be unsubstantiated.

Environmental Regulation

Our facilities and operations, in common with those of similar industries making similar products, are subject to many federal, state, provincial and local requirements, rules and regulations relating to the protection of the environment and of human health and safety, including those regulating the discharge of materials into the environment. We continually examine ways to reduce our emissions, minimize waste and limit our exposure to any liabilities, as well as decrease costs related to environmental compliance. Costs to comply with current and anticipated environmental requirements, rules and regulations and any estimated capital expenditures for environmental control facilities are not anticipated to be material when compared with overall costs and capital expenditures. Accordingly, we do not anticipate that such costs will have a material effect on our financial position, results of operations, cash flows or competitive position.

New Legislation or Regulation

Legislation may be introduced which, if passed, would impose substantial new regulatory requirements on dietary supplements and other health products. We cannot determine what effect additional domestic or international governmental legislation, regulations, or administrative orders, when and if promulgated, would have on our business in the future. New legislation or regulations may require the reformulation of certain products to meet new standards, require the recall or discontinuance of certain products not capable of reformulation, impose additional record keeping or require expanded documentation of the properties of certain products, expanded or different labeling or scientific substantiation.

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MANAGEMENT

Directors and Executive Officers

Set forth below is information regarding our directors and executive officers as of the date of this prospectus.

Name

 

Age

 

Position

Alfonso J. Cervantes, Jr.

 

72

 

Executive Chairman of the Board

Ryan F. Zackon

 

39

 

Chief Executive Officer and Director

Darren C. Minton

 

38

 

President and Director

Alan B. Bergman

 

52

 

Chief Financial Officer

Ronald S. Altbach

 

74

 

Director

Richard M. Cohen

 

70

 

Director(1)

Robert S. Rein, Esq.

 

77

 

Director(1)

Roger Conley Wood

 

53

 

Director(1)

____________

(1)      Appointed to our board of directors effective automatically upon the effectiveness of the registration statement of which this prospectus forms a part.

Alfonso J. Cervantes, Jr.    Mr. Cervantes is the founder of our company and has served as our Executive Chairman since our inception. Mr. Cervantes is also Executive Chairman of Trilogy Capital Group, LLC, or Trilogy, a private equity firm and a principal stockholder, and served as Chairman and Chief Executive Officer of its predecessor, Trilogy Capital Partners, Inc. since 2002. Through more than 35 years as an executive in diversified businesses, Mr. Cervantes has accumulated extensive experience in the public markets with experience in corporate finance and emerging growth companies. His significant corporate finance experience includes mergers and acquisitions, initial public offerings, private placements as well as the reorganization of middle-market companies. Prior to Smart for Life, Inc., Mr. Cervantes was the founder and Vice Chairman of Staffing 360 Solutions, Inc. (NASDAQ: STAF), from 2012 to 2015, where he facilitated, in association with Mr. Minton, multiple acquisitions and drove the company from pure startup to over $100 million in revenues in approximately two years. Mr. Cervantes is a graduate of Webster University with a degree in Communications. We believe Mr. Cervantes is qualified to serve on our board of directors due to his extensive corporate finance experience and knowledge of our company.

Ryan F. Zackon.    Mr. Zackon has served as our Chief Executive Officer since November 2020 and as a member of our board of directors since December 2020. Mr. Zackon possesses significant experience in the nutraceutical industry with an emphasis on the development and implementation of operational and financial initiatives. Prior to joining us, he served as Vice President and Interim Chief Operating Officer for Twinlab Consolidated Holdings, Inc. (OTC: TLCC), a 50-year-old international health and wellness company engaged in the manufacturing, marketing and distribution of a broad array of nutritional products on a global basis, from June 2019 to December 2020. Prior to that, Mr. Zackon served as the Vice President of Operations at Woodfield Distribution, LLC, a third-party logistics provider to the pharmaceutical industry, from January 2018 to June 2019. Prior to that, Mr. Zackon was Chief Operating Officer of Private Label Express, a dietary health and wellness contract manufacturer, from September 2016 to January 2018. He previously also served as the Chief Operating Officer of PDF Security Services, a leading multi-national security consulting firm based in Sacramento, CA. Mr. Zackon is a graduate of The Ohio State with a degree in Psychology. We believe Mr. Zackon is qualified to serve on our board of directors due to his extensive management experience in the nutraceutical industry.

Darren C. Minton.    Mr. Minton has served as our President since September 2017 and as a member of our board of directors since November 2018. Mr. Minton also serves as President of BSNM, managing day-to-day manufacturing operations. Mr. Minton has more than 15 years of capital markets experience in both small and large organizations. Over the years, his capacities have ranged from various executive positions, as well as president and chief executive officer positions with entrepreneurial ventures to established roles reporting to public company boards, with significant leadership and team building skills. Prior to joining us, Mr. Minton was a co-founder and Executive Vice President at Staffing 360 Solutions, Inc. (NASDAQ: STAF), from 2012 to 2017, where he facilitated the company’s alternative public offering and listing on Nasdaq. He previously served as President of Trilogy Capital Partners, Inc. and as an Analyst at Mesa West Capital, a privately held portfolio lender with a multi-billion dollar offering capability headquartered in Los Angeles, as well as First Republic Bank in Palo Alto. Mr. Minton is a graduate of Stanford University with a degree in Economics. We believe Mr. Minton is qualified to serve on our board of directors due to his extensive management and capital markets experience.

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Alan B. Bergman.    Mr. Bergman has served as our Chief Financial Officer since January 2021. Mr. Bergman’s expertise includes corporate financial management, mergers and acquisitions, corporate reorganizations, cost reduction and avoidance, financial analysis and reporting, IPO management, contract negotiations, ISO 9000 Quality Systems and SEC reporting and compliance. Prior to joining us, he served as Chief Financial Officer, Vice President Finance at Bright Mountain Media, Inc. (OTCQB: BMTM) from June 2019 to December 2020. Prior to that, he served as Vice President Finance at Greenlane Holdings, Inc. (NASDAQ: GNLN), from December 2018 to May 2019. He previously served as Controller for Woodfield Distribution from October 2013 to February 2018 and as Vice President Finance at Latitude Solutions from May 2011 to March 2013. Mr. Bergman commenced his career in 2000 with Deloitte as a Senior Auditor and subsequently as Audit Manager at Mallah Furman, P.A. and as Senior Auditor at Weinberg & Company, P.A. In addition, Mr. Bergman is also an Adjunct Professor of Accounting at Florida Atlantic University and Millennia Atlantic University. Mr. Bergman received his Master’s in Accounting from University of Miami.

Ronald S. Altbach.    Mr. Altbach has been a member of our board of directors since October 2020. He previously served on our board from our inception until November 2018. Mr. Altbach is a financial services executive with over 35 years of capital markets experience with an emphasis on mergers and acquisitions and the development of strategic relationships. He has served in senior leadership positions in a variety of industries, including investment banking, marketing, consumer and luxury products, and media finance. Mr. Altbach is currently a principal in and Chief Commercial Officer and a director of MPS Infrastructure, Inc., which is engaged in the ownership, development, building and operation of large-scale infrastructure projects with an emphasis on sustainable water and power initiatives across Africa, where he has served since 2017. Mr. Altbach previously was President of Altbachco, LLC, a New York-based investment company which is a principal shareholder in Regeneration Capital Group, a New York-based merchant bank he co-formed with Mr. Cervantes in 2008 and where he served as President from 2009 to 2016. He serves as lead independent director on the board of Catch Media, a cloud-based technology provider with millions of active users across the globe. He previously held the position of Vice Chairman of Rosecliff, Inc., a New York-based merchant bank principally engaged in leveraged buyouts, and Chairman of Paul Sebastian, Inc., a Rosecliff portfolio company that marketed its own fragrance brands, as well as licensed brands, to U.S. and international department stores. Mr. Altbach is a graduate of Cornell University with a degree in Music. We believe Mr. Altbach is qualified to serve on our board of directors due to his extensive capital markets experience.

Richard M. Cohen.    Mr. Cohen will become a member of our board of directors effective automatically upon the effectiveness of the registration statement of which this prospectus forms a part. He previously served on our board from our inception until November 2018. Mr. Cohen is an experienced CEO/CFO at public and private companies. His professional experience includes biotech, financial services and diversified media and he maintains excellent contacts with capital financing sources on and off Wall Street. From 1996 to present, Mr. Cohen has been President of Richard M. Cohen Consultants. He was the CEO, CFO, and Board Member of CorMedix Inc., Bridgewater, NJ, a publicly traded (NYSE) medical device/biotechnology company with an intrapericardial therapy product targeted to markets in the U.S. and Europe, from 2010 to 2013. He has served on the board of directors and as Audit Committee Chair of 20/20 GeneSystems, Inc. (2016 to present), Helix BioMedix, Inc. (2006 to Present), CorMedix Inc. (2010 to 2013), and Rodman & Renshaw (2008 to 2012). Mr. Cohen’s academic credentials include an MBA from Stanford University and B.S. with honors from Wharton School, University of Pennsylvania. We believe Mr. Cohen is qualified to serve on our board of directors due to his extensive board and audit committee experience.

Robert S. Rein, Esq.    Mr. Rein will become a member of our board of directors automatically upon the effectiveness of the registration statement of which this prospectus forms a part. Mr. Rein is an attorney and has been practicing law in California since 1971. Since 2008, Mr. Rein has been a Partner in Rein & Associates, a law firm representing businesses and individuals with respect to all aspects of business transactions and matters. His practice primarily consists of handling business, corporate and real estate matters; tax issues; and business and estate planning. Mr. Rein’s experience includes business acquisitions and sales, reorganizations, financings, business and tax planning, and business counselling. His firm has represented both public and private entities. Prior to the formation of Rein & Associates, Mr. Rein was a partner in predecessors to Rein & Associates since 1975. Mr. Rein obtained his B.A. in Economics from Brandeis University and his J.D. from Harvard Law School. Upon graduating law school, Mr. Rein clerked for Judge Milton Conford, the then senior judge of the New Jersey Superior Court, Appellate Division. Mr. Rein is currently the CEO and a member of the board of directors of R Solutions, Inc., a corporation involved in the furniture and other corporate fulfilment business, and Racada Corp., a real estate investment company. We believe that Mr. Rein is well qualified to serve on our board of directors due to his extensive legal and business experience.

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Roger Conley Wood.    Mr. Wood will become a member of our board of directors effective automatically upon the effectiveness of the registration statement of which this prospectus forms a part. Mr. Wood is a seasoned executive with over 25 years of experience serving in C-level positions with various technology and consumer product businesses. He is currently Chairman of Conley Holdings, a private family company with interests in Homebuilding, Fashion, Training & Education, Pet Care, Media & Entertainment and Personal Care sectors. He served as the Chief Executive Officer and Managing Partner of Blue Bear Brands, a marketing consultancy specializing in predicative analytics and machine learning, from 2014 to 2020. He previously held senior management positions with Hearst Corporation, Orca Payments, Amobee Media, Willis Group, Reebok International, Omnipoint Voicestream and Motorola. He has served on the board of directors of numerous private companies and the board of trustees for the Wardlaw-Hartridge School, Global Alumni Board of Harvard Business School, Junior Achievement and the British American Business Council. Mr. Wood obtained his B.A. in Marketing and Statistics from Morehouse College and his Master’s in Business Administration from Harvard University. We believe Mr. Wood is qualified to serve on our board of directors due to his extensive management and prior board experience.

Our directors currently have terms which will end at our next annual meeting of the stockholders or until their successors are elected and qualify, subject to their prior death, resignation or removal. Officers serve at the discretion of the board of directors. There is no arrangement or understanding between any director or executive officer and any other person pursuant to which he was or is to be selected as a director, nominee or officer.

Family Relationships

There are no family relationships among any of our officers or directors.

Involvement in Certain Legal Proceedings

To the best of our knowledge, except as described below, none of our directors or executive officers has, during the past ten years:

•        been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

•        had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

•        been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

•        been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

•        been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

•        been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

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Corporate Governance

Governance Structure

We chose to appoint a separate Chairman of the Board who is not our Chief Executive Officer. Our board of directors has made this decision based on their belief that a separate Chairman of the Board can act as a balance to the Chief Executive Officer, who also serves as a non-independent director.

The Board’s Role in Risk Oversight

The board of directors oversees that the assets of our company are properly safeguarded, that the appropriate financial and other controls are maintained, and that our business is conducted wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities is the board’s oversight of the various risks facing our company. In this regard, our board seeks to understand and oversee critical business risks. Our board does not view risk in isolation. Risks are considered in virtually every business decision and as part of our business strategy. Our board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for our company to be competitive on a global basis and to achieve its objectives.

While the board oversees risk management, company management is charged with managing risk. Management communicates routinely with the board and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management.

Our board administers its risk oversight function as a whole by making risk oversight a matter of collective consideration. Once the board establishes committees, it is anticipated that much of the work will be delegated to such committees, which will meet regularly and report back to the full board. It is anticipated that the audit committee will oversee risks related to our financial statements, the financial reporting process, accounting and legal matters, that the compensation committee will evaluate the risks and rewards associated with our compensation philosophy and programs, and that the nominating and corporate governance committee will evaluate risk associated with management decisions and strategic direction.

Independent Directors

Nasdaq’s rules generally require that a majority of an issuer’s board of directors must consist of independent directors. Our board of directors currently consists of four (4) directors, one of whom, Mr. Altbach, is independent within the meaning of the Nasdaq’s rules. We have entered into independent director agreements with Messrs. Cohen, Rein and Wood, pursuant to which they have been appointed to serve as independent directors effective automatically upon the effectiveness of the registration statement of which this prospectus forms a part. As a result of these appointments, we anticipate that our board of directors upon closing of this offering will consist of seven (7) directors, four (4) of whom will be independent within the meaning of Nasdaq’s rules.

Committees of the Board of Directors

Our board intends to establish an audit committee, a compensation and nominating and corporate governance committee, each with its own charter to be approved by the board. Upon completion of this offering, we intend to make each committee’s charter available on our website at www.smartforlifecorp.com.

Until such committees are established, our entire board of directors will undertake the functions that would otherwise be undertaken by the committees. In addition, our board of directors may, from time to time, designate one or more additional committees, which shall have the duties and powers granted to it by our board of directors.

Audit Committee

We expect that Richard M. Cohen, Ronald S. Altbach and Robert S. Rein, each of whom will satisfy the “independence” requirements of Rule 10A-3 under the Exchange Act and Nasdaq’s rules, will serve on our audit committee, with Mr. Cohen serving as the chairman. We expect that Mr. Cohen will qualify as “audit committee financial expert.” The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company.

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It is expected that the audit committee will be responsible for, among other things: (i) retaining and overseeing our independent accountants; (ii) assisting the board in its oversight of the integrity of our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and regulatory requirements; (iii) reviewing and approving the plan and scope of the internal and external audit; (iv) pre-approving any audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to our independent auditors; (vi) reviewing with our chief executive officer and chief financial officer and independent auditors the adequacy and effectiveness of our internal controls; (vii) reviewing hedging transactions; and (viii) reviewing and assessing annually the audit committee’s performance and the adequacy of its charter.

Compensation Committee

We expect that Ronald S. Altbach, Richard M. Cohen and Roger Conley Wood, each of whom will satisfy the “independence” requirements of Rule 10A-3 under the Exchange Act and Nasdaq’s rules, will serve on our compensation committee, with Mr. Altbach serving as the chairman. The members of the compensation committee will also be “outside directors” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and “non-employee directors” within the meaning of Section 16 of the Exchange Act. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers.

It is expected that the compensation committee will be responsible for, among other things: (i) reviewing and approving the remuneration of our executive officers; (ii) determining the compensation of our independent directors; (iii) making recommendations to the board regarding equity-based and incentive compensation plans, policies and programs; and (iv) reviewing and assessing annually the compensation committee’s performance and the adequacy of its charter.

Nominating and Corporate Governance Committee

We expect that Robert S. Rein, Esq., Ronald S. Altbach and Roger Conley Wood, each of whom will satisfy the “independence” requirements of Rule 10A-3 under the Exchange Act and Nasdaq’s rules, will serve on our nominating and corporate governance committee, with Mr. Rein serving as the chairman. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.

It is expected that the nominating and corporate governance committee will be responsible for, among other things: (i) recommending the number of directors to comprise our board; (ii) identifying and evaluating individuals qualified to become members of the board and soliciting recommendations for director nominees from the chairman and chief executive officer of our company; (iii) recommending to the board the director nominees for each annual stockholders’ meeting; (iv) recommending to the board the candidates for filling vacancies that may occur between annual stockholders’ meetings; (v) reviewing independent director compensation and board processes, self-evaluations and policies; (vi) reviewing and approving related party transactions; (vii) overseeing compliance with our code of ethics; and (viii) monitoring developments in the law and practice of corporate governance.

The nominating and corporate governance committee’s methods for identifying candidates for election to our board of directors (other than those proposed by our stockholders, as discussed below) will include the solicitation of ideas for possible candidates from a number of sources — members of our board of directors, our executives, individuals personally known to the members of our board of directors, and other research. The nominating and corporate governance committee may also, from time-to-time, retain one or more third-party search firms to identify suitable candidates.

In making director recommendations, the nominating and corporate governance committee may consider some or all of the following factors: (i) the candidate’s judgment, skill, experience with other organizations of comparable purpose, complexity and size, and subject to similar legal restrictions and oversight; (ii) the interplay of the candidate’s experience with the experience of other board members; (iii) the extent to which the candidate would be a desirable addition to the board and any committee thereof; (iv) whether or not the person has any relationships that might impair his or her independence; and (v) the candidate’s ability to contribute to the effective management of our company, taking into account the needs of our company and such factors as the individual’s experience, perspective, skills and knowledge of the industry in which we operate.

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A stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice and information provisions contained in our bylaws. Such notice must be in writing to our company not less than 120 days and not more than 150 days prior to the anniversary date of the preceding year’s annual meeting of stockholders or as otherwise required by requirements of the Exchange Act. In addition, stockholders furnishing such notice must be a holder of record on both (i) the date of delivering such notice and (ii) the record date for the determination of stockholders entitled to vote at such meeting.

Code of Ethics

We have adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Such code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations of the code.

We are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within four (4) business days following the date of any such amendment to, or waiver from, a provision of our code of ethics.

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EXECUTIVE COMPENSATION

Summary Compensation Table — Years Ended December 31, 2020 and 2019

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000

Name and Principal Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Stock
Awards
($)(1)

 

Option
Awards
($)(1)

 

All Other
Compensation
($)(2)

 

Total
($)

Alfonso J. Cervantes, Jr.,

 

2020

 

200,000

 

—

 

22,500

 

900

 

23,328

 

246,728

Executive Chairman

 

2019

 

150,000

 

—

 

—

 

—

 

17,681

 

167,681

                             

Ryan F. Zackon,

 

2020

 

22,916

 

—

 

—

 

—

 

—

 

22,916

Chief Executive Officer(3)

 

2019

 

—

 

—

 

—

 

—

 

—

 

—

                             

Darren C. Minton,

 

2020

 

200,000

 

—

 

12,500

 

100

 

—

 

212,600

President

 

2019

 

150,000

 

—

 

—

 

—

 

—

 

150,000

____________

(1)      The amount is equal to the aggregate grant-date fair value with respect to the awards, computed in accordance with FASB ASC Topic 718.

(2)      Other compensation includes automobile allowances.

(3)      Mr. Zackon was appointed as our Chief Executive Officer on November 15, 2020.

Employment Agreements

On July 1, 2020, we entered into an employment agreement with Mr. Cervantes, our Executive Chairman. Pursuant to the employment agreement, Mr. Cervantes was entitled to an annual base salary of $200,000, which was increased to $250,000 on completion of the Doctors Scientific Organica acquisition on July 1, 2021 and will be increased to $300,000 on completion of an additional bona fide acquisition. In addition, Mr. Cervantes is eligible to receive a bonus of $100,000 for each bona fide acquisition and $250,000 on conclusion of an initial public offering of not less than $10 million. He will also be entitled to an annual bonus of 20% of his base salary based on meeting company objectives and the remainder will be based on meeting mutually agreed employee objections or as otherwise determined by the board. Mr. Cervantes is eligible to participate in all equity incentive plans and other employee benefit plans, including health insurance, commensurate with his position. We also provide Mr. Cervantes an allowance for a late model automobile and related expenses. The term of Mr. Cervantes’ agreement is five years, commencing July 1, 2020 and terminating June 30, 2025. His employment agreement is terminable on 30 days’ notice. However, we may terminate Mr. Cervantes’ employment without notice for cause (as defined in the employment agreement). If we terminate Mr. Cervantes’ employment without cause or due to a disability, he is entitled to twelve (12) months of severance pay equal to the base salary of the current year, which will be paid on a bi-weekly schedule. The employment agreement contains standard confidentiality provisions and restrictive covenants prohibiting Mr. Cervantes from owning or operating a business that competes with our company during the term of his employment.

On November 15, 2020, we entered into an employment agreement with Mr. Zackon, our Chief Executive Officer. Pursuant to the employment agreement, Mr. Zackon was entitled to an annual base salary of $250,000, which will increase to $300,000 after the first year of employment and to $350,000 after the second year of employment. He will also be entitled to receive an annual bonus in an amount between 10% and 20% of his base salary based on meeting mutually agreed employee objectives or as otherwise determined by the board. Mr. Zackon is eligible to participate in all equity incentive plans and other employee benefit plans, including health insurance, commensurate with his position. The term of Mr. Zackon’s agreement commenced on November 15, 2020 and will continue until termination. His employment agreement is terminable on 30 days’ notice. However, we may terminate Mr. Zackon’s employment without notice for cause (as defined in the employment agreement). If we terminate Mr. Zackon’s employment without cause or due to a disability, he is entitled to six (6) months of severance pay equal to the base salary of the current year, which will be paid on a bi-weekly schedule. The employment agreement contains standard confidentiality provisions and restrictive covenants prohibiting Mr. Zackon from owning or operating a business that competes with our company during the term of his employment.

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On July 1, 2020, we entered into an employment agreement with Mr. Minton, our President. Pursuant to the employment agreement, Mr. Minton was entitled to an annual base salary of $200,000, which was increased to $250,000 on completion of the Doctors Scientific Organica acquisition on July 1, 2021. In addition, Mr. Minton is eligible to receive a bonus of $25,000 for our first two acquisitions following the date of the employment agreement and $50,000 on conclusion of an initial public offering of not less than $10 million. He will also be entitled to receive an annual bonus of up to 20% of his base salary based on meeting mutually agreed employee objectives or as otherwise determined by the board. Mr. Minton is eligible to participate in all equity incentive plans and other employee benefit plans, including health insurance, commensurate with his position. We also provide Mr. Minton an allowance for a late model automobile and related expenses. The term of Mr. Minton’s agreement is three years, commencing July 1, 2020 and terminating June 30, 2023. His employment agreement is terminable on 30 days’ notice. However, we may terminate Mr. Minton’s employment without notice for cause (as defined in the employment agreement). If we terminate Mr. Minton’s employment without cause or due to a disability, he is entitled to six (6) months of severance pay equal to the base salary of the current year, which will be paid on a bi-weekly schedule. The employment agreement contains standard confidentiality provisions and restrictive covenants prohibiting Mr. Minton from owning or operating a business that competes with our company during the term of his employment.

Outstanding Equity Awards at Fiscal Year-End

The following table includes certain information with respect to the value of all unexercised options and unvested shares of restricted stock previously awarded to the executive officers named above at the fiscal year ended December 31, 2020.

 

Option Awards

Name

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

 

Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

 

Option
Exercise
Price ($)

 

Option
Expiration
Date

Alfonso J. Cervantes, Jr.

 

1,000,000

 

—

 

—

 

$

0.01

 

09/14/30

Darren C. Minton

 

250,000

 

—

 

—

 

$

0.01

 

09/14/30

Additional Narrative Disclosure

Retirement Benefits

We have not maintained, and do not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan. We currently make available a retirement plan intended to provide benefits under Section 401(k) of the Code, pursuant to which employees, including the executive officers named above, can make voluntary pre-tax contributions.

Potential Payments Upon Termination or Change in Control

As described under “— Employment Agreements” above, Messrs. Cervantes, Zackon and Minton are entitled severance if their employment is terminated without cause.

Director Compensation

No member of our board of directors received any compensation for his services as a director during the fiscal year ended December 31, 2020.

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2020 Stock Incentive Plan

On September 14, 2020, our board of directors adopted the Bonne Santé Group, Inc. 2020 Stock Incentive Plan, or the 2020 Plan, which was approved by our stockholders on September 14, 2020. The following is a summary of certain significant features of the 2020 Plan. The information which follows is subject to, and qualified in its entirety by reference to, the 2020 Plan document itself, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

Awards that may be granted include incentive stock options as described in section 422(b) of the Code, non-qualified stock options (i.e., options that are not incentive stock options) and awards of restricted stock. These awards offer our employees, consultants, advisors and outside directors the possibility of future value, depending on the long-term price appreciation of our common stock and the award holder’s continuing service with our company or one or more of its subsidiaries.

All of the permissible types of awards under the 2020 Plan are described in more detail as follows:

Purposes of Plan:    The purpose of the 2020 Plan is to offer selected employees, consultants, advisors and outside directors the opportunity to acquire equity in our company.

Administration of the Plan:    The 2020 Plan is currently administered by the board of directors and will be administered by the compensation committee upon its establishment. Among other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, restrictions and other provisions of awards.

Eligible Recipients:    Persons eligible to receive awards under the 2020 Plan will be those employees, consultants, advisors and outside directors of our company and its subsidiaries who are selected by the administrator.

Shares Available Under the Plan:    The maximum number of shares of common stock that may be delivered to participants under the 2020 Plan is 2,000,000, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the 2020 Plan for which the award is canceled, forfeited or expires again become available for grants under the 2020 Plan. Shares subject to an award that is settled in cash will not again be made available for grants under the 2020 Plan. As of the date of this prospectus, 550,000 shares remain available for issuance under the 2020 Plan.

Stock Options:

General.    Subject to the provisions of the 2020 Plan, the administrator has the authority to determine all grants of stock options. That determination will include: (i) the number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and (vi) any other terms and conditions as the administrator may determine.

Option Price.    The exercise price for stock options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date of grant, as determined in good faith by the administrator. As a matter of tax law, the exercise price for any incentive stock option awarded may not be less than the fair market value of the shares on the date of grant. However, incentive stock option grants to any person owning more than 10% of our voting stock must have an exercise price of not less than 110% of the fair market value on the grant date.

Exercise of Options.    An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to the holder of the option based upon the fair market value of the shares on the date of exercise.

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Expiration or Termination.    Options, if not previously exercised, will expire on the expiration date established by the administrator at the time of grant; provided that such term cannot exceed ten years and that such term of an incentive stock option granted to a holder of more than 10% of our voting stock cannot exceed five years. Options will terminate before their expiration date if the holder’s service with us terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of service, including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award.

Stock Awards:    Stock awards can also be granted under the 2020 Plan. A stock award is a grant of shares of common stock. These awards will be subject to such conditions, restrictions and contingencies as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement of specified performance goals.

Other Material Provisions:    Awards will be evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the capitalization of our company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of our company, including acceleration of vesting. Except as otherwise determined by the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. The board also has the authority, at any time, to discontinue the granting of awards. The board also has the authority to alter or amend the 2020 Plan or any outstanding award or may terminate the 2020 Plan as to further grants, provided that no amendment will, without the approval of our stockholders, increase the number of shares available under the 2020 Plan or change the persons eligible for awards under the 2020 Plan. No amendment that would adversely affect any outstanding award made under the 2020 Plan can be made without the consent of the holder of such award.

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CURRENT RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Transactions with Related Persons

The following includes a summary of transactions since the beginning of our 2019 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation” above). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

•        We have a management services agreement with Trilogy, a company controlled by our Chairman. As of September 30, 2021 and December 31, 2020, the amounts due from the related party are $67,161 and $386,900, respectively.

•        Prior to September 30, 2021, Doctor Scientific Organica rented its operating facility from Scientific Real Estate Holdings, LLC, a non-consolidating company owned by its former sole member, Sasson Moulavi. Rent expense paid to the related party for the nine months ended September 30, 2021 and 2020 were $267,966 and $267,966, respectively. As of December 15, 2021, the total rent paid in 2021 is $357,289.

•        Prior to our acquisition, Doctor Scientific Organica provided advances to, and received advances from, Sasson Moulavi and entities related to him. These advances are non-interest bearing with no fixed maturity and are expected to be repaid in the near term. During the years ended December 31, 2020 and 2019, these advances amounted to $0 and $19,758, respectively. At December 31, 2020, the net balance due to these related parties was $118,375.

•        Prior to October 1, 2021, Doctor Scientific Organica sold its products to Control de Poids/Smart for Life-Montreal, which was considered a related party due to common ownership by Sasson Moulavi. During the years ended December 31, 2020 and 2019, sales to this related party were $561,041 and $76,305, respectively. At December 31, 2020 and 2019, accounts receivable due from this related party was $0 and $111,218, respectively.

Promoters and Certain Control Persons

Alfonso J. Cervantes, Jr., our Executive Chairman and founder, may be deemed a “promoter” as defined by Rule 405 of the Securities Act. For information regarding compensation, including items of value, that have been provided or that may be provided to Mr. Cervantes, please refer to “Executive Compensation” above.

In addition, in 2020, at the same time that we made other compensatory stock and option awards to officers, directors and consultants for prior services, we issued an aggregate of 2,250,000 shares of common stock and an option for the purchase of 1,000,000 shares of common stock at an exercise price of $0.01 to Mr. Cervantes for services rendered.

As noted above, we are also party to a management services agreement with Trilogy, a company controlled by Mr. Cervantes that initially organized our company and provided us with seed capital. In 2020, we issued 6,200,000 shares of common stock to Trilogy.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December 15, 2021 for (i) each of our executive officers and directors; (ii) all of our executive officers and directors as a group; and (iii) each other stockholder known by us to be the beneficial owner of more than 5% of our outstanding common stock. The following table assumes that the underwriters have not exercised the over-allotment option.

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person or any member of such group has the right to acquire within sixty (60) days of December 15, 2021. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within sixty (60) days of December 15, 2021 are deemed to be outstanding for such person, but not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership by any person. The share ownership numbers after the offering for the beneficial owners indicated below exclude any potential purchases that may be made by such persons in this offering.

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o our company, 990 Biscayne Blvd., Suite 503, Miami, Florida 33132.

 

Common Stock Beneficially 
Owned Prior to this Offering(1)

 

Common Stock Beneficially 
Owned After this Offering(2)

Name of Beneficial Owner

 

Shares

 

%

 

Shares

 

%

Alfonso J. Cervantes, Jr., Executive Chairman(3)

 

9,140,000

 

61.23

%

       

Ryan F. Zackon, Chief Executive Officer and Director

 

300,000

 

2.15

%

       

Darren C. Minton, President and Director(4)

 

1,500,000

 

10.58

%

       

Alan B. Bergman, Chief Financial Officer

 

15,000

 

*

 

       

Ronald S. Altbach, Director(5)

 

1,200,000

 

8.49

%

       

Richard M. Cohen, Director Nominee

 

550,000

 

3.95

%

       

Robert S. Rein, Esq., Director Nominee

 

1,130,000

 

8.11

%

       

Roger Conley Wood, Director Nominee

 

—

 

*

 

       

All executive officers and directors as a group

 

13,835,000

 

94.63

%

       

____________

*        Less than 1%

(1)      Based on 13,927,223 shares of common stock issued and outstanding as of December 15, 2021.

(2)      Based on            shares of common stock issued and outstanding after this offering.

(3)      Includes (i) 1,750,000 shares of common stock held directly, (ii) 1,000,000 shares of common stock which Mr. Cervantes has the right to acquire within 60 days through the exercise of vested options and (iii) 6,390,000 shares of common stock held by Trilogy. Mr. Cervantes is the Chairman of Trilogy and has voting and investment power over the securities held by it. Mr. Cervantes disclaims beneficial ownership of the shares held by Trilogy except to the extent of his pecuniary interest, if any, in such shares.

(4)      Includes (i) 1,250,000 shares of common stock held directly and (ii) 350,000 shares of common stock which Mr. Minton has the right to acquire within 60 days through the exercise of vested options.

(5)      Includes (i) 200,000 shares of common stock which Mr. Altbach has the right to acquire within 60 days through the exercise of vested options and (ii) 1,000,000 shares of common stock held by Mesa Lane LLC. Mr. Altbach is the Manager of Mesa Lane LLC and has voting and investment power over the securities held by it. Mr. Altbach disclaims beneficial ownership of the shares held by Mesa Lane LLC except to the extent of his pecuniary interest, if any, in such shares.

We do not currently have any arrangements which if consummated may result in a change of control of our company.

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DESCRIPTION OF SECURITIES

General

The following description summarizes important terms of the classes of our capital stock. This summary does not purport to be complete and is qualified in its entirety by the provisions of our certificate of incorporation, the certificate of designation for our series A convertible preferred stock and our bylaws, which have been filed as exhibits to the registration statement of which this prospectus is a part. We will also file a certificate of designation for the series B convertible preferred stock that may be acquired as a substitute for the common stock being issued as a component of the units offered hereunder, the form of which have been filed as an exhibit to the registration statement of which this prospectus is a part.

Our authorized capital stock currently consists of 100,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.

As of the date of this prospectus, there were            shares of common stock and            shares of series A convertible preferred stock issued and outstanding.

Units

We are offering            units at the initial public offering price of $            per unit. Each unit consists of (i) one share of our common stock (or, at the purchaser’s election, one share of series B convertible preferred stock), (ii) one series A warrant to purchase one share of our common stock at an exercise price equal to $            per share (or 50% of the unit offering price), exercisable until the fifth anniversary of the issuance date, and (iii) one series B warrant to purchase one share of our common stock at an exercise price equal to $            per share (or 100% of the unit offering price), exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions as described herein. The shares of our common stock and the warrants are immediately separable and will be issued separately but will be purchased together in this offering.

As noted above, we are offering to those purchasers, if any, whose purchase of our common stock in this offering would otherwise result in such purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to substitute series B convertible preferred stock for the shares of common stock included in the units purchased by that investor. Each share of series B convertible preferred stock is being sold together with the same warrants described above being sold with each share of common stock. For each share of series B convertible preferred stock purchased in this offering in lieu of common stock, we will reduce the number of shares of common stock being sold in the offering on a one-for-one basis. Pursuant to this prospectus, we are also offering the shares of common stock issuable upon conversion of the series B convertible preferred stock. The shares of series B convertible preferred stock will otherwise have the preferences, rights and limitations described under “— Preferred Stock — Series B Convertible Preferred Stock” below.

Common Stock

Dividend Rights.    Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the board of directors out of legally available funds.

Liquidation Rights.    In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.

Voting Rights.    The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Under our certificate of incorporation and bylaws, any corporate action to be taken by vote of stockholders other than for election of directors shall be authorized by the affirmative vote of the majority of votes cast. Directors are elected by a plurality of votes. Stockholders do not have cumulative voting rights.

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Other Rights.    Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock.

Preferred Stock

Our certificate of incorporation authorizes our board to issue up to 10,000,000 shares of preferred stock in one or more series, to determine the designations and the powers, preferences and rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. Our board of directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock and which could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock.

Series A Convertible Preferred Stock

On June 29, 2021, we filed a certificate of designation with the Delaware Secretary of State to establish our series A convertible preferred stock. We designated a total of 8,000 shares of our preferred stock as series A convertible preferred stock. Our series A convertible preferred stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

Dividend Rights.    Holders of series A convertible preferred stock are entitled to receive cumulative dividends at a rate of 7.5% of the stated value per share ($1,000, subject to adjustment) per annum, which shall increase to 15% per annum after November 23, 2021 and 24% per annum after December 31, 2021; provided, however, that no dividends shall accrue following the date that the registration statement of which this prospectus is a part is declared effective by the SEC (which we refer to as the IPO date). The dividends shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily and shall be deemed to accrue whether or not earned or declared and whether or not there are profits, surplus or other funds legally available for the payment of dividends. Any dividends that are not paid within three (3) trading days following a dividend payment date shall continue to accrue and shall entail a late fee at the rate of 15% per annum or the lesser rate permitted by applicable law.

Liquidation Rights.    Prior to the IPO date, upon any liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, or upon a change of control, the holders of series A convertible preferred stock shall be entitled to receive out of the assets of our company an amount equal to the greater of (a) 150% of the stated value, plus any accrued and unpaid dividends thereon, for each share held, and (b) the amount that could otherwise be received by a holder for the shares issuable upon conversion of the series A convertible preferred stock in full (ignoring for such purposes any conversion limitations) before any distribution or payment shall be made to the holders of common stock. Following the IPO date, upon any liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, or upon a change of control, the holders of series A convertible preferred stock shall be entitled to receive out of the assets of our company the same amount that a holder of common stock would receive if the series A convertible preferred stock were fully converted (disregarding for such purposes any conversion limitations) to common stock which amounts shall be paid pari passu with all holders of common stock.

Voting Rights.    Until the IPO date, the holders of series A convertible preferred stock shall have the same voting rights as the holders of common stock (on an as-if-converted-to-common-stock-basis). On and after the IPO date, the series A convertible preferred stock shall have no voting rights except as set forth below. As long as any shares of series A convertible preferred stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the series A convertible preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series A convertible preferred stock or, after the IPO date, alter or amend the certificate of designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the series A convertible preferred stock, (c) amend our certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series A convertible preferred stock, (d) prior to the IPO date, increase the number of authorized shares of common stock or series A convertible preferred stock, (e) prior to the IPO date, repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of common stock or securities convertible into or

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exchangeable for common stock, (f) prior to the IPO date, repurchases of common stock or securities convertible into or exchangeable for common stock of departing officers and directors, (g) prior to the IPO date, pay cash dividends or distributions on any of our equity securities, (h) prior to the IPO date, enter into any change of control transaction (as defined in the certificate of designation) or (i) either prior to the IPO date or after the IPO date, as applicable, enter into any agreement with respect to any of the foregoing.

Conversion Rights.    Each share of series A convertible preferred stock is convertible, at any time and from time to time from at the option of the holder thereof, into that number of shares of common stock determined by dividing the stated value of such share of series A convertible preferred stock (plus any accrued but unpaid dividends thereon) by the conversion price. The conversion price is initially equal $0.6667 (subject to adjustments); provided, however, if the pre-money valuation of our company on the IPO date is less than $75,000,000, the conversion price shall be reduced to equal the product of (i) the then conversion price and (ii) the quotient obtained by dividing (A) the pre-money valuation of our company on the IPO date and (B) $75,000,000. Notwithstanding the foregoing, we shall not effect any conversion, and a holder shall not have the right to convert, any portion of the series A convertible preferred stock to the extent that, after giving effect to the conversion, such holder (together with such holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares issuable upon the conversion. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to us.

Participation Rights.    Pursuant to a securities purchase agreement that we entered into with the holders of the series A convertible preferred stock, until the one-year anniversary of the IPO date, upon any issuance by us or any of our subsidiaries of common stock or securities convertible into or exchangeable for common stock for cash consideration, indebtedness or a combination thereof, each holder of series A convertible preferred stock shall have the right to participate in such subsequent financing up to an amount equal to 50% of the aggregate amount raised thereunder on the same terms, conditions and price provided for thereunder.

Registration Rights.    Pursuant to a registration rights agreement that we entered into with the holders of the series A convertible preferred stock, we are required to file a registration statement with the SEC covering the resale of the shares of common stock issuable upon conversion of the series A convertible preferred stock and upon the exercise of the warrants described below by August 14, 2021 and use our best efforts to ensure that the registration statement is declared effective by the SEC by the earlier of the IPO date or January 31, 2022. If the registration statement is not filed or declared effective on or prior to such dates, or such registration statement ceases for any reason to remain continuously effective or the holders are otherwise not permitted to utilize the prospectus therein to resell their shares for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not be consecutive calendar days) during any 12-month period (each of which is referred to herein as an event), then, in addition to any other rights the holders may have under the registration rights agreement or under applicable law, on each such event date and on each monthly anniversary of each such event date (if the applicable event shall not have been cured by such date) until the applicable event is cured, the we must pay to each holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 1.0% multiplied by the aggregate subscription amount paid by such holder pursuant to the securities purchase agreement. If we fail to pay any partial liquidated damages pursuant in full within seven days after the date payable, we will pay interest thereon at a rate of 12% per annum (or such lesser maximum amount that is permitted to be paid by applicable law), accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. Notwithstanding the foregoing, in no event will we be liable for liquidated damages in excess of 1.0% of the aggregate subscription amount in any single month and the maximum aggregate liquidated damages payable to a holder shall be ten percent (10%) of the aggregate subscription amount.

Series B Convertible Preferred Stock

Prior to the closing of this offering, we will file a certificate of designation with the Delaware Secretary of State to establish our series B convertible preferred stock. We will designate a total of            shares of our preferred stock as series B convertible preferred stock. Our series B convertible preferred stock will have the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

Dividend Rights.    Holders of series B convertible preferred stock will not be entitled to receive any dividends, unless and until specifically declared by our board of directors. However, holders of our series B convertible preferred stock will be entitled to receive dividends on shares of series B convertible preferred stock equal (on an

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as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when such dividends are specifically declared by our board of directors, except for stock dividends or distributions payable in shares of common stock on shares of common stock or any other common stock equivalents for which the conversion price will be adjusted.

Liquidation Rights.    In the event of our liquidation, dissolution, or winding up, holders of our series B convertible preferred stock will be entitled to receive the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of series B convertible preferred stock if such shares had been converted to common stock immediately prior to such event (without giving effect for such purposes to the 4.99% or 9.99% beneficial ownership limitation, as applicable) subject to the preferential rights of holders of any class or series of our capital stock specifically ranking by its terms senior to the series B convertible preferred stock as to distributions of assets upon such event, whether voluntarily or involuntarily.

Voting Rights.    The holders of the series B convertible preferred stock will have no voting rights, except as required by law. However, we may not disproportionally alter or change adversely the powers, preferences and rights of the series B convertible preferred stock or amend the certificate of designation or amend our certificate of incorporation or bylaws in any manner that disproportionally adversely affect any right of the holders of the series B convertible preferred stock without the affirmative vote of the holders of a majority of the shares of series B convertible preferred stock then outstanding.

Conversion Rights.    Each share of series B convertible preferred stock will be convertible at any time at the holder’s option into one share of common stock (subject to adjustment as provided in the certificate of designation); provided that the holder will be prohibited from converting series B convertible preferred stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of the total number of shares of our common stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until the 61st day after such notice to us.

Other Rights.    We are not obligated to redeem or repurchase any shares of series B convertible preferred stock. Shares of series B convertible preferred stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous fund provisions.

Options

As of the date of this prospectus, we have issued options to purchase an aggregate of 1,450,000 shares of common stock under the 2020 Plan, each at an exercise price of $0.01 per share.

Warrants Outstanding Prior to this Offering

In connection with the private placement described elsewhere in this prospectus, we issued warrants for the purchase of an aggregate of 11,999,404 shares of common stock. These warrants are excisable at any time during the period commencing on the sixth (6th) month anniversary of the date on which the registration statement of which this prospectus forms a part is declared effective by the SEC and ending on the fifth (5th) anniversary of such date. The exercise price per share will be equal to 125% of the initial public offering price, subject to standard adjustments for stock splits, stock combinations, stock dividends, reclassifications, mergers, consolidations, reorganizations and similar change of control transactions, and for certain dilutive issuances; provided that, we shall not effect any exercise, and a holder shall not have the right to exercise, any portion of a warrant to the extent that, after giving effect to the exercise, such holder (together with such holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares issuable upon the exercise. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to us.

On December 18, 2020, we issued a warrant for the purchase of 1,292,445 shares of common stock to Peah Capital, LLC. This warrant is exercisable for the period commencing on January 31, 2022 and ending on December 18, 2027; provided that, the warrant will automatically expire and terminate in the event a registration statement covering the resale of all shares issued pursuant the future equity agreement with Peah Capital, LLC described below has been declared effective by the SEC. The exercise price of this warrant is $0.0001, subject to standard adjustments for stock splits, stock combinations, stock dividends, reclassifications and similar transactions. In addition, in the event that the

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number of our outstanding shares of common stock is increased prior to the 18-month anniversary of the warrant, the number of shares issuable upon exercise of the warrant shall be automatically increased to represent that number which is 9.9% of the then total outstanding capitalization.

On May 18, 2017, we issued a warrant to Leonite Capital LLC for the purchase of a number of shares of common stock as determined by dividing $60,000 by the price per share paid by investors in an equity financing occurring after the date of the warrant and resulting in gross proceeds to us of at least $1,000,000. Following the recent private placement, in which investors paid $0.6667 per underlying common share, the number of shares issuable upon exercise of this warrant is 89,996 shares. The exercise price of this warrant is $0.0001, subject to standard adjustments for stock splits, stock combinations, stock dividends, reclassifications, mergers, consolidations, reorganizations and similar change of control transactions, and for certain dilutive issuances; provided that, we shall not effect any exercise, and the holder shall not have the right to exercise, any portion of the warrant to the extent that, after giving effect to the exercise, the holder (together with the holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares issuable upon the exercise. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to us.

Warrants Issued in this Offering

The series A warrants and series B warrants will be issued in registered form under separate warrant agent agreements, each of which we refer to as a warrant agent agreement, between us and our warrant agent, VStock Transfer, LLC, who we refer to as the warrant agent. The material provisions of the warrants are set forth in this description and a copy of each of the warrant agent agreements has been filed as an exhibit to the registration statement of which this prospectus forms a part. Our company and the warrant agent may amend or supplement each of the warrant agent agreements without the consent of any holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained therein or adding or changing any other provisions with respect to matters or questions arising under each of the warrant agent agreements as the parties thereto may deem necessary or desirable and that the parties determine, in good faith, shall not adversely affect the interest of the series A warrant or series B warrant holders, respectively. All other amendments and supplements to each of the warrant agent agreement shall require the vote or written consent of holders of at least 50.1% of each of the series A warrants and series B warrants, as applicable.

Series A Warrants

The series A warrants entitle the registered holder to purchase one share of our common stock at an exercise price equal to $            per share (or 50% of the unit offering price), exercisable until the fifth anniversary of the issuance date. The exercise price and number of shares of common stock issuable upon exercise of the series A warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation.

The series A warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form attached to the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The series A warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their series A warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the series A warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.

No series A warrants will be exercisable for cash unless at the time of the exercise a prospectus relating to common stock issuable upon exercise of the series A warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the series A warrant agent agreement, we have agreed to use our best efforts to maintain a current prospectus relating to common stock issuable upon exercise of the series A warrants until the expiration of the series A warrants. Additionally, the market for the series A warrants may be limited if the prospectus or prospectus relating to the common stock issuable upon exercise of the series A warrants is not current or if the common stock is not qualified or

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exempt from qualification in the jurisdictions in which the holders of such series A warrants reside. In no event will the registered holders of a series A warrant be entitled to receive a net-cash settlement in lieu of physical settlement in shares of our common stock.

No fractional shares of common stock will be issued upon exercise of the series A warrants. If, upon exercise of the series A warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of common stock to be issued to the Warrant holder. If multiple series A warrants are exercised by the holder at the same time, we will aggregate the number of whole shares issuable upon exercise of all the series A warrants.

The price of the series A warrants has been arbitrarily established by us and the underwriter after giving consideration to numerous factors, including but not limited to, the pricing of the units in this offering. No particular weighting was given to any one aspect of those factors considered. We have not performed any method of valuation of the warrants.

Series B Warrants

The series B warrants entitle each holder to purchase one share of our common stock at an exercise price equal to $            per share (or 100% of the unit offering price), exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions as described herein. The exercise price and number of shares of common stock issuable upon exercise of the series B warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation.

The series B warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form attached to the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The series B warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their series B warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the series B warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.

No series B warrants will be exercisable for cash unless at the time of the exercise a prospectus relating to common stock issuable upon exercise of the series B warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the series B warrant agent agreement, we have agreed to use our best efforts to maintain a current prospectus relating to common stock issuable upon exercise of the series B warrants until the expiration of the series B warrants. Additionally, the market for the series B warrants may be limited if the prospectus relating to the common stock issuable upon exercise of the series B warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of such series B warrants reside. In no event will the registered holders of a series B warrant be entitled to receive a net-cash settlement in lieu of physical settlement in shares of our common stock. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable upon the exercise of the series B warrants, such holders may exercise their series B warrants on a “cashless” basis pursuant to a formula set forth in the terms of the series B warrants.

Additionally, holders of series B warrants may exercise such warrants on a “cashless” basis upon the earlier of (i) 10 trading days from the issuance date of such warrant or (ii) the time when $10.0 million of volume is traded in our common stock, if the VWAP of our common stock on any trading day on or after the date of issuance fails to exceed the exercise price of the series B warrant (subject to adjustment for any stock splits, stock dividends, stock combinations, recapitalizations and similar events). In such event, the aggregate number of shares of common stock issuable in such cashless exercise shall equal the product of (x) the aggregate number of shares of common stock that would be issuable upon exercise of the series B warrant in accordance with its terms if such exercise were by means of a cash exercise rather than a cashless exercise and (y) 1.00.

No fractional shares of common stock will be issued upon exercise of the series B warrants. If, upon exercise of the series B warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of common stock to be issued to the Warrant holder. If multiple series B warrants are exercised by the holder at the same time, we will aggregate the number of whole shares issuable upon exercise of all the series B warrants.

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The price of the series B warrants has been arbitrarily established by us and the Underwriter after giving consideration to numerous factors, including but not limited to, the pricing of the Units in this offering. No particular weighting was given to any one aspect of those factors considered. We have not performed any method of valuation of the warrants.

Convertible Promissory Notes

On February 25, 2021, we issued a convertible promissory note in the principal amount of $500,000 to East West Capital LLC. This note accrues interest at 15% per annum and matures on March 31, 2023. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to 50% of the initial public offering price.

On May 10, 2021, we issued a convertible promissory note in the principal amount of $73,727.01 to Bevilacqua PLLC, our outside securities counsel. This note accrues interest at 15% per annum and matures on May 10, 2022. The note is convertible at the option of the holder into shares of common stock at a conversion price that is equal to forty percent (40%) of either (i) the price per share paid by investors in our next priced equity financing, including this offering, or (ii) the volume weighted average price of the common stock for the five trading days from and including the date that the conversion notice is given.

On July 1, 2021, we issued a convertible promissory note in the principal amount of $3,000,000 to Sasson E. Moulavi in connection with the acquisition of Doctors Scientific Organica. This note accrues interest at 6% per annum and matures on July 1, 2024. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to the initial public offering price.

On November 8, 2021, we issued a convertible promissory note in the principal amount of $1,900,000 to Justin Francisco and Steven Rubert in connection with the acquisition of Nexus. This note accrues interest at 5% per annum and matures on November 8, 2024. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to the initial public offering price.

Debentures

On November 5, 2021, we entered into a securities purchase agreement with certain investors, pursuant to which we sold 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 to such investors for gross proceeds of $2,250,000.

Interest at a rate of 12% per annum shall accrue on the principal balance of the debentures from the date of issuance until the date that the registration statement of which this prospectus is a part is declared effective by the SEC (which we refer to as the IPO date); provided that upon an event of default, such interest rate shall increase to 18% per annum or the maximum rate permitted under applicable law, and we may be required to pay a default amount in certain circumstances. The debentures are due and payable on the earliest of the maturity date, November 30, 2022, or upon their earlier conversion or redemption.

At any time after the sixth month anniversary of the IPO date, the holders may convert the principal amount of the debentures into shares of common stock at a conversion price that is equal to 50% of the effective initial public offering price (as described in the debentures); provided that after the IPO date, the conversion price shall be reduced to the lower of such price and the lowest volume weighted average price during the 10 trading days immediately following the IPO date; provided further, that the conversion price shall not be less than $1.00. The conversion price is subject to standard equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions, as well as, prior to the IPO date, for future issuances below the conversion price. The debentures also contain beneficial ownership limitations which limit the holders’ beneficial ownership to 9.99% of our outstanding common stock.

At any time after the IPO date, we may redeem some or all of the outstanding principal amount of the debentures for cash in an amount equal to 115% of the outstanding principal amount of the debentures, plus accrued but unpaid interest and any other amounts due under the debentures.

The securities purchase agreement and the debentures contain customary representations, warranties, affirmative and negative covenants and events of default for loans of this type. The debentures are guaranteed by each of our subsidiaries.

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Future Equity Agreements

We have entered into a future equity agreement with Peah Capital, LLC, pursuant to which we have agreed to issue to Peah Capital, LLC concurrent with the closing of this offering a number of shares of our common stock equal to 75% of all funds loaned to us by it divided by the initial public offering price. The aggregate amount loaned to us by Peah Capital, LLC is $1,675,000. As noted above, the warrant issued to Peah Capital, LLC will automatically expire and terminate in the event a registration statement covering the resale of these shares has been declared effective by the SEC.

From May 2017 to December 15, 2021, we entered into future equity agreements with 56 lenders, pursuant to which we have agreed to issue to such lenders concurrent with the closing of this offering a number of shares of our common stock equal to the principal amount loaned to us divided by the initial public offering price. The aggregate principal amount loaned to us by these lenders is $5,880,405.

Anti-takeover Effects of Delaware Law and Charter Provisions

We have elected not to be governed by Section 203 of the General Corporation Law of the State of Delaware, which prohibits a publicly-held Delaware corporation from engaging in a business combination, except under certain circumstances, with an interested stockholder.

Our certificate of incorporation and bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of our company or changing our board of directors and management.

Our certificate of incorporation authorizes our board of directors to issue up to 10,000,000 shares of preferred stock without further stockholder approval. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

Our bylaws permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships. These provisions will prevent a stockholder from increasing the size of our board of directors and gaining control of our board of directors by filling the resulting vacancies with its own nominees. In addition, our bylaws provide that no member of our board of directors may be removed from office by our stockholders without cause and, in addition to any other vote required by law, upon the approval of not less than the majority of the total voting power of all of our outstanding voting stock then entitled to vote in the election of directors.

Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given us timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although our bylaws do not give the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of our company.

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Furthermore, neither the holders of our common stock nor the holders of our preferred stock have cumulative voting rights in the election of our directors. The combination of the present ownership by a few stockholders of a significant portion of our issued and outstanding common stock and lack of cumulative voting makes it more difficult for other stockholders to replace our board of directors or for a third party to obtain control of our company by replacing its board of directors.

Transfer Agent and Registrar

VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598, telephone 212-828-8436, is the transfer agent for our common stock.

Trading Symbol and Market

We have applied to list our common stock on Nasdaq under the symbol “            .” The closing of this offering is contingent upon such listing. We do not intend to list the warrants or series B convertible preferred stock on any securities exchange or nationally recognized trading system.

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SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has not been a public market for shares of our common stock. Future sales of substantial amounts of shares of our common stock, including shares issued upon the conversion of convertible notes, the exercise of outstanding options and warrants, in the public market after this offering, or the possibility of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future.

Immediately following the closing of this offering, we will have            shares of common stock issued and outstanding. In the event the underwriters exercise the over-allotment option in full, we will have            shares of common stock issued and outstanding. The common stock sold in this offering will be freely tradable without restriction or further registration or qualification under the Securities Act.

Previously issued shares of common stock that were not offered and sold in this offering, as well as shares issuable upon the exercise of warrants and subject to employee stock options, are or will be upon issuance, “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if such public resale is registered under the Securities Act or if the resale qualifies for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which are summarized below.

Rule 144

In general, a person who has beneficially owned restricted shares of our common stock for at least twelve months, or at least six months in the event we have been a reporting company under the Exchange Act for at least ninety (90) days before the sale, would be entitled to sell such securities, provided that such person is not deemed to be an affiliate of ours at the time of sale or to have been an affiliate of ours at any time during the ninety (90) days preceding the sale. A person who is an affiliate of ours at such time would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of shares that does not exceed the greater of the following:

•        1% of the number of shares of our common stock then outstanding; or

•        1% of the average weekly trading volume of our common stock during the four calendar weeks preceding the filing by such person of a notice on Form 144 with respect to the sale;

provided that, in each case, we are subject to the periodic reporting requirements of the Exchange Act for at least 90 days before the sale. Rule 144 trades must also comply with the manner of sale, notice and other provisions of Rule 144, to the extent applicable.

Rule 701

In general, Rule 701 allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of ours during the immediately preceding 90 days to sell those shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares, however, are required to wait until ninety (90) days after the date of this prospectus before selling shares pursuant to Rule 701.

Lock-Up Agreements

We and all of our directors and executive officers have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common stock or securities convertible into or exercisable or exchangeable for our common stock for a period of (i) 12 months after the closing of this offering in the case of our company and (ii) 6 months after the date of this prospectus in the case of our directors and executive officers. See “Underwriting — Lock-Up Agreements.”

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a summary of the material United States federal income tax consequences of the purchase, ownership and disposition of our units that are being issued pursuant to this offering. This summary is limited to Non-U.S. Holders (as defined below) that hold our units as a capital asset (generally, property held for investment) for United States federal income tax purposes. This summary does not discuss all of the aspects of United States federal income taxation that may be relevant to a Non-U.S. Holder in light of the Non-U.S. Holder’s particular investment or other circumstances. Accordingly, all prospective Non-U.S. Holders should consult their own tax advisors with respect to the United States federal, state, local and non-United States tax consequences of the purchase, ownership and disposition of our units.

This summary is based on provisions of the Code, applicable United States Treasury regulations and administrative and judicial interpretations, all as in effect or in existence on the date of this prospectus. Subsequent developments in United States federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could alter the United States federal income tax consequences of owning and disposing of our units as described in this summary. There can be no assurance that the IRS will not take a contrary position with respect to one or more of the tax consequences described herein and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the United States federal income tax consequences of the ownership or disposition of our units.

As used in this summary, the term “Non-U.S. Holder” means a beneficial owner of our units that is not, for United States federal income tax purposes:

•        an individual who is a citizen or resident of the United States;

•        a corporation (or other entity treated as a corporation) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

•        an entity or arrangement treated as a partnership;

•        an estate whose income is includible in gross income for United States federal income tax purposes regardless of its source; or

•        a trust, if (1) a United States court is able to exercise primary supervision over the trust’s administration and one or more “United States persons” (within the meaning of the Code) has the authority to control all of the trust’s substantial decisions, or (2) the trust has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

If an entity or arrangement treated as a partnership for United States federal income tax purposes holds our units, the tax treatment of a partner in such a partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships, and partners in partnerships, that hold our units should consult their own tax advisors as to the particular United States federal income tax consequences of owning and disposing of our units that are applicable to them.

This summary does not consider any specific facts or circumstances that may apply to a Non-U.S. Holder, including the impact of the Medicare contribution tax on net investment income and the alternative minimum tax, and does not address any special tax rules that may apply to particular Non-U.S. Holders, including, without limitation:

•        a Non-U.S. Holder that is a financial institution, insurance company, tax-exempt organization, pension plan, broker, dealer or trader in stocks, securities or currencies, United States expatriate, controlled foreign corporation or passive foreign investment company;

•        a Non-U.S. Holder holding our units as part of a conversion, constructive sale, wash sale or other integrated transaction or a hedge, straddle or synthetic security;

•        a Non-U.S. Holder that holds or receives our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; or

•        a Non-U.S. Holder that at any time owns, directly, indirectly or constructively, 5% or more of our outstanding common stock.

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In addition, this summary does not address any U.S. state or local, or non-U.S. or other tax consequences, or any United States federal income tax consequences for beneficial owners of a Non-U.S. Holder, including stockholders of a controlled foreign corporation or passive foreign investment company that holds our units. This summary also does not address the effects of other United States federal tax laws, such as estate and gift tax laws.

Each Non-U.S. Holder should consult its tax advisor regarding the United States federal, state, local and non-U.S. income and other tax consequences of owning and disposing of our units.

Characterization of Units and Allocation of Purchase Price

No statutory, administrative or judicial authority directly addresses the treatment of a unit, or any instrument similar to these units for U.S. federal income tax purposes, and therefore, that treatment is not entirely clear. We intend to take the position that the acquisition or disposition of a unit is treated for U.S. federal income tax purposes as the acquisition or disposition of the underlying common stock and series A warrant and series B warrant. By purchasing a unit, you will agree to adopt such treatment for U.S. federal income tax purposes. For U.S. federal income tax purposes, each holder of a unit must allocate the purchase price paid by such holder for such unit between the underlying common stock, series A warrant and series B warrant based on the relative fair market value of each at the time of issuance. Under U.S. federal income tax law, each investor must make his or her own determination of such value based on all the relevant facts and circumstances. Therefore, we urge each investor to consult his or her tax advisor regarding the determination of value for these purposes. The price allocated to each share of common stock, each series A warrant and series B warrant should be the shareholder’s initial tax basis in such shares of common stock or series A warrant or series B warrant. We also intend to take the position that the separation of the common stock, series A warrant and series B warrant constituting a unit is not a taxable event for U.S. federal income tax purposes.

The foregoing treatment of the units, common stock, series A warrant and series B warrant and a holder’s purchase price allocation is not binding on the IRS or the courts. Because there are no authorities that directly address instruments that are similar to the units, no assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor is urged to consult its tax advisors regarding the tax consequences of an investment in a unit (including alternative characterizations of the same). The remainder of this discussion assumes that the characterization of the units described above will be respected for U.S. federal income tax purposes.

Distributions

We do not currently expect to pay any cash dividends on our common stock. If we make distributions of cash or property (other than certain pro rata distributions of our common stock) with respect to our common stock, any such distributions generally will constitute dividends for United States federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a nontaxable return of capital to the extent of the Non-U.S. Holder’s adjusted tax basis in its common stock and will reduce (but not below zero) such Non-U.S. Holder’s adjusted tax basis in its common stock. Any remaining excess will be treated as gain from a disposition of our common stock subject to the tax treatment described below in “— Dispositions of Our Common Stock.”

Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder of our common stock will be subject to United States federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate).

Distributions on our common stock that are treated as dividends and that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States will be taxed on a net income basis at the regular graduated rates and in the manner applicable to U.S. persons. An exception may apply if the Non-U.S. Holder is eligible for, and properly claims, the benefit of an applicable income tax treaty and the dividends are not attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States. In such case, the Non-U.S. Holder may be eligible for a lower rate under an applicable income tax treaty between the United States and its jurisdiction of tax residence. Dividends that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States will not be subject to the United States withholding tax if the Non-U.S. Holder provides to the applicable

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withholding agent a properly executed IRS Form W-8ECI (or other applicable form) in accordance with the applicable certification and disclosure requirements. A Non-U.S. Holder treated as a corporation for United States federal income tax purposes may also be subject to a “branch profits tax” at a 30% rate (unless the Non-U.S. Holder is eligible for a lower rate under an applicable income tax treaty) on the Non-U.S. Holder’s earnings and profits (attributable to dividends on our common stock or otherwise) that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.

The IRS Forms and other certifications described above must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. A Non-U.S. Holder may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their eligibility for benefits under a relevant income tax treaty and the manner of claiming such benefits.

The foregoing discussion is subject to the discussions below under “— Backup Withholding and Information Reporting” and “— FATCA Withholding.”

Dispositions of Our Common Stock

A Non-U.S. Holder generally will not be subject to United States federal income tax (including United States withholding tax) on gain recognized on any sale or other disposition of our common stock unless:

•        the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States); in this case, the gain will be subject to United States federal income tax on a net income basis at the regular rates and in the manner applicable to United States persons (unless an applicable income tax treaty provides otherwise) and, if the Non-U.S. Holder is treated as a corporation for United States federal income tax purposes, the “branch profits tax” described above may also apply;

•        the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and meets certain other requirements; in this case, except as otherwise provided by an applicable income tax treaty, the gain, which may be offset by certain United States source capital losses (provided the Non-U.S. Holder has timely filed United States federal income tax returns with respect to such losses), generally will be subject to a flat 30% United States federal income tax, even if the Non-U.S. Holder is not treated as a resident of the United States under the Code; or

•        we are or have been a “United States real property holding corporation” for United States federal income tax purposes at any time during the shorter of (i) the five-year period ending on the date of disposition and (ii) the period that the Non-U.S. Holder held our common stock.

Generally, a corporation is a “United States real property holding corporation” if the fair market value of its “United States real property interests” equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. We believe that we are not currently, and we do not anticipate becoming in the future, a United States real property holding corporation. However, because the determination of whether we are a United States real property holding corporation is made from time to time and depends on the relative fair market values of our assets, there can be no assurance in this regard. If we were a United States real property holding corporation, the tax relating to disposition of stock in a United States real property holding corporation generally will not apply to a Non-U.S. Holder whose holdings, direct, indirect and constructive, constituted 5% or less of our common stock at all times during the applicable period, provided that our common stock is “regularly traded on an established securities market” (as provided in applicable United States Treasury regulations) at any time during the calendar year in which the disposition occurs. However, no assurance can be provided that our common stock will be regularly traded on an established securities market for purposes of the rules described above. Non-U.S. Holders should consult their tax advisors regarding the possible adverse United States federal income tax consequences to them if we are, or were to become, a United States real property holding corporation.

The foregoing discussion is subject to the discussions below under “— Backup Withholding and Information Reporting” and “— FATCA Withholding.”

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Exercise or Lapse of Series A Warrant or Series B Warrant

In general, a Non-U.S. Holder will not recognize gain or loss for U.S. federal income tax purposes upon the exercise of a series A warrant or series B warrant, except to the extent the Non-U.S. Holder receives a cash payment for any such fractional share that would otherwise have been issuable upon exercise of the series A warrant or the series B warrant, which will be treated as a sale subject to the rules described under “— Dispositions of Our Common Stock” above. Upon the lapse or expiration of a series A warrant or series B warrant, a Non-U.S. Holder will recognize a loss equal to such Non-U.S. Holder’s U.S. federal income tax basis in series A warrant or the series B warrant if the loss is (i) effectively connected with the conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such loss is attributable) or (ii) treated as a loss from sources within the United States and the Non-U.S. Holder is present 183 days or more in the taxable year of disposition and certain other conditions are met. The deductibility of capital losses is subject to limitations.

Certain Adjustments to the Series A Warrants and Series B Warrants

Under Section 305(c) of the Code, an adjustment (or a failure to make an adjustment) to the conversion ratio of a series A warrant and series B warrant that has the effect of increasing a Non-U.S. Holder’s proportionate interest in our assets or earnings may, in some circumstances, result in a deemed distribution to a Non-U.S. Holder for U.S. federal income tax purposes. Adjustments to the conversion rate made pursuant to a bona fide, reasonable, adjustment formula that has the effect of preventing the dilution of the interest of the holders of series A warrants and series B warrants, however, generally will not be deemed to result in a distribution to a Non-U.S. Holder. Any such deemed distribution would be taxable to a Non-U.S. Holder as described above under “— Distributions.”

Backup Withholding and Information Reporting

Backup withholding (currently at a rate of 24%) will not apply to payments of dividends on our common stock to a Non-U.S. Holder if the Non-U.S. Holder provides to the applicable withholding agent a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable form) certifying under penalties of perjury that the Non-U.S. Holder is not a United States person or is otherwise entitled to an exemption. However, the applicable withholding agent generally will be required to report to the IRS (and to such Non-U.S. Holder) payments of distributions on our common stock and the amount of United States federal income tax, if any, withheld from those payments, regardless of whether such distributions constitute dividends. In accordance with applicable treaties or agreements, the IRS may provide copies of such information returns to the tax authorities in the country in which the Non-U.S. Holder resides.

The gross proceeds from sales or other dispositions of our common stock may be subject, in certain circumstances discussed below, to United States backup withholding and information reporting. If a Non-U.S. Holder sells or otherwise disposes of our common stock outside the United States through a non-United States office of a non-United States broker and the disposition proceeds are paid to the Non-U.S. Holder outside the United States, then the United States backup withholding and information reporting requirements generally will not apply to that payment. However, United States information reporting, but not United States backup withholding, will apply to a payment of disposition proceeds, even if that payment is made outside the United States, if a Non-U.S. Holder sells our common stock through a non-United States office of a broker that is a United States person or has certain enumerated connections with the United States, unless the broker has documentary evidence in its files that the Non-U.S. Holder is not a United States person and certain other conditions are met or the Non-U.S. Holder otherwise qualifies for an exemption.

If a Non-U.S. Holder receives payments of the proceeds of a disposition of our common stock to or through a United States office of a broker, the payment will be subject to both United States backup withholding and information reporting unless the Non-U.S. Holder provides to the broker a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable form) certifying under penalties of perjury that the Non-U.S. Holder is not a United States person, or the Non-U.S. Holder otherwise qualifies for an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be credited against the Non-U.S. Holder’s United States federal income tax liability (which may result in the Non-U.S. Holder being entitled to a refund), provided that the required information is timely furnished to the IRS.

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FATCA Withholding

The Foreign Account Tax Compliance Act and related Treasury guidance (commonly referred to as FATCA) impose United States federal withholding tax at a rate of 30% on payments to certain foreign entities of (i) United States-source dividends (including dividends paid on our common stock) and (ii) (subject to the proposed Treasury Regulations discussed below) the gross proceeds from the sale or other disposition of property that produces United States-source dividends (including sales or other dispositions of our common stock). This withholding tax applies to a foreign entity, whether acting as a beneficial owner or an intermediary, unless such foreign entity complies with (i) certain information reporting requirements regarding its United States account holders and its United States owners and (ii) certain withholding obligations regarding certain payments to its account holders and certain other persons. Accordingly, the entity through which a Non-United States Holder holds its common stock will affect the determination of whether such withholding is required. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our common stock. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of stock on or after January 1, 2019, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.

Non-U.S. Holders are encouraged to consult their tax advisors regarding FATCA.

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UNDERWRITING

Dawson James Securities, Inc. is acting as lead book-running manager of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally and not jointly agreed to purchase, and we have agreed to sell to that underwriter, the number of units described in this prospectus.

Underwriter

 

Number of
Units

Dawson James Securities, Inc.

 

 

Total

 

 

The underwriting agreement provides that the obligations of the underwriters to purchase the units in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all of such units (other than those covered by the over-allotment option described below) if they purchase any of the units.

The units sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any units sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $            per unit. If all the units are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.

Over-Allotment Option

We have granted the representative of the underwriters an option exercisable on one or more occasions for up to 45 days after the date of the underwriting agreement, to purchase up to            shares of common stock, and/or up to            series A warrants, and/or             series B warrants at $            per share of common stock, and $            per series A warrant and $            per series B warrant, less underwriting discounts. The underwriters may exercise this option solely to cover over-allotments, if any, made in connection with this offering. To the extent the option is exercised, and the conditions of the underwriting agreement are satisfied, we will be obligated to sell to the underwriters, and the underwriters will be obligated to purchase, these additional shares of common stock and/or warrants.

Underwriting Discounts and Commissions

The following table shows the per unit price and total underwriting discounts and commissions we will pay in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option:

 

Per Unit

 

Total Without
Over-Allotment
Option

 

Total With
Over-Allotment
Option

Initial public offering price

 

$

 

 

$

 

 

$

 

Underwriting discounts and commissions (9%)

 

$

 

 

$

 

 

$

 

Proceeds to us, before expenses

 

$

 

 

$

 

 

$

 

We have also agreed to reimburse the underwriter for its expenses in connection with this offering, including all reasonable fees and expenses of the underwriters’ outside legal counsel, up to $145,000. We estimate the total expenses of this offering which will be payable by us, excluding the underwriting discount and the underwriter’s expenses payable by us, will be approximately $            .

Indemnification

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

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Tail Financing

Dawson James Securities, Inc. will be entitled to the compensation discussed above with respect to any public or private offering or other financing or capital-raising transaction of any kind to the extent that financing or capital is provided by investors that were contacted by Dawson James Securities, Inc. during the term of its engagement for this offering or twelve months following the completion thereof.

Lock-up Agreements

We and all of our directors and executive officers have agreed to enter into lock-up agreements in connection with this offering. Under the lock-up agreements, subject to certain exceptions, we and each of these persons may not, without the prior written approval of the representative, offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, or hedge our common stock or securities convertible into or exchangeable or exercisable for our common stock. These restrictions remain in effect and will generally terminate on the six-month anniversary after the closing date with respect to our directors and executive officers and on the twelve-month anniversary with respect to our company.

Stabilization, Short Positions and Penalty Bids

The underwriters may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange Act:

•        Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

•        A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

•        Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.

•        Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on Nasdaq or otherwise and, if commenced, may be discontinued at any time.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

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Electronic Distribution

A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of units for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.

Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s website and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Other Relationships

The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for the issuer and its affiliates, for which they received or may in the future receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer or its affiliates. If the underwriters or their affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the shares of common stock offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the shares of common stock offered hereby. The underwriters and certain of their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Selling Restrictions

This prospectus does not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction (i) in which such an offer or solicitation is not authorized, (ii) in which any person making such offer or solicitation is not qualified to do so or (iii) in which any such offer or solicitation would otherwise be unlawful. No action has been taken that would, or is intended to, permit a public offer of the units or possession or distribution of this prospectus or any other offering or publicity material relating to the units in any country or jurisdiction (other than the United States) where any such action for that purpose is required. Accordingly, each underwriter has undertaken that it will not, directly or indirectly, offer or sell any units or have in its possession, distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of units by it will be made on the same terms.

Determination of Public Offering Price

Prior to this offering, there has not been a public market for our securities. The public offering price of the units offered by this prospectus has been determined by negotiation between us and the underwriters. Among the factors considered in determining the public offering price of the units were:

•        our history and our prospects;

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•        our financial information and historical performance;

•        the industry in which we operate;

•        the status and development prospects for our products and services;

•        the experience and skills of our executive officers; and

•        the general condition of the securities markets at the time of this offering.

The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of our common stock. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that our common stock can be resold at or above the public offering price.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any units which are the subject of the offering contemplated herein may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any units may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

•        to legal entities which are qualified investors as defined under the Prospectus Directive;

•        by the underwriters to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives of the underwriters for any such offer; or

•        in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of common stock shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person in a Relevant Member State who receives any communication in respect of, or who acquires any units under, the offers contemplated here in this prospectus will be deemed to have represented, warranted and agreed to and with each underwriter and us that:

•        it is a qualified investor as defined under the Prospectus Directive; and

•        in the case of any units acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the units acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in the circumstances in which the prior consent of the representatives of the underwriters has been given to the offer or resale or (ii) where units have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of such units to it is not treated under the Prospectus Directive as having been made to such persons.

For the purposes of this representation and the provision above, the expression an “offer of units to the public” in relation to any units in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any units to be offered so as to enable an investor to decide to purchase or subscribe for the units, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

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United Kingdom

This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 (the “FSMA”)) as received in connection with the issue or sale of the units in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to the units in, from or otherwise involving the United Kingdom.

Notice to Residents of Canada

The securities may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

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LEGAL MATTERS

Certain legal matters with respect to the shares of units offered hereby will be passed upon by Bevilacqua PLLC, Washington, DC. Schiff Hardin, LLP, Washington, DC, is acting as counsel to the underwriters.

Bevilacqua PLLC holds 250,000 shares of common stock. In addition, on May 10, 2021, we issued a convertible promissory note in the principal amount of $73,727.01 to Bevilacqua PLLC. The note accrues interest at 15% per annum and matures on May 10, 2022. The note is convertible at the option of the holder into shares of common stock at a conversion price that is equal to forty percent (40%) of either (i) the price per share paid by investors in our next priced equity financing, including this offering, or (ii) the volume weighted average price of the common stock for the five trading days from and including the date that the conversion notice is given. Bevilacqua PLLC received these securities as partial consideration for legal services previously provided to us.

EXPERTS

The financial statements of Smart for Life, Inc., Doctors Scientific Organica, LLC and Nexus Offers, Inc. appearing elsewhere in this prospectus have been included herein in reliance upon the reports of Daszkal Bolton LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement, of which this prospectus is a part, on Form S-1 with the SEC relating to this offering. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement and the exhibits filed with the registration statement. For further information pertaining to us and the securities to be sold in this offering, you should refer to the registration statement and its exhibits. References in this prospectus to any of our contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents.

Upon the effectiveness of the registration statement, we will be subject to the informational requirements of the Exchange Act, and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC. The SEC maintains an internet site that contains these reports, proxy statements and other information regarding issuers that file with the SEC. The website address is http://www.sec.gov. Additionally, we will make these filings available, free of charge, on our website at www.smartforlifecorp.com as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. The information on our website, other than these filings, is not, and should not be, considered part of this prospectus and is not incorporated by reference into this document.

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FINANCIAL STATEMENTS

 

Page

Unaudited Interim Condensed Consolidated Financial Statements of Smart for Life, Inc. for the Nine Months Ended September 30, 2021 and 2020

 

F-2

Unaudited Interim Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

 

F-3

Unaudited Interim Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2021 and 2020

 

F-4

Unaudited Interim Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2021 and 2020

 

F-5

Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

 

F-6

Notes to Unaudited Interim Condensed Consolidated Financial Statements

 

F-7

     

Audited Consolidated Financial Statements of Smart for Life, Inc. for the Years Ended December 31, 2020 and 2019

 

F-19

Report of Independent Registered Public Accounting Firm

 

F-20

Consolidated Balance Sheets as of December 31, 2020 and 2019

 

F-21

Consolidated Statements of Income for the Years Ended December 31, 2020 and 2019

 

F-22

Consolidated Statement of Changes in Stockholders’ Deficit for the Years Ended December 31, 2020 and 2019

 

F-23

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

 

F-24

Notes to Consolidated Financial Statements

 

F-25

     

Unaudited Interim Financial Statements of Nexus Offers, Inc. for the Nine Months Ended September 30, 2021 and 2020

 

F-35

Unaudited Interim Balance Sheets as of September 30, 2021 and December 31, 2020

 

F-36

Unaudited Statements of Operations for the Nine Months Ended September 30, 2021 and 2020

 

F-37

Unaudited Interim Statements of Income and Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2021 and 2020

 

F-38

Unaudited Interim Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

 

F-39

Notes to Unaudited Consolidated Financial Statements

 

F-40

     

Audited Financial Statements of Nexus Offers, Inc. for the Years Ended December 31, 2020 and 2019

 

F-44

Report of Independent Registered Public Accounting Firm

 

F-45

Balance Sheets as of December 31, 2020 and 2019

 

F-46

Statements of Operations for the Years Ended December 31, 2020 and 2019

 

F-47

Statements of Income and Changes in Stockholders’ Equity for the Years Ended December 31, 2020
and 2019

 

F-48

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

 

F-49

Notes to Financial Statements

 

F-50

     

Unaudited Interim Condensed Consolidated Financial Statements of Doctors Scientific Organica, LLC for the Six Months Ended June 30, 2021 and 2020

 

F-54

Unaudited Interim Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

 

F-55

Unaudited Interim Condensed Consolidated Statements of Income and Changes in Member’s Equity for the Six Months Ended June 30, 2021 and 2020

 

F-56

Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

 

F-57

Notes to Unaudited Interim Condensed Consolidated Financial Statements

 

F-58

     

Audited Consolidated Financial Statements of Doctors Scientific Organica, LLC for the Years Ended December 31, 2020 and 2019

 

F-65

Report of Independent Registered Public Accounting Firm

 

F-66

Consolidated Balance Sheets as of December 31, 2020 and 2019

 

F-67

Consolidated Statements of Income and Changes in Member’s Equity for the Years Ended December 31, 2020 and 2019

 

F-68

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

 

F-69

Notes to Consolidated Financial Statements

 

F-70

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SMART FOR LIFE, INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020

F-2

Table of Contents

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

 

September 30,
2021

 

December 31, 2020

   

(unaudited)

   

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

690,101

 

 

$

484,949

 

Accounts receivable, net

 

 

160,897

 

 

 

69,325

 

Inventory

 

 

3,030,957

 

 

 

58,426

 

Related party receivable

 

 

329,883

 

 

 

78,466

 

Prepaid expenses and other current assets

 

 

113,624

 

 

 

77,051

 

Total current assets

 

 

4,325,462

 

 

 

768,217

 

   

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,298,451

 

 

 

381,174

 

Intangible assets, net

 

 

9,848,712

 

 

 

285,627

 

Operating lease right of use asset

 

 

767,294

 

 

 

495,154

 

Deposits and other assets

 

 

61,877

 

 

 

37,197

 

Total assets

 

$

16,301,796

 

 

$

1,967,369

 

   

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,928,541

 

 

$

986,632

 

Accrued expenses

 

 

1,186,879

 

 

 

1,434,314

 

Related party payable

 

 

83,661

 

 

 

124,555

 

Deferred revenue

 

 

225,287

 

 

 

194,020

 

Operating lease obligations, current

 

 

504,541

 

 

 

249,284

 

Note payable, current

 

 

7,422,734

 

 

 

3,971,482

 

Total current liabilities

 

 

11,351,643

 

 

 

6,960,287

 

   

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Operating lease obligations, noncurrent

 

 

289,939

 

 

 

223,985

 

Note payable, noncurrent

 

 

7,908,923

 

 

 

1,908,923

 

Total liabilities

 

 

19,550,505

 

 

 

9,093,195

 

   

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 8,000 shares authorized, 8,000 and 0 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

1

 

 

 

—

 

Common stock, $0.0001 par value, 100,000,000 shares authorized, 13,870,000 and 13,805,000 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

1,387

 

 

 

1,381

 

Additional paid in capital

 

 

8,121,869

 

 

 

121,870

 

Accumulated deficit

 

 

(11,371,966

)

 

 

(7,249,077

)

Total stockholders’ deficit

 

 

(3,248,709

)

 

 

(7,125,826

)

Total liabilities and stockholders’ deficit

 

$

16,301,796

 

 

$

1,967,369

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-3

Table of Contents

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)

 

September 30,
2021

 

September 30,
2020

Net sales

 

$

4,794,494

 

 

$

1,406,345

 

Cost of goods sold

 

 

3,328,402

 

 

 

1,232,763

 

Gross profit

 

 

1,466,092

 

 

 

173,582

 

   

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

5,232,937

 

 

 

1,122,118

 

Depreciation and amortization expense

 

 

159,928

 

 

 

82,638

 

Total operating expenses

 

 

5,392,865

 

 

 

1,204,756

 

   

 

 

 

 

 

 

 

Operating loss

 

 

(3,926,773

)

 

 

(1,031,174

)

   

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Other income

 

 

80,311

 

 

 

13,865

 

Interest (expense)

 

 

(276,427

)

 

 

(408,587

)

Total other expense

 

 

(196,116

)

 

 

(394,722

)

   

 

 

 

 

 

 

 

Net loss

 

$

(4,122,889

)

 

$

(1,425,896

)

   

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

13,835,274

 

 

 

3,203,849

 

Loss per share

 

$

(0.30

)

 

$

(0.45

)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-4

Table of Contents

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

 


Preferred Stock

 


Common Stock

 

Additional Paid-In Capital

 

Accumulated Deficit

 

Total

   

Shares

 

Amount

 

Shares

 

Amount

 

Balance, December 31, 2019

 

—

 

$

—

 

2,000,000

 

$

200

 

$

—

 

$

(4,080,059

)

 

$

(4,079,859

)

Stock issued for services

 

—

 

 

—

 

11,805,000

 

 

1,181

 

 

121,870

 

 

—

 

 

 

123,051

 

Net loss

 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

(3,169,018

)

 

 

(3,169,018

)

Balance, December 31, 2020

 

—

 

$

—

 

13,805,000

 

$

1,381

 

$

121,870

 

$

(7,249,077

)

 

$

(7,125,826

)

Stock issued for services

 

—

 

 

—

 

65,000

 

 

6

 

 

—

 

 

—

 

 

 

6

 

Stock issued for cash

 

8,000

 

 

1

 

—

 

 

—

 

 

7,999,999

 

 

—

 

 

 

8,000,000

 

Net loss

 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

(4,122,889

)

 

 

(4,122,889

)

Balance, September 30, 2021

 

8,000

 

$

1

 

13,870,000

 

$

1,387

 

$

8, 121,869

 

$

(11,371,966)

 

 

$

(3,428,709)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-5

Table of Contents

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)

 

September 30,
2021

 

September 30,
2020

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(4,122,889

)

 

$

(1,425,896

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

12,921

 

 

 

—

 

Depreciation expense

 

 

118,466

 

 

 

115,063

 

Amortization expense

 

 

41,462

 

 

 

—

 

Stock-based compensation

 

 

—

 

 

 

66,250

 

Stock issued for services

 

 

—

 

 

 

45,000

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(104,487

)

 

 

(249,559

)

Related party receivable

 

 

(251,417

)

 

 

(173,892

)

Inventory

 

 

(2,972,531

)

 

 

(271,733

)

Prepaid expenses and other current assets

 

 

(36,573

)

 

 

(41,306

)

Deposits and other assets

 

 

(24,680

)

 

 

(500

)

Accounts payable

 

 

941,909

 

 

 

(172,458

)

Related party payables

 

 

(40,894

)

 

 

—

 

Accrued expenses

 

 

(247,435

)

 

 

290,338

 

Deferred revenue

 

 

31,270

 

 

 

943,232

 

Net cash used in operating activities

 

 

(6,654,878

)

 

 

(875,461

)

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid for acquisition of DSO

 

 

(6,000,000

)

 

 

—

 

Additions to property and equipment

 

 

(1,550

)

 

 

(31,039

)

Net cash used in investing activities

 

 

(6,001,550

)

 

 

(31,039

)

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Right of use asset and lease liability

 

 

49,069

 

 

 

—

 

Proceeds from issuance of preferred stock

 

 

8,000,000

 

 

 

—

 

Proceeds from issuance of note payable

 

 

5,547,104

 

 

 

500,000

 

Repayments on notes payable

 

 

(995,757

)

 

 

(116,600

)

Paycheck protection program loan proceeds

 

 

261,164

 

 

 

539,286

 

Net cash provided by financing activities

 

 

12,861,580

 

 

 

922,686

 

   

 

 

 

 

 

 

 

Net increase in cash

 

 

205,152

 

 

 

16,186

 

Cash, beginning of period

 

 

484,949

 

 

 

12,212

 

Cash, end of period

 

$

690,101

 

 

$

28,398

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

276,427

 

 

$

85,307

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-6

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 1 — Description of Business

Smart for Life, Inc., formerly Bonne Santé Group, Inc. (“SFL”), is a Delaware corporation which was formed on February 7, 2017. Structured as a global holding company, it is engaged in the development, marketing, manufacturing, acquisition, operation and sale of a broad spectrum of nutraceutical and related products with an emphasis on Health & Wellness.

On March 8, 2018, SFL acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products, Inc. (collectively, “Millenium”). On October 8, 2019, SFL entered into an agreement to acquire the remaining 49% of these companies, subject to certain conditions which were subsequently met. On September 30, 2020, the name of Millenium Natural Manufacturing Corp. was changed to Bonne Sante Natural Manufacturing, Inc. (“BSNM”), and on November 24, 2020, Millenium Natural Health Products Inc. was merged into BSNM.

Based in Doral, Florida, BSNM operates a 22,000 square-foot FDA-certified manufacturing facility. It manufactures nutritional products for a significant number of customers.

On July 1, 2021, SFL acquired Doctors Scientific Organica, LLC d/b/a Smart for Life, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C (collectively, “DSO”). On August 27, 2021, SFL transferred all of the equity interests of Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. to Doctors Scientific Organica, LLC. As a result, these entities are now wholly owned subsidiaries of Doctors Scientific Organica, LLC.

Based in Riviera Beach, Florida, DSO operates a 30,000 square-foot FDA-certified manufacturing facility. DSO manufactures and sells weight management foods and related products. Additionally, DSO provides manufacturing services for other customers.

On August 24, 2021, Smart for Life Canada Inc. (“SFL Canada”) was established as a wholly owned subsidiary of Doctors Scientific Organica, LLC in Canada. SFL Canada sells retail products through a retail store location in Montreal Canada and the same location also acts as distribution center for international direct to consumer and big box customers. It maintains inventory and employees at this location.

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements reflect the consolidated operations of SFL and its wholly owned subsidiaries BSNM, DSO and SFL Canada (collectively the “Company”) from the effective date of formation and are prepared in the United States Dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include, among other items, assessing the collectability of receivables, the realization of deferred taxes, useful lives and recoverability of tangible and intangible assets, assumptions used in the valuation of options, the computation of revenue based on the proportional delivery of services, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

F-7

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 2 — Summary of Significant Accounting Policies (cont.)

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash equivalents. At September 30, 2021 and December 31, 2020, there were no cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are presented net of an allowance for doubtful accounts of $13,103 and $12,915 at September 30, 2021 and December 31, 2020, respectively. The Company’s allowance for doubtful accounts represents the Company’s estimate for uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability, as well as management’s past experience with the customers.

Inventory, net

Inventory consists of raw materials, work in progress, and finished goods and is valued at the lower of cost (first-in, first-out) (replacement cost or net realizable value). An allowance for inventory obsolescence is provided for slow moving or obsolete inventory to write down historical cost to net realizable value. The Company primarily performs their manufacturing for nutraceuticals in the form of powders, tablets and capsules.

The allowance for obsolescence is an estimate established through charges to cost of goods sold. Management’s judgment in determining the adequacy of the allowance is based upon several factors which include, but are not limited to, analysis of slow moving inventory, analysis of the selling price of inventory, the predetermined shelf life of the product, and management’s judgment with respect to current economic conditions. Given the nature of the inventory, it is reasonably possible the Company’s estimate of the allowance for obsolescence will change in the near term.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged to expense as incurred. The Company provides for depreciation and amortization over the estimated useful lives of various assets using the straight-line method ranging from 3-15 years.

Intangible Assets

Intangible assets principally consist of customer relationships, intellectual property, and non-compete agreements with employees. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives which ranges from 3 to 5 years.

Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. The Company had no impairment of long-lived assets at September 30, 2021 and December 31, 2020.

Deferred Rent and Rent Expense

The Company leases space under operating leases. Rent expense is recognized on a straight-line basis over the lease term. Tenant improvement allowances funded by landlord incentives, rent holidays and rent escalation clauses which provide for scheduled rent increases during the lease term or for rental payments commencing at a date other than the date of initial occupancy are recorded in the Consolidated Statement of Income on a straight-line basis over the lease

F-8

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 2 — Summary of Significant Accounting Policies (cont.)

term, whereby an equal amount of rent expense is attributed to each period during the term of the lease, regardless when actual payments are made. This generally results in rent expense in excess of cash payments during the first half of the lease and cash payments in excess of rent expense during the latter half. The difference between the rent due under the stated periods of the lease and the straight-line basis is recorded as deferred rent on the Consolidated Balance Sheet.

Revenue Recognition

Impact of the initial adoption of Accounting Standards Codification (“ASC”) 606

Effective January 1, 2019, the Company now evaluates revenue recognition based on the criteria set forth in ASC 606, Revenue from Contracts with Customers. The Company adopted the new revenue recognition standard using the modified retrospective method to undelivered performance obligations on existing contracts which resulted in no impact to retained earnings.

The Company evaluates and recognize revenue by:

•        identifying the contract(s) with the customer,

•        identifying the performance obligations in the contract,

•        determining the transaction price,

•        allocating the transaction price to performance obligations in the contract; and

•        recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

The Company primarily generates revenues by manufacturing and packaging of nutraceutical products as a contract manufacturer for customers. The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations at September 30, 2021 or December 31, 2020.

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Freight

For the nine months ended September 30, 2021 and 2020, freight costs amounted to $181,782 and $84,229, respectively and have been recorded in cost of goods sold in the accompanying Consolidated Statement of Income.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the nine months ended September 30, 2021 and 2020 were $518,443 and $36,156, respectively.

Stock-based Compensation

The Company recognizes expense for stock options and warrants granted over the vesting period based on the fair value of the award at the grant date, are valued using a Black-Scholes option pricing model to determine the fair

F-9

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 2 — Summary of Significant Accounting Policies (cont.)

market value of the stock options. The Company calculates the amount of tax benefit available by tracking each stock option award on an employee-by-employee basis and on a grant-by-grant basis. The Company then compares the recorded expense to the tax deduction received for each stock option grant.

Income Taxes

The Company accounts for income tax under the provisions of ASC 740, Income Taxes. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At September 30, 2021 and December 31, 2020, the Company has no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company’s tax years subject to examination by tax authorities generally remain open for three (3) years from the date of filing.

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Recent Accounting Standards Issued Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for areas of ASC 740 by clarifying and amending existing guidance. This standard is effective for the Company on January 1, 2022, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

Note 3 — Acquisition

On February 11, 2020, the Company entered into securities purchase agreement, which was amended on July 7, 2020 and June 4, 2021, to acquire DSO. On July 1, 2021, the acquisition was completed.

Pursuant to the terms of the securities purchase agreement, the Company paid $6,000,000 in cash and issued two promissory notes to the member of DSO. The first promissory note is a convertible promissory note in the principal amount of $3,000,000 that bears interest at an annual rate of 6% and the second promissory note is also in the principal amount of $3,000,000, is not convertible, and bears interest at an annual rate of 6%.

F-10

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 3 — Acquisition (cont.)

The table below summarizes the value of the total consideration given in the transaction.

 

Amount

Cash issued

 

$

6,000,000

Debt issued

 

 

6,000,000

Total consideration

 

$

12,000,000

Under the acquisition method of accounting outlined in ASC 805, the identifiable assets acquired and liabilities assumed in the acquisition are recorded at their acquisition-date fair values and are included in the Company’s consolidated financial position.

The following table summarizes the purchase price allocation for the assets acquired and liabilities assumed in connection with the acquisition of DSO.

 

Amount

Tangible assets acquired

 

$

3,497,511

 

Liabilities assumed

 

 

(1,102,057

)

Intangible assets

 

 

9,604,546

 

Net assets acquired

 

$

12,000,000

 

The intangible assets acquired from DSO have estimated useful lives and values of:

 

Useful life in years

 

Amount

Non-compete agreements

 

3

 

$

540,000

Customer contracts

 

5

 

 

6,723,182

Intellectual property

 

5

 

 

2,341,364

Total intangible assets

     

$

9,604,546

Note 4 — Inventory

Inventory consisted of the following at September 30, 2021 and December 31, 2020:

 

September 30,
2021

 

December 31, 2020

Raw materials

 

$

2,667,248

 

$

54,797

Finished goods

 

 

363,710

 

 

3,629

   

 

3,030,957

 

 

58,426

Less: allowance for obsolescence

 

 

—

 

 

—

   

$

3,030,957

 

$

58,426

F-11

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 5 — Property and Equipment

Property and equipment consisted of the following at September 30, 2021 and December 31, 2020:

 

Estimated Useful Lives (in Years)

 

September 30, 2021

 

December 31, 2020

Furniture and fixtures

 

7

 

$

13,955

 

 

$

1,090

 

Equipment – Manufacturing

 

5

 

 

2,918,938

 

 

 

797,760

 

Vehicle

 

6

 

 

29,336

 

 

 

—

 

Leasehold improvements

 

2.5

 

 

86,015

 

 

 

10,650

 

       

 

3,048,244

 

 

 

809,500

 

Less: accumulated depreciation and amortization

     

 

(1,749,793

)

 

 

(428,326

)

Property and equipment, net

     

$

1,298,451

 

 

$

381,174

 

Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 totaled $123,857 and $212,415, respectively.

Note 6 — Intangible Assets

Intangible assets consisted of the following at September 30, 2021 and December 31, 2020:

 

Estimated
Useful Lives
(in Years)

 

September 30,
2021

 

December 31,
2020

Customer contracts

 

5

 

$

7,165,444

 

 

$

442,642

 

Non-compete agreements

 

3

 

 

540,000

 

 

 

—

 

Intellectual property

 

5

 

 

2,341,365

 

 

 

—

 

Less: amortization

     

 

(198,097

)

 

 

(157,015

)

Intangibles, net

     

$

9,848,711

 

 

$

285,627

 

Amortization (included in depreciation and amortization expense) for the nine months ended September 30, 2021 and 2020 were $41,462 and $55,283, respectively.

Future amortization expense for the next 5 years is expected to be:

For the Year Ended December 31:

 

 

 

2022

 

$

2,081,362

2023

 

 

2,081,362

2024

 

 

2,081,362

2025

 

 

1,901,362

2026

 

 

1,901,362

F-12

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 7 — Lease Commitments

The Company enters into lessee arrangements consisting of operating leases for premises. The Company had four operating leases for premises as of September 30, 2021 and three as of December 31, 2020, respectively. One new lease commenced during 2020 and one lease agreement is set to expire at the end of 2022. The following table below provides supplemental information on leases at September 30, 2021:

 

September 30,
2021

 

December 31,
2020

Asset

 

 

   

 

 

Right of use asset

 

$

767,294

 

$

495,154

Total lease asset

 

$

767,294

 

$

495,154

   

 

   

 

 

Liability

 

 

   

 

 

Right of use liability, current portion

 

$

504,542

 

$

249,284

Right of use liability, net of current portion

 

 

289,936

 

 

223,985

Total lease liability

 

$

          794,478

 

$

          473,269

Future minimum lease payments under capital leases and rental payments required under operating leases are presented as follows:

For the period ended September 30:

 

 

 

 

2021

 

$

348,290

 

2022

 

 

466,173

 

2023

 

 

86,277

 

Total payments

 

$

900,740

 

Less: amount representing interest

 

 

(106,262

)

Lease obligation, net

 

$

794,478

 

Less: current portion

 

 

(504,542

)

Lease obligation – long-term

 

$

289,936

 

Rent expense for the nine months ended September 30, 2021 and 2020 was $303,195 and $981,241, respectively.

Note 8 — Debt

Since inception, the Company has issued term loans to various lenders. These notes accrue interest at rates between 12 – 15%, with various maturity dates.

In December 2020, the Company entered into a factoring agreement which was then converted into a $1,500,000 term loan, which was amended on April 27, 2021 to increase the loan amount to $1,625,000. The loan matures 18 months from issuance and earns interest at 17.5% per annum.

In June 2020, the Company received an Economic Injury Disaster Loan (“EIDL”) from the Small Business Administration. The loan matures in 30 years and bears interest at a rate of 3.75%.

In May 2020, the Company received loan proceeds through the Paycheck Protection Program (“PPP”). The loan matures in April 2022 and bears interest at a rate of 1%.

In February 2021, the Company received loan proceeds through the PPP. The loan matures in January 2023 and bears interest at a rate of 1%.

On July 1, 2021, the Company acquired DSO. As part of the purchase price, the Company issued two promissory notes to the seller, including (i) a 6% secured subordinated convertible promissory note in the principal amount of $3,000,000 which accrues interest at 6% per annum and matures on July 1, 2024 and (ii) a 6% secured subordinated

F-13

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 8 — Debt (cont.)

promissory note in the principal amount of $3,000,000. This note accrues interest at 6% per annum and the outstanding principal and interest will be amortized on a straight-line basis and are payable quarterly in accordance with the amortization schedule attached to the note, with all amounts due and payable on July 1, 2024.

On July 1, 2021, the Company entered into a loan agreement with Diamond Creek Capital, LLC for a term loan in the principal amount of up to $3,000,000 and issued a term loan promissory note to Diamond Creek Capital, LLC in the principal amount of $3,000,000. The loan bears interest at a rate of 15.0% per annum, provided that upon an event of default, such rate shall increase by 5%. The loan is due and payable on the earlier of July 1, 2022 or upon completion of the Company’s initial public offering. A portion of this borrowing was used to pay down other note holders.

As of September 30, 2021 and December 31, 2020, the outstanding balances on these loans are as follows:

 

September 30,
2021

 

December 31,
2020

Term loans

 

$

6,916,325

 

$

3,841,413

EIDL loan

 

 

1,614,906

 

 

1,499,730

PPP loan May 2020

 

 

300,000

 

 

300,000

PPP loan February 2021

 

 

239,262

 

 

239,262

Notes issued to DSO seller

 

 

261,164

 

 

—

Term loan

 

 

6,000,000

 

 

—

Total

 

$

15,331,657

 

$

5,880,405

The future maturities of the debt are as follows:

For the Year Ended December 31:

   

2021

 

$

—

2022

 

 

10,770,493

2023

 

 

261,164

2024

 

 

—

2025

 

 

—

Thereafter

 

 

4,300,000

Total

 

$

15,331,657

Note 9 — Concentrations of Credit Risks

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, accounts receivable and unbilled receivables. The Company maintains bank accounts with several financial institutions. Concentrations of credit risk with respect to accounts receivable are limited to the dispersion of customers across different industries and geographic regions.

Cash

The Company places its cash with high credit quality financial institutions. At September 30, 2021 and December 31, 2020, the Company had cash balances of $0 and $243,262 in excess of the Federal Deposit Insurance Corporation coverage of $250,000 per institution. The Company has not experienced any losses in such accounts.

Major Vendors

The Company does not have any suppliers which represent a significant portion of its supply chain. The Company’s officers are closely monitoring the relationships with all suppliers.

F-14

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 10 — Stock Options and Warrants

In 2020, the Company adopted its Stock Incentive Plan (the “Plan”) under which the Company is authorized to issue a total of 2,000,000 qualified stock options and nonqualified stock options to purchase common stock, to be granted to employees, and certain consultants or independent advisors who provide services to the Company. The maximum term of the options is ten (10) years. The Board of Directors has the right to accelerate the vesting period of the options based upon the performance of the employees and other reasons that would benefit the Company.

At September 30, 2021 and December 31, 2020, there were 550,000 and 750,000 stock options, respectively, available for issuance.

The Company recognized $0 and $1,000 of compensation expense related to the vesting of options during the nine months ended September 30, 2021 and 2020, respectively.

The following is a summary of options and warrants granted, exercised, forfeited and outstanding during the nine months ended:

 

September 30, 2021
Stock Options

 

September 30, 2021
Warrants

   

Number of
Options

 

Weighted
Average
Exercise
Price

 

Number of Warrants

 

Weighted
Average
Exercise
Price

Outstanding at December 31, 2020

 

1,250,000

 

$

0.01

 

1,382,441

 

$

0.0001

Granted

 

200,000

 

 

0.01

 

11,999,404

 

 

0.0001

Exercised

 

—

 

 

—

 

—

 

 

—

Forfeited

 

—

 

 

—

 

—

 

 

—

Outstanding at September 30,

 

1,450,000

 

$

0.01

 

13,381,845

 

$

0.0001

Exercisable at September 30,

 

1,450,000

 

 

   

1,382,441

 

 

 

Available for issuance at September 30,

 

550,000

 

 

   

—

 

 

 

The following is a summary of options and warrants granted, exercised, forfeited and outstanding during the years ended December 31:

 

December 31, 2020
Stock Options

 

December 31, 2020
Warrants

   

Number of
Options

 

Weighted
Average
Exercise
Price

 

Number of
Warrants

 

Weighted
Average
Exercise
Price

Outstanding at beginning of year

 

—

 

$

—

 

250,000

 

$

—

Granted

 

1,250,000

 

 

0.01

 

1,292,445

 

 

0.01

Exercised

 

—

 

 

—

 

—

 

 

—

Forfeited

 

—

 

 

—

 

—

 

 

—

Outstanding at December 31,

 

1,250,000

 

$

0.01

 

1,542,445

 

$

0.01

Exercisable at December 31,

 

1,250,000

 

 

   

1,542,445

 

 

 

Available for issuance at December 31,

 

750,000

 

 

   

—

 

 

 

During the nine months ended September 30, 2021, there were 200,000 stock options granted. At December 31, 2020, total future compensation costs related to non-vested stock options, less estimated forfeitures are approximately $4,000 and will be recognized over the next four years.

During 2020, there were 1,250,000 stock options granted.

F-15

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 10 — Stock Options and Warrants (cont.)

Valuation Assumptions for Stock Options and Warrants

The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

2020

 

2019

Risk-free interest rate

 

0.36

%

 

1.69

%

Expected volatility

 

77

%

 

81

%

Expected life (years)

 

5

 

 

5

 

Dividend yield

 

0

%

 

0

%

The expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free rate is based on the U.S. Treasury yield constant maturity in effect at the time of grant for periods corresponding with the expected life of the option.

Note 11 — Stockholders’ Equity

Preferred Stock

On June 29, 2021, the Company filed a certificate of designation with the Delaware Secretary of State to establish its series A convertible preferred stock. The Company designated a total of 8,000 shares of its preferred stock as series A convertible preferred stock. The series A convertible preferred stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

Dividend Rights.    Holders of series A convertible preferred stock are entitled to receive cumulative dividends at a rate of 7.5% of the stated value per share ($1,000, subject to adjustment) per annum, which shall increase to 15% per annum after November 23, 2021 and 24% per annum after December 31, 2021; provided, however, that no dividends shall accrue following the date that a registration statement covering the resale of the shares of common stock underlying the series A convertible preferred stock is declared effective by the SEC (the “IPO Date”). The dividends shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily and shall be deemed to accrue whether or not earned or declared and whether or not there are profits, surplus or other funds legally available for the payment of dividends. Any dividends that are not paid within three (3) trading days following a dividend payment date shall continue to accrue and shall entail a late fee at the rate of 15% per annum or the lesser rate permitted by applicable law.

Liquidation Rights.    Prior to the IPO Date, upon any liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, or upon a change of control, the holders of series A convertible preferred stock shall be entitled to receive out of the assets of the Company an amount equal to the greater of (a) 150% of the stated value, plus any accrued and unpaid dividends thereon, for each share held, and (b) the amount that could otherwise be received by a holder for the shares issuable upon conversion of the series A convertible preferred stock in full (ignoring for such purposes any conversion limitations) before any distribution or payment shall be made to the holders of common stock. Following the IPO Date, upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or upon a change of control, the holders of series A convertible preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the series A convertible preferred stock were fully converted (disregarding for such purposes any conversion limitations) to common stock which amounts shall be paid pari passu with all holders of common stock.

Voting Rights.    Until the IPO Date, the holders of series A convertible preferred stock shall have the same voting rights as the holders of common stock (on an as-if-converted-to-common-stock-basis). On and after the IPO Date, the series A convertible preferred stock shall have no voting rights except as set forth below. As long as any shares of series A convertible preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of

F-16

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 11 — Stockholders’ Equity (cont.)

a majority of the then outstanding shares of the series A convertible preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series A convertible preferred stock or, after the IPO Date, alter or amend the certificate of designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the series A convertible preferred stock, (c) amend the Company’s certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series A convertible preferred stock, (d) prior to the IPO Date, increase the number of authorized shares of common stock or series A convertible preferred stock, (e) prior to the IPO Date, repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of common stock or securities convertible into or exchangeable for common stock, (f) prior to the IPO Date, repurchases of common stock or securities convertible into or exchangeable for common stock of departing officers and directors, (g) prior to the IPO Date, pay cash dividends or distributions on any equity securities, (h) prior to the IPO Date, enter into any change of control transaction (as defined in the certificate of designation) or (i) either prior to the IPO Date or after the IPO Date, as applicable, enter into any agreement with respect to any of the foregoing.

Conversion Rights.    Each share of series A convertible preferred stock is convertible, at any time and from time to time from at the option of the holder thereof, into that number of shares of common stock determined by dividing the stated value of such share of series A convertible preferred stock (plus any accrued but unpaid dividends thereon) by the conversion price. The conversion price is initially equal $0.6667 (subject to adjustments); provided, however, if the pre-money valuation of the Company on the IPO Date is less than $75,000,000, the conversion price shall be reduced to equal the product of (i) the then conversion price and (ii) the quotient obtained by dividing (A) the pre-money valuation of the Company on the IPO Date and (B) $75,000,000. Notwithstanding the foregoing, the Company shall not effect any conversion, and a holder shall not have the right to convert, any portion of the series A convertible preferred stock to the extent that, after giving effect to the conversion, such holder (together with such holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares issuable upon the conversion. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to us.

On July 1, 2021, the Company completed a private placement in which it sold an aggregate of 6,000 shares of series A convertible preferred stock and warrants for the purchase of an aggregate of 8,999,552 shares of common stock to certain investors for gross proceeds of $6,000,000. On August 18, 2021, the completed an additional closing of this private placement in which it sold 2,000 shares of series A convertible preferred stock and warrants for the purchase of 2,999,852 shares of common stock for gross proceeds of $2,000,000.

Common Stock

On June 15, 2020, the Company issued 6,625,000 shares of common stock for services rendered valued at $66,250.

Between June 15, 2020 and November 30, 2020, the Company issued 5,180,000 shares of common stock for compensation valued at $51,800.

On April 21, 2021, the Company issued 45,000 shares of common stock for compensation values at $4.

On April 21, 2021, the Company issued 20,000 shares of common stock for services rendered valued at $2.

Note 12 — Commitments and Contingencies

COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of these consolidated financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s consolidated financial condition, liquidity, and future results of operations. Management

F-17

Table of Contents

SMART FOR LIFE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 12 — Commitments and Contingencies (cont.)

is actively monitoring the impact of the global situation on its consolidated financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of consolidated financial condition, liquidity or operations.

Commercial Matters

From time to time, the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

Note 13 — Related Party Transaction

The Company has a management services agreement with a company controlled by the Company’s Chairman. As of September 30, 2021 and December 31, 2020, the amounts due from the related party are $83,661 and $386,900, respectively.

Note 14 — Subsequent Events

On November 5, 2021, the Company entered into a securities purchase agreement with certain investors, pursuant to which it sold 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 to such investors for gross proceeds of $2,250,000 to fund the purchase of Nexus Offers, Inc. (“Nexus”) described below. Interest at a rate of 12% per annum shall accrue on the principal balance of the debentures from the date of issuance until the date that a registration statement relating to the Company’s initial public offering is declared effective by the Securities and Exchange Commission; provided that upon an event of default, such interest rate shall increase to 18% per annum or the maximum rate permitted under applicable law. The debentures are due and payable on the earliest of the maturity date, November 30, 2022, or upon their earlier conversion or redemption.

In July 2021, the Company executed a securities purchase agreement with Nexus. On November 8, 2021, the Company completed the acquisition of Nexus for a total purchase price of $6,000,000 (subject to adjustment), comprised of (i) $2,200,000 in cash (subject to adjustment), (ii) a 5% secured subordinated convertible promissory note in the principal amount of $1,900,000 and (iii) a 5% secured subordinated promissory note in the principal amount of $1,900,000.

On November 29, 2021, the Company entered into a contribution and exchange agreement to acquire all of the issued and outstanding capital stock of GSP Nutrition Inc. (“GSP Nutrition”). On December 6, 2021, the acquisition was completed.

The total purchase price was $425,000, payable in 42,500 shares of common stock; provided that if the effective price per share of common stock in the Company’s initial public offering (as determined in accordance with the contribution and exchange agreement) is less than $10 per share, then the Company must issue an additional number of shares of common stock equal to an amount determined by dividing the $425,000 purchase price by the effective offering price per share, minus 42,500. In connection with this acquisition, the Company also issued 14,723 shares of common stock to certain vendors of GSP who agreed to settle accounts payable owed to them into the Company’s common stock.

On September 27, 2021, Ada De Quesada (“De Quesada”) brought a lawsuit against SFL, BSNM and Millenium Natural Health Products, Inc. (the “Defendant Entities”) in the 11th Judicial Circuit in and for Miami-Dade County, Florida, having case number 21-021989-CA-01. Within the lawsuit, De Quesada sought damages against the Defendant Entities for breach of contract and failure to indemnify, arising out of an alleged failure by the Defendant Entities to pay an obligation purportedly due to De Quesada stemming from the purchase of the BSNM businesses by SFL. On November 9, 2021, the Defendant Entities filed a Motion to Dismiss the entire lawsuit. Shortly thereafter and as a result of the Motion to Dismiss, the parties engaged in settlement discussions and agreed to a settlement of $75,000 to be paid over a period of time. A draft of the confidential settlement agreement has been circulated for review and execution amongst the parties.

F-18

Table of Contents

SMART FOR LIFE, INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Management and Board of Directors Smart for Life, Inc.

Doral, Florida

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Smart for Life, Inc. (the “Company”) at December 31, 2020, and 2019, and the related consolidated statements of operations and changes in stockholders’ deficit, and cash flows for each of the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Daszkal Bolton LLP

We have served as the Company’s auditor since 2021

Sunrise, Florida

August 11, 2021

F-20

Table of Contents

SMART FOR LIFE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 AND 2019

 

December 31,
2020

 

December 31,
2019

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

484,949

 

 

$

12,212

 

Accounts receivable, net

 

 

69,325

 

 

 

33,656

 

Inventory

 

 

58,426

 

 

 

566,396

 

Related party receivable

 

 

78,466

 

 

 

91,821

 

Prepaid expenses and other current assets

 

 

77,051

 

 

 

12,276

 

Total current assets

 

 

768,217

 

 

 

716,361

 

Property and equipment, net

 

 

381,174

 

 

 

505,340

 

Intangible assets, net

 

 

285,627

 

 

 

340,910

 

Deposits and other assets

 

 

37,197

 

 

 

36,697

 

Operating lease right-of-use assets

 

 

495,154

 

 

 

772,267

 

Total other assets

 

 

1,199,152

 

 

 

1,655,214

 

Total assets

 

$

1,967,369

 

 

$

2,371,575

 

   

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

986,632

 

 

$

992,153

 

Accrued expenses

 

 

1,434,314

 

 

 

957,942

 

Related party payable

 

 

124,555

 

 

 

99,187

 

Deferred revenue

 

 

194,020

 

 

 

162,830

 

Operating lease obligations, current

 

 

249,284

 

 

 

213,232

 

Note payable, current

 

 

3,971,482

 

 

 

3,552,820

 

Total current liabilities

 

 

6,960,287

 

 

 

5,978,164

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Operating lease obligations, noncurrent

 

 

223,985

 

 

 

473,270

 

Note payable, noncurrent

 

 

1,908,923

 

 

 

—

 

Total long-term liabilities

 

 

2,132,908

 

 

 

473,270

 

Total liabilities

 

 

9,093,195

 

 

 

6,451,434

 

   

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Series A Preferred Stock, $.0001 par value, 10,000,000 shares authorized, 0 and 0 shares issued and outstanding as of December 31, 2020 and 2019, respectively

 

 

—

 

 

 

—

 

Common stock, $.0001 par value, 100,000,000 shares authorized, 13,810,000 and 200,000 issued and outstanding as of December 31, 2020 and 2019, respectively

 

 

1,381

 

 

 

200

 

Additional paid in capital

 

 

121,870

 

 

 

—

 

Non-controlling interest

 

 

—

 

 

 

(611,420

)

Accumulated deficit

 

 

(7,249,077

)

 

 

(4,080,059

)

Total stockholders’ deficit

 

 

(7,125,826

)

 

 

(4,079,859

)

Total liabilities and stockholders’ equity

 

$

1,967,369

 

 

$

2,371,575

 

The accompanying notes are an integral part of these consolidated financial statements

F-21

Table of Contents

SMART FOR LIFE, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

December 31, 2020

 

December 31, 2019

Net sales

 

$

1,959,595

 

 

$

2,364,863

 

Cost of goods sold

 

 

1,831,629

 

 

 

2,316,674

 

Gross profit

 

 

127,966

 

 

 

48,189

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

1,863,087

 

 

 

2,282,712

 

Depreciation and amortization expense

 

 

166,613

 

 

 

169,380

 

Total operating expenses

 

 

2,029,700

 

 

 

2,452,092

 

Operating loss

 

 

(1,901,734

)

 

 

(2,403,903

)

Other income (expense)

 

 

 

 

 

 

 

 

Other income

 

 

(14,141

)

 

 

13,290

 

Interest (expense)

 

 

(1,253,143

)

 

 

(624,493

)

Total other income (expense)

 

 

(1,267,284

)

 

 

(611,203

)

Income (loss) before income taxes

 

 

(3,169,018

)

 

 

(3,015,106

)

Income tax (benefit) expense

 

 

—

 

 

 

—

 

Net loss

 

 

(3,169,018

)

 

 

(3,015,106

)

Net loss attributable to the non-controlling interest

 

 

—

 

 

 

(492,763

)

Net loss

 

$

(3,169,018

)

 

$

(2,522,343

)

   

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,031,685

 

 

 

2,000,000

 

Loss per share

 

$

(0.53

)

 

$

(1.26

)

The accompanying notes are an integral part of these consolidated financial statements

F-22

Table of Contents

SMART FOR LIFE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

Preferred Shares

 

Stock Amount

 


Common Stock

 

Additional Paid-In Capital

 

Non-Controlling Interest

 

Accumulated Deficit

 

Total

Shares

 

Amount

 

Balance, December 31, 2018

 

—

 

$

—

 

2,000,000

 

$

200

 

$

—

 

$

111,387

 

 

$

(1,557,716

)

 

$

(1,446,129

)

Net loss

 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

(492,763

)

 

 

(2,522,343

)

 

 

(3,015,106

)

Purchase of non-controlling interest in consolidated subsidiary

 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

381,376

 

 

 

—

 

 

 

381,376

 

Balance, December 31, 2019

 

—

 

 

—

 

2,000,000

 

 

200

 

 

—

 

 

—

 

 

 

(4,080,059

)

 

 

(4,079,859

)

Stock issued for services

 

—

 

 

—

 

11,805,000

 

 

1,181

 

 

121,870

 

 

—

 

 

 

—

 

 

 

123,051

 

Net loss

 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

—

 

 

 

(3,169,018

)

 

 

(3,169,018

)

Balance, December 31, 2020

 

—

 

$

—

 

13,805,000

 

$

1,381

 

$

121,870

 

$

—

 

 

$

(7,249,077

)

 

$

(7,125,826

)

The accompanying notes are an integral part of these consolidated financial statements

F-23

Table of Contents

SMART FOR LIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

December 31,
2020

 

December 31,
2019

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,169,018

)

 

$

(2,522,343

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

10,346

 

 

 

82,378

 

Depreciation expense

 

 

108,760

 

 

 

111,213

 

Amortization expense

 

 

57,853

 

 

 

58,167

 

Stock-based compensation

 

 

663

 

 

 

—

 

Stock-issued for services

 

 

122,388

 

 

 

—

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(46,015

)

 

 

24,438

 

Related party receivable

 

 

13,355

 

 

 

22,349

 

Inventory

 

 

507,970

 

 

 

212,441

 

Prepaid expenses and other current assets

 

 

(500

)

 

 

161,740

 

Deposits and other assets

 

 

(37,197

)

 

 

—

 

Accounts payable

 

 

(15,796

)

 

 

81,228

 

Related party payable

 

 

25,368

 

 

 

99,187

 

Accrued expenses

 

 

476,372

 

 

 

317,675

 

Deferred revenue

 

 

31,190

 

 

 

(393,987

)

Net cash provided used in activities

 

 

(1,941,839

)

 

 

(1,745,514

)

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(32,966

)

 

 

—

 

Net cash used in investing activities

 

 

(32,966

)

 

 

—

 

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Right of use asset and lease liability

 

 

63,880

 

 

 

(85,765

)

Proceeds from issuance of note payable

 

 

2,555,749

 

 

 

2,230,000

 

Repayments on notes payable

 

 

(490,100

)

 

 

(385,000

)

Paycheck protection program loan proceeds

 

 

318,013

 

 

 

—

 

Net cash provided by financing activities

 

 

2,447,542

 

 

 

1,759,235

 

   

 

 

 

 

 

 

 

Net increase in cash

 

 

472,737

 

 

 

13,721

 

Cash, beginning of year

 

 

12,212

 

 

 

(1,509

)

Cash, end of year

 

$

484,949

 

 

$

12,212

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

85,307

 

 

$

95,076

 

The accompanying notes are an integral part of these consolidated financial statements

F-24

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 1 — Description of Business

Bonne Santé Group, Inc., is a Delaware corporation which was formed on February 7, 2017. The Company is engaged in the development, marketing, manufacturing, acquisition, operation and sale of a broad spectrum of nutraceutical and related products with an emphasis on Health & Wellness. Structured as a global holding company. On August 4, 2021 the Company changed it’s name to Smart for Life, Inc. (“SFL”)

On March 8, 2018, our Company acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products, Inc., which we refer to collectively as Millenium. Based in Doral, Florida, Millenium operates a 22,000 square-foot FDA-certified manufacturing facility. Millenium manufactures nutritional products for a significant number of customers. Millennium was rebranded “Bonne Santé Natural Manufacturing” (“BSNM”)

On October 8, 2019, our Company entered into an agreement to acquire the remaining 49% of BSNM, subject to certain conditions which were subsequently met for $100,000. The Company recorded the increase in ownership interests as a transaction within stockholders’ deficit. As a result of this transaction, noncontrolling interests were reduced by $381,376 reflecting the carrying value of the interest.

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements reflect the consolidated operations of SFL and its wholly owned subsidiary BSNM, (collectively the “Company”) from the effective date of formation and are prepared in the United States Dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Intercompany balances and transactions have been eliminated.

Liquidity, Capital Resources and Going Concern

At December 31, 2020 the Company had liabilities in excess of assets in the amount of approximately $7.1 million. During 2020, the Company received approximately $2.6 million from the proceeds from the issuance of indebtedness but sustained a net loss of approximately $3.1 million and had consumed cash in operating activities of approximately $1.9 million during the year.

To date the Company has satisfied its capital needs with the net proceeds from its issuance of notes payable and bank debt. Company management expects to continue to incur net losses and have significant cash outflows for at least the next 12 months.

Subsequent to December 31, 2020, the Company completed a series of transactions, including an $11.0 million equity and debt financing (see Note 13). These events served to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as a going concern. Based on this analysis the Company concluded it has the ability to continue as a going concern for at least the next 12 months.

Use of Estimates

The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include, among other items, assessing the collectability of receivables, the realization of deferred taxes, useful lives and recoverability of tangible and intangible assets, assumptions used in the valuation of options, the computation of revenue based on the proportional delivery of services, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

F-25

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2 — Summary of Significant Accounting Policies (cont.)

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash equivalents. At December 31, 2020 and 2019, there were no cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s allowance for doubtful accounts represents the Company’s estimate for uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability, as well as management’s past experience with the customers. Accounts receivable are presented net of an allowance for doubtful accounts of $12,915 and $2,569 at December 31, 2020 and 2019, respectively.

Inventory, net

Inventory consists of raw materials, work in progress, and finished goods and is valued at the lower of cost (first-in, first-out) (replacement cost or net realizable value). An allowance for inventory obsolescence is provided for slow moving or obsolete inventory to write down historical cost to net realizable value. The Company primarily performs their manufacturing for nutraceuticals in the form of powders, tablets and capsules.

The allowance for obsolescence is an estimate established through charges to cost of goods sold. Management’s judgment in determining the adequacy of the allowance is based upon several factors which include, but are not limited to, analysis of slow moving inventory, analysis of the selling price of inventory, the predetermined shelf life of the product, and management’s judgment with respect to current economic conditions. Given the nature of the inventory, it is reasonably possible the Company’s estimate of the allowance for obsolescence will change in the near term.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged to expense as incurred. The Company provides for depreciation and amortization over the estimated useful lives of various assets using the straight-line method ranging from 3-15 years.

Intangible Assets

Intangible assets consist of customer relationships acquired in 2018 with the acquisition of 51% of BSNM. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives which is 8 years.

Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. The Company had no impairment of long-lived assets at December 31, 2020 and 2019.

Lease Right-of-Use Asset

The Company records a right-of-use (“ROU”) asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified either as finance or operating with the classification affecting the pattern of expense recognition.

F-26

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2 — Summary of Significant Accounting Policies (cont.)

Lease liabilities are recognized based on the present value of the remaining lease payments and are discounted using the most reasonable incremental borrowing rate. The Company uses the implicit rate when it is readily determinable. Since the Company’s lease does not provide an implicit rate, to determine the present value of lease payments, management uses the Company’s incremental borrowing rate based on the information available at lease commencement. Leases with a term of 12 months or less at inception are not recorded on our balance sheet and are expensed on a straight- line basis over the lease term.

Debt Issuance Cost

In accordance with ASC 835-30 Other Presentation Matters, the Company has reported debt issuance cost as a deduction from the carrying amount of line of credit and will amortize these costs using the effective interest method over the term of the debt as interest expense.

Revenue Recognition

Impact of the initial adoption of Accounting Standards Codification (“ASC”) 606

Effective January 1, 2019, the Company now evaluates revenue recognition based on the criteria set forth in ASC 606, Revenue from Contracts with Customers. The Company adopted the new revenue recognition standard using the modified retrospective method to undelivered performance obligations on existing contracts which resulted in no impact to retained earnings.

The Company evaluates and recognize revenue by:

•        identifying the contract(s) with the customer,

•        identifying the performance obligations in the contract,

•        determining the transaction price,

•        allocating the transaction price to performance obligations in the contract; and

•        recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

The Company primarily generates revenues by manufacturing and packaging of nutraceutical products as a contract manufacturer for customers. The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations at December 31, 2020 or 2019.

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Freight

For the years ended December 31, 2020 and 2019, freight costs amounted to $84,229 and $59,593, respectively and have been recorded in cost of goods sold in the accompanying Consolidated Statement of Income.

F-27

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2 — Summary of Significant Accounting Policies (cont.)

Advertising

Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2020 and 2019 were $36,593 and $28,306, respectively.

Paycheck Protection Program

The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with the Financial Accounting Standards Board (“FASB”) ASC 470, Debt . Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor.

Stock-based Compensation

The Company recognizes expense for stock options and warrants granted over the vesting period based on the fair value of the award at the grant date, are valued using a Black-Scholes option pricing model to determine the fair market value of the stock options. The Company calculates the amount of tax benefit available by tracking each stock option award on an employee-by-employee basis and on a grant-by-grant basis. The Company then compares the recorded expense to the tax deduction received for each stock option grant.

Income Taxes

The Company accounts for income tax under the provisions of ASC 740, Income Taxes. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At December 31, 2020 and 2019, the Company has no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company’s tax years subject to examination by tax authorities generally remain open for three (3) years from the date of filing. Due to the continued losses full valuation at the end of December 31, 2020 and 2019.

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Recent Accounting Standards Issued Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for areas of ASC 740 by clarifying and amending existing guidance. This standard is effective for the Company on January 1, 2022, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

F-28

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2 — Summary of Significant Accounting Policies (cont.)

Accounting Pronouncement Adopted

The Company has adopted the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a right-of-use (“ROU”) model that requires lessees to record an ROU asset and a lease liability on the consolidated balance sheets for all leases with terms longer than 12 months. The Company adopted ASU 2016-02 during 2019, which resulted in the recognition of the right-of-use assets and related obligations on its consolidated financial statements.

Note 3 — Inventory

Inventory consisted of the following at December 31:

 

2020

 

2019

Raw materials

 

$

54,797

 

$

274,166

Work in Progress

 

 

3,629

 

 

23,100

Finished goods

 

 

—

 

 

269,130

   

$

58,424

 

$

566,396

Note 4 — Property and Equipment

Property and equipment consisted of the following at December 31:

 

2020

 

2019

Furniture and fixtures

 

$

1,090

 

 

$

1,090

 

Equipment – Manufacturing

 

 

797,760

 

 

 

764,794

 

Leasehold improvements

 

 

10,650

 

 

 

10,650

 

   

 

809,500

 

 

 

776,534

 

Less: accumulated depreciation and amortization

 

 

(428,326

)

 

 

(271,194

)

Property and equipment, net

 

$

381,174

 

 

$

505,340

 

Depreciation and amortization expense for the years ended December 31, 2020 and 2019 totaled $108,760 and $111,213, respectively.

Note 5 — Intangible Assets

Intangible assets consisted of the following at December 31:

 

2020

 

2019

Customer contracts

 

$

442,262

 

 

$

442,262

 

Less: amortization

 

 

(156,635

)

 

 

(101,352

)

Intangibles, net

 

$

285,627

 

 

$

340,910

 

Amortization (included in depreciation and amortization expense) for the years ended December 31, 2020 and 2019 was $57,853 and $58,167, respectively.

F-29

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 5 — Intangible Assets (cont.)

The future amortization is as follows:

Years Ending December 31,

   

2021

 

$

55,253

2022

 

 

55,253

2023

 

 

55,253

2024

 

 

55,253

2025

 

 

55,253

Thereafter

 

 

9,362

Total

 

$

285,627

Note 6 — Lease Commitments

The Company enters into lessee arrangements consisting of operating leases for premises. The Company had four and three operating leases for premises as of December 31, 2020 and 2019, respectively. One new lease commenced during 2020 and one lease agreement is set to expire at the end of 2020.

Discount Rate Applied to Property Operating Lease

To determine the present value of minimum future lease payments for its operating lease at January 1, 2019, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

The lease asset and liability were calculated utilizing a discount rate of 12%, according to the Company’s elected policy.

Right of Use Asset and Liability

The right of use asset and liability is included in the accompanying consolidated balance sheets as follows at December 31:

 

2020

 

2019

Asset

 

 

   

 

 

Right of use asset

 

$

495,154

 

$

772,267

   

 

   

 

 

Liability

 

 

   

 

 

Right of use liability, current portion

 

$

249,284

 

$

213,232

Right of use liability, net of current portion

 

 

223,985

 

 

473,270

Total lease liability

 

$

473,269

 

$

686,502

Minimum lease payments under the operating lease are recognized on a straight-line basis over the term of the lease.

For the Year Ended December 31:

   

2021

 

$

279,198

 

2022

 

 

250,863

 

Total payments

 

$

530,061

 

Less: amount representing interest

 

 

(56,792

)

Lease obligation, net

 

$

473,269

 

Less: current portion

 

 

(249,284

)

Lease obligation – long-term

 

$

223,985

 

Rent expense for the years ended December 31, 2020 and 2019 was $277,113 and $139,395, respectively.

F-30

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 7 — Debt

Notes Payable

Notes payable consists of the following at December 31:

 

2020

 

2019

The Company has issued various promissory notes with various lenders that are convertible into common stock. These notes accrue interest at rates between 12 – 17%, with various maturity dates and are convertible into common stock at either original principal amount divided by price per initial public offering (“IPO”) at 100% or 200% of the principal if extension is provided by the lender or Regulation A offering price per share at 50% discount.

 

$

3,841,143

 

 

$

3,552,820

 

In December 2020, the Company entered into a factoring agreement which was then converted into a $1,500,000 term loan. The loan matures 18 months from issuance and accrues interest at 17.5% per annum.

 

 

1,500,000

 

 

 

—

 

In June and August 2020, the Company received Economic Injury Disaster Loans from the Small Business Administration. The loans matures in 30 years and bear interest at a rate of 3.75%.

 

 

300,000

 

 

 

—

 

In May and April 2020, the Company received loan proceeds through the Paycheck Protection Program. The loan matures in April and May 2022 and bears interest at a rate of 1%.

 

 

239,262

 

 

 

—

 

   

 

5,880,405

 

 

 

3,552,820

 

Less: debt issuance costs

 

 

(56,250

)

 

 

—

 

Less: current portion

 

 

(3,971,482

)

 

 

(3,552,820

)

Long term portion

 

$

1,908,923

 

 

$

—

 

The future maturities of the debt are as follows:

For the Year Ended December 31:

   

2021

 

$

3,971,482

2022

 

 

1,608,923

Thereafter

 

 

300,000

Total

 

$

5,880,405

Note 8 — Concentrations of Credit Risks

Credit Risks

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company maintains bank accounts with several financial institutions. Concentrations of credit risk with respect to accounts receivable are limited to the dispersion of customers across different industries and geographic regions.

Cash

The Company places its cash with high credit quality financial institutions. At December 31, 2020 and 2019, the Company had cash balances of $254,115 and $0 in excess of the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250,000 per institution. The Company has not experienced any losses in such accounts.

F-31

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 8 — Concentrations of Credit Risks (cont.)

Major Customers

The Company does not have any suppliers which represent a significant portion of its supply chain. The Company’s officers are closely monitoring the relationships with all suppliers.

Major Vendors

The Company does not have any suppliers which represent a significant portion of its supply chain. The Company’s officers are closely monitoring the relationships with all suppliers.

Note 9 — Income Taxes

The Company has evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future.

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. Interest and penalties related to income tax matters, if any, would be recognized as a component of income tax expense. At December 31, 2020 and 2019, the Company had no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Currently, the tax years subsequent to 2018 are open and subject to examination by the taxing authorities.

At December 31, 2020, the Company had net operating loss carryforwards for federal income tax purposes of approximately $6.8 million, which will be available to offset future taxable income.

Note 10 — Stock Options and Warrants

In 2020, the Company adopted the Incentive Plan (the “Plan”) under which the Company is authorized to issue a total of 2,000,000 qualified stock options and nonqualified stock options to purchase common stock, to be granted to employees, and certain consultants or independent advisors who provide services to the Company. The maximum term of the options is ten (10) years. The Board of Directors has the right to accelerate the vesting period of the options based upon the performance of the employees and other reasons that would benefit the Company.

At December 31, 2020, there were 750,000 stock options available for issuance.

The Company recognized $1,000 of compensation expense related to the vesting of options during the year ended December 31, 2020.

The following is a summary of options granted, exercised, forfeited and outstanding during the years ended December 31:

 

2020 – Stock Options

 

2020 – Warrants

   

Number of Options

 

Weighted
Average
Exercise Price

 

Number of Warrants

 

Weighted
Average
Exercise Price

Outstanding at beginning of year

 

—

 

$

—

 

250,000

 

$

—

Granted

 

1,250,000

 

 

0.01

 

1,292,445

 

 

0.01

Exercised

 

—

 

 

—

 

—

 

 

—

Forfeited

 

—

 

 

—

 

—

 

 

—

Outstanding at December 31,

 

1,250,000

 

$

0

 

1,542,445

 

$

0

Exercisable at December 31,

 

1,250,000

 

 

   

1,542,445

 

 

 

Available for issuance at December 31,

 

750,000

 

 

   

—

 

 

 

F-32

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 10 — Stock Options and Warrants (cont.)

During 2020, there were 1,250,000 stock options granted. At December 31, 2020, total future compensation costs related to non-vested stock options, less estimated forfeitures are approximately $4,000 and will be recognized over the next four years.

Valuation Assumptions for Stock Options and Warrants

The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

2020

 

2019

Risk-free interest rate

 

0.36

%

 

1.69

%

Expected volatility

 

77

%

 

81

%

Expected life (years)

 

5

 

 

5

 

Dividend yield

 

0

%

 

0

%

The expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free rate is based on the U.S. Treasury yield constant maturity in effect at the time of grant for periods corresponding with the expected life of the option.

Note 11 — Commitments and Contingencies

COVID-19 Pandemic

On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of these consolidated financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s consolidated financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its consolidated financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of consolidated financial condition, liquidity or operations for 2020.

Legal Matters

From time to time, the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

Employment Agreements

In July 2020 and November, the Company hired a President and Chief Executive Officer for 3-year term. Compensation ranging from $200,000 to $350,000. Compensation includes annual bonuses of 10-20% if certain milestones are met. Restricted common stock issuance of 250,000 of which 83,333 at 1 year anniversary and remaining amount over last 2 years of the agreement.

Note 12 — Related Party Transaction

The Company has a management services agreement with a company controlled by the Company’s Chairman for $12,000 per month through June 30, 2021.

F-33

Table of Contents

SMART FOR LIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 13 — Subsequent Event

In January 2021, the Company issued term loans with various individuals for $78,000, bearing interest at 15%.

In January 2021, the Company hired a Chief Financial Officer for a 3-year term. Compensation is the following for each year ending in 2023: $175,000, $200,000, and $250,000. Compensation includes annual bonus of 10% - 20% if certain milestones are met. Restricted common stock of 15,000 are issued at inception and 15,000 at 1 year anniversary.

In February 2021, the Company issued an unsecured convertible note for $500,000, bearing interest at 15% with a maturity date of March 2023.

In April 2021, the Company issued 65,000 shares of common stock to employees as part of their employment agreements.

In June 2021, the Company issued a promissory note for $25,000, bearing interest at 15%, due on demand.

In July 2021, the Company acquired Doctors Scientific Organica, LLC. Concurrent with the acquisition, the Company completed an equity and debt financing that totaled $11,000,000, with four funds providing the equity financing of $8,000,000 and a commercial lender providing senior secured debt of $3,000,000. The purchase price consists of $6,000,000 cash, $3,000,000 convertible debt, and a $3,000,000 promissory note.

In July 2021, the Company executed a securities purchase agreement with Nexus Offers, Inc.

F-34

Table of Contents

NEXUS OFFERS, INC.

UNAUDITED INTERIM FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

 

Table of Contents

NEXUS OFFERS, INC.
BALANCE SHEETS
SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

 

September 30, 2021

 

December 31, 2020

   

(unaudited)

   

ASSETS

 

 

   

 

 

 

Current assets:

 

 

   

 

 

 

Cash

 

$

44,330

 

$

36,189

 

Accounts receivable, net

 

 

124,756

 

 

146,845

 

Total current assets

 

 

169,086

 

 

183,033

 

Total assets

 

$

169,086

 

$

183,033

 

   

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

   

 

 

 

   

 

   

 

 

 

Current liabilities:

 

 

   

 

 

 

Commissions payable

 

$

101,628

 

$

129,923

 

Accrued expenses

 

 

1,768

 

 

26,569

 

Notes payable

 

 

—

 

 

59,900

 

Total current liabilities

 

 

103,396

 

 

216,392

 

Total liabilities

 

 

103,396

 

 

216,392

 

   

 

   

 

 

 

Commitments and contingencies

 

 

   

 

 

 

   

 

   

 

 

 

Stockholders’ deficit

 

 

   

 

 

 

Capital stock

 

 

100

 

 

100

 

Retained earnings (accumulated deficit)

 

 

65,590

 

 

(33,459

)

Total stockholders’ equity (deficit)

 

 

65,690

 

 

(33,359

)

Total liabilities and stockholders’ equity (deficit)

 

$

169,086

 

$

183,033

 

The accompanying notes are an integral part of these unaudited financial statements

F-36

Table of Contents

NEXUS OFFERS, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)

 

September 30,
2021

 

September 30,
2020

Net sales

 

$

4,238,330

 

$

3,876,096

Cost of goods sold

 

 

3,221,539

 

 

2,844,462

Gross profit

 

 

1,016,791

 

 

1,031,634

   

 

   

 

 

Operating expenses:

 

 

   

 

 

General and administrative

 

 

914,690

 

 

848,474

Total operating expenses

 

 

914,690

 

 

848,474

   

 

   

 

 

Operating income

 

 

102,101

 

 

183,160

   

 

   

 

 

Income before income taxes

 

 

102,101

 

 

183,160

Income tax expense

 

 

3,052

 

 

—

Net income

 

$

99,049

 

$

183,160

   

 

   

 

 

Weighted average shares outstanding

 

 

100

 

 

100

Earnings per share

 

$

990.49

 

$

1,831.60

The accompanying notes are an integral part of these unaudited financial statements

F-37

Table of Contents

NEXUS OFFERS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)

 

Common Stock

 

Additional
Paid-In
Capital

 

Accumulated
Deficit

 

Total

Shares

 

Amount

 

Balance, December 31, 2019

 

100

 

$

100

 

$

—

 

$

87,741

 

 

$

87,841

 

Net income

 

—

 

 

—

 

 

—

 

 

183,160

 

 

 

183,160

 

Balance, September 30, 2020

 

100

 

$

100

 

$

—

 

$

270,901

 

 

$

271,001

 

Balance, December 31, 2020

 

100

 

$

100

 

$

—

 

$

(33,459

)

 

$

(33,359

)

Net income

 

—

 

 

—

 

 

—

 

 

99,049

 

 

 

99,049

 

Balance, September 30, 2021

 

100

 

$

100

 

$

—

 

$

65,590

 

 

$

65,690

 

The accompanying notes are an integral part of these unaudited financial statements

F-38

Table of Contents

NEXUS OFFERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)

 

September 30, 2021

 

September 30, 2020

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

99,049

 

 

$

183,160

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

22,089

 

 

 

(207,342

)

Commissions payable

 

 

(28,295

)

 

 

156,761

 

Accrued expenses

 

 

(24,801

)

 

 

(19,536

)

Net cash provided by operating activities

 

 

68,042

 

 

 

113,043

 

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

—

 

 

 

—

 

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from paycheck protection program loan

 

 

—

 

 

 

59,900

 

Repayment of paycheck protection program loan

 

 

(59,900

)

 

 

—

 

Net cash provided by financing activities

 

 

(59,900

)

 

 

59,900

 

   

 

 

 

 

 

 

 

Net increase in cash

 

 

8,142

 

 

 

172,943

 

Cash, beginning of period

 

 

36,188

 

 

 

54,917

 

Cash, end of period

 

$

44,330

 

 

$

227,860

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

3,053

 

 

$

—

 

The accompanying notes are an integral part of these unaudited financial statements

F-39

Table of Contents

NEXUS OFFERS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 1 — Description of Business

Nexus Offers, Inc. (the “Company”) is a Florida corporation which was formed on October 10, 2016. The Company operates a cost per action/cost per acquisition network. This is an advertising model where publishers are paid for an action that is taken as a direct result of their marketing. Through the publisher’s method of marketing, the Company sends traffic to one of the advertiser’s product offers listed on the network. Examples of the publishers marketing tactics include but are not limited to native ads, email marketing, SEO and social media traffic. The products on the network come from several different advertisers which pay the Company a specific amount per sale. A portion of that sale made is paid out to the publisher. The Company has established long-term relationships with many advertisers and publishers. The Company also has internal data streams it utilizes to create email lists and produce sales internally to the multitude of advertiser products on the network. It has created a plug-and-play streamlined business that allows for seamless scalability into any vertical, niche or product.

Note 2 — Summary of Significant Accounting Policies

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America (“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 reporting periods. These estimates include, among other items, assessing the collectability of receivables, the realization of deferred taxes, the computation of revenue based on the proportional delivery of services, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash equivalents. At September 30, 2021 and December 31, 2020, there were no cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s allowance for doubtful accounts represents the Company’s estimate for uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability, as well as management’s past experience with the customers. There was no allowance at September 30, 2021 and December 31, 2020, respectively.

Revenue Recognition

Impact of the initial adoption of Accounting Standards Codification (“ASC”) 606

Effective January 1, 2019, the Company now evaluates revenue recognition based on the criteria set forth in ASC 606, Revenue from Contracts with Customers. The Company adopted the new revenue recognition standard using the modified retrospective method to undelivered performance obligations on existing contracts which resulted in no impact to retained earnings.

F-40

Table of Contents

NEXUS OFFERS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 2 — Summary of Significant Accounting Policies (cont.)

The Company evaluates and recognize revenue by:

•        identifying the contract(s) with the customer,

•        identifying the performance obligations in the contract,

•        determining the transaction price,

•        allocating the transaction price to performance obligations in the contract; and

•        recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

The Company primarily generates revenues by sending traffic to one of the advertiser’s products listed on the network. Examples of the publishers marketing tactics include but are not limited to native ads, email marketing, SEO and social media traffic. The products on the network come from several different advertisers which pay the Company a specific amount per sale. The revenue is recognized when it satisfies a single performance obligation by transferring control of the service to the advertiser. A portion of that sale made is paid out to the publisher. The Company also has internal data streams it utilizes to create email lists and produce sales internally to the multitude of advertiser products on the network.

The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations at September 30, 2021 or December 31, 2020.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the nine months ended September 30, 2021 and 2020 were $38,944 and $34,422, respectively.

Income Taxes

The Company accounts for income tax under the provisions of ASC 740, Income Taxes. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At September 30, 2021 and December 31, 2020, the Company has no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company’s tax years subject to examination by tax authorities generally remain open for three (3) years from the date of filing.

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

F-41

Table of Contents

NEXUS OFFERS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 2 — Summary of Significant Accounting Policies (cont.)

Recent Accounting Standards Issued Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for areas of ASC 740 by clarifying and amending existing guidance. This standard is effective for the Company on January 1, 2022, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact that adoption of this new standard will have on its financial statements.

Note 3 — Debt

In June 2020, the Company received Economic Injury Disaster Loans (“EIDL”) from the Small Business Administration in the amount of $59,900. The loans mature in 30 years and bear interest at a rate of 3.75%. The EIDL may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the EIDL may only be used as working capital to alleviate economic injury caused by disaster occurring in the month of January 2020, and continuing thereafter, and to pay Uniform Commercial Code lien filing fees. The Company intends to use the funds from the EIDL for qualifying expenses. These amounts were fully repaid in September 2021 and were therefore listed as short-term.

Notes payable consists of the following at September 30, 2021 and December 31, 2020:

 

September 30,
2021

 

December 31,
2020

EIDL Loan

 

$

—

 

$

59,900

Less: current portion

 

 

—

 

 

—

Long term portion

 

$

—

 

$

59,900

Note 4 — Concentrations of Credit Risks

Credit Risks

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company maintains bank accounts with a single financial institution. Concentrations of credit risk with respect to accounts receivable are limited to the dispersion of customers across different industries and geographic regions.

Cash

The Company places its cash with high credit quality financial institutions. At September 30, 2021 and December 31, 2020, the Company had no cash balances in excess of the Federal Deposit Insurance Corporation coverage of $250,000 per institution. The Company has not experienced any losses in such accounts.

Major Customers and Vendors

The Company had three (3) and three (3) significant customers representing a total of 43% and 64% of revenues for the nine months ended September 30, 2021, and 2020, respectively. These customers represented 8% and 31% of customer accounts receivable at September 30, 2020 and 2021, respectively.

The Company contracts with individuals which refer clients and are paid based on leads and how successful those leads are for the Company. This activity is captured and payable on a monthly basis. At September 30, 2021 and 2020, one vendor accounted for approximately 11% and 10% of total purchases, respectively. This vendor represented 20% and none of outstanding commissions payable at September 30, 2020 and 2021, respectively.

F-42

Table of Contents

NEXUS OFFERS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Note 5 — Commitments and Contingencies

COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of these financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of financial condition, liquidity or operations for 2021.

Legal Matters

From time to time, the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

Note 6 — Subsequent Events

On November 8, 2021, the Company was acquired by Smart for Life, Inc.

F-43

Table of Contents

NEXUS OFFERS, INC.

FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Nexus Offers, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Nexus Offers, Inc. (the “Company”) as of December 31, 2020, and 2019, and the related to the statements of operations and changes in stockholders’ (deficit) equity, and cash flows for each of the years ended in the two-year period ended December 31, 2020, and 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, 2020, and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, and 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Daszkal Bolton LLP

We have served as the Company’s auditor since 2021

Sunrise, Florida

December 15, 2021

F-45

Table of Contents

NEXUS OFFERS, INC.
BALANCE SHEETS
DECEMBER 31, 2020 AND 2019

 

December 31,
2020

 

December 31,
2019

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

36,188

 

 

$

54,917

Accounts receivable, net

 

 

146,845

 

 

 

116,609

Total current assets

 

 

183,033

 

 

 

171,526

Total assets

 

$

183,033

 

 

$

171,526

   

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Commissions payable

 

$

129,923

 

 

$

64,149

Accrued expenses

 

 

26,569

 

 

 

19,536

Notes payable

 

 

59,900

 

 

 

—

Total current liabilities

 

 

216,392

 

 

 

83,685

Total liabilities

 

 

216,392

 

 

 

83,685

   

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 
   

 

 

 

 

 

 

Stockholders’ (deficit) equity:

 

 

 

 

 

 

 

Capital stock

 

 

100

 

 

 

100

(Accumulated deficit) retained earnings

 

 

(33,459

)

 

 

87,741

Total stockholders’ (deficit) equity

 

 

(33,359

)

 

 

87,841

Total liabilities and stockholders’ (deficit) equity

 

$

183,033

 

 

$

171,526

The accompanying notes are an integral part of these financial statements

F-46

Table of Contents

NEXUS OFFERS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

December 31,
2020

 

December 31,
2019

Net sales

 

$

5,674,946

 

 

$

3,634,159

Cost of goods sold

 

 

4,353,573

 

 

 

3,109,566

Gross profit

 

 

1,321,373

 

 

 

524,593

   

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

General and administrative

 

 

1,436,710

 

 

 

437,741

Total operating expenses

 

 

1,436,710

 

 

 

437,741

   

 

 

 

 

 

 

Operating (loss) income

 

 

(115,337

)

 

 

86,852

   

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(115,337

)

 

 

86,852

Income tax expense

 

 

5,863

 

 

 

—

Net (loss) income

 

$

(121,200

)

 

$

86,852

   

 

 

 

 

 

 

Weighted average shares outstanding

 

 

100

 

 

 

100

(Loss) earnings per share

 

$

(1,212.00

)

 

$

868.52

The accompanying notes are an integral part of these financial statements

F-47

Table of Contents

NEXUS OFFERS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 


Common Stock

 

Additional
Paid-In
Capital

 

Accumulated (Deficit)
Equity

 

Total

   

Shares

 

Amount

 

Balance, December 31, 2018

 

100

 

$

100

 

$

—

 

$

889

 

 

$

989

 

Net income

 

—

 

 

—

 

 

—

 

 

86,852

 

 

 

86,852

 

Balance, December 31, 2019

 

100

 

$

100

 

$

—

 

$

87,741

 

 

$

87,841

 

Net loss

 

—

 

 

—

 

 

—

 

 

(121,200

)

 

 

(121,200

)

Balance, December 31, 2020

 

100

 

$

100

 

$

—

 

$

(33,459

)

 

$

(33,359

)

The accompanying notes are an integral part of these financial statements

F-48

Table of Contents

NEXUS OFFERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

December 31,
2020

 

December 31,
2019

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(121,200

)

 

$

86,852

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(30,236

)

 

 

(116,609

)

Commissions payable

 

 

65,774

 

 

 

64,149

 

Accrued expenses

 

 

7,033

 

 

 

1,808

 

Net cash (used in) provided by operating activities

 

 

(78,629

)

 

 

36,200

 

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

—

 

 

 

—

 

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from paycheck protection program loan

 

 

59,900

 

 

 

—

 

Net cash provided by financing activities

 

 

59,900

 

 

 

—

 

   

 

 

 

 

 

 

 

Net (decrease) increase in cash

 

 

(18,729

)

 

 

36,200

 

Cash, beginning of period

 

 

54,917

 

 

 

18,717

 

Cash, end of period

 

$

36,188

 

 

$

54,917

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

—

 

 

$

1,787

 

The accompanying notes are an integral part of these financial statements

F-49

Table of Contents

NEXUS OFFERS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 1 — Description of Business

Nexus Offers, Inc. (the “Company”) is a Florida corporation which was formed on October 10, 2016. The Company operates a cost per action/cost per acquisition network. This is an advertising model where publishers are paid for an action that is taken as a direct result of their marketing. Through the publisher’s method of marketing, the Company sends traffic to one of the advertiser’s product offers listed on the network. Examples of the publishers marketing tactics include but are not limited to native ads, email marketing, SEO and social media traffic. The products on the network come from several different advertisers which pay the Company a specific amount per sale. A portion of that sale made is paid out to the publisher. The Company has established long-term relationships with many advertisers and publishers. The Company also has internal data streams it utilizes to create email lists and produce sales internally to the multitude of advertiser products on the network. It has created a plug-and-play streamlined business that allows for seamless scalability into any vertical, niche or product.

Note 2 — Summary of Significant Accounting Policies

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America (“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 reporting periods. These estimates include, among other items, assessing the collectability of receivables, the realization of deferred taxes, the computation of revenue based on the proportional delivery of services, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three-months or less to be cash equivalents. There were no cash equivalents at December 31, 2020 and 2019.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s allowance for doubtful accounts represents the Company’s estimate for uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability, as well as management’s past experience with the customers. There was no allowance at December 31, 2020 and 2019, respectively.

Revenue Recognition

Impact of the initial adoption of Accounting Standards Codification (“ASC”) 606

Effective January 1, 2019, the Company now evaluates revenue recognition based on the criteria set forth in ASC 606, Revenue from Contracts with Customers. The Company adopted the new revenue recognition standard using the modified retrospective method to undelivered performance obligations on existing contracts which resulted in no impact to retained earnings.

The Company evaluates and recognize revenue by:

•        identifying the contract(s) with the customer,

•        identifying the performance obligations in the contract,

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NEXUS OFFERS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2 — Summary of Significant Accounting Policies (cont.)

•        determining the transaction price,

•        allocating the transaction price to performance obligations in the contract; and

•        recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

The Company primarily generates revenues by sending traffic to one of the advertiser’s products offers listed on the network. Examples of the publishers marketing tactics include but are not limited to native ads, email marketing, SEO, and social media traffic. The products on the network come from several different advertisers which pay the Company a specific amount per sale. The revenue is recognized when it satisfies a single performance obligation by transferring control of the service to the advertiser. A portion of that sale made is paid out to the publisher. The Company also has internal data streams it utilizes to create email lists and produce sales internally to the multitude of advertiser products on the network.

The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations at December 31, 2020 or 2019.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2021 and 2020 were $60,744 and $21,422, respectively.

Income Taxes

The Company accounts for income tax under the provisions of ASC 740, Income Taxes. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At December 31, 2020 and 2019, the Company has no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company’s tax years subject to examination by tax authorities generally remain open for three (3) years from the date of filing. Due to the continued losses full valuation at the end of December 31, 2020 and 2019.

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Recent Accounting Standards Issued Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for areas of ASC 740 by clarifying and amending existing guidance. This standard is effective for the Company on January 1, 2022, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact that adoption of this new standard will have on its financial statements.

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NEXUS OFFERS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 3 — Debt

Note Payable — Economic Injury Disaster Loan

In June 2020, the Company was granted a disaster loan from the U.S. Small Business Administration (“SBA”), pursuant to the Economic Injury Disaster Loan (“EIDL”) program under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act, in the amount of $59,900. The EIDL, which was in the form of a note dated June 19, 2020, bears interest of 3.75% per annum, payable monthly for $2,437 commencing in June of 2021.

The EIDL may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the EIDL may only be used as working capital to alleviate economic injury caused by disaster occurring in the month of January 2020, and continuing thereafter, and to pay Uniform Commercial Code lien filing fees. The Company intends to use the funds from the EIDL for qualifying expenses. These amounts were fully repaid in September 2021 and therefore listed as short-term.

Note 4 — Concentrations of Credit Risks

Credit Risks

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company maintains bank accounts with a single financial institution. Concentrations of credit risk with respect to accounts receivable are limited to the dispersion of customers across different industries and geographic regions.

Cash

The Company places its cash with high credit quality financial institutions. At December 31, 2020 and 2019, the Company had cash balances of $0 and $0 in excess of the Federal Deposit Insurance Corporation coverage of $250,000 per institution.

Major Customers and Vendors

The Company had four (4) and two (2) significant customers representing a total of 54% and 21% of revenues for the years ended December 31, 2020 and 2019, respectively.

The Company contracts with individuals which refer clients and are paid based on leads and how successful those leads are for the Company. This activity is captured and payable on a monthly basis. At December 31, 2020 and 2019, one vendor accounted for approximately 12% and none of total purchases, respectively. This vendor represented 25% and none of outstanding commissions payable at December 31, 2020 and 2019, respectively.

Note 5 — Income Taxes

The Company has evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future.

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. Interest and penalties related to income tax matters, if any, would be recognized as a component of income tax expense. At December 31, 2020 and 2019, the Company had no liabilities for uncertain tax

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NEXUS OFFERS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 5 — Income Taxes (cont.)

positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Currently, the tax years subsequent to 2018 are open and subject to examination by the taxing authorities.

At December 31, 2020, the Company had net operating loss carryforwards for federal income tax purposes of $39,209, which will be available to offset future taxable income.

Note 6 — Commitments and Contingencies

COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of these financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of financial condition, liquidity or operations for 2020.

Legal Matters

From time to time, the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

Note 7 — Subsequent Events

On September 23, 2021, the Company paid off its loan from SBA in the full amount of $59,900.

On November 8, 2021, the Company was acquired by Smart for Life, Inc. Smart for Life, Inc. is formally known as Bonne Santé Group, Inc.

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DOCTORS SCIENTIFIC ORGANICA, LLC

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021 AND 2020

 

Table of Contents

DOCTORS SCIENTIFIC ORGANICA, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2021 AND DECEMBER 31, 2020

 

June 30,
2021

 

December 31,
2020

ASSETS

 

 

   

 

 

Current assets:

 

 

   

 

 

Cash

 

$

—

 

$

—

Accounts receivable, net

 

 

391,229

 

 

510,065

Inventory

 

 

2,197,472

 

 

1,618,002

Prepaid expenses and other current assets

 

 

—

 

 

26,624

Total current assets

 

 

2,588,701

 

 

2,154,691

Property and equipment, net

 

 

346,462

 

 

312,453

Other assets:

 

 

   

 

 

Operating lease right of use asset

 

 

562,358

 

 

672,741

Total assets

 

$

3,497,521

 

$

3,139,885

LIABILITIES AND MEMBER’S EQUITY

 

 

   

 

 

Current liabilities:

 

 

   

 

 

Accounts payable and cash overdraft

 

$

530,824

 

$

588,900

Accrued expenses

 

 

8,885

 

 

86,722

Due to related party

 

 

—

 

 

118,375

Operating lease obligations, current

 

 

272,192

 

 

227,557

Line of credit

 

 

740,127

 

 

739,657

Paycheck protection program loan

 

 

—

 

 

352,750

Note payable

 

 

337,542

 

 

46,370

Total current liabilities

 

 

1,889,570

 

 

2,160,331

   

 

   

 

 

Long-term liabilities:

 

 

   

 

 

Operating lease obligations, noncurrent

 

 

290,166

 

 

445,184

Total liabilities

 

 

2,179,736

 

 

2,605,515

   

 

   

 

 

Commitments and contingencies

 

 

   

 

 
   

 

   

 

 

Member’s equity

 

 

1,317,785

 

 

534,370

Total liabilities and member’s equity

 

$

3,497,521

 

$

3,139,885

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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DOCTORS SCIENTIFIC ORGANICA, LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND CHANGES IN MEMBER’S EQUITY
(DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

 

June 30,
2021

 

June 30,
2020

Net sales

 

$

4,772,565

 

 

$

5,164,515

 

Cost of goods sold

 

 

2,042,966

 

 

 

2,111,502

 

Gross profit

 

 

2,729,599

 

 

 

3,053,013

 

   

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

2,214,741

 

 

 

2,270,329

 

Depreciation

 

 

82,786

 

 

 

41,352

 

Total operating expenses

 

 

2,297,527

 

 

 

2,311,681

 

   

 

 

 

 

 

 

 

Operating income

 

 

432,072

 

 

 

741,332

 

   

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

842,477

 

 

 

11,871

 

Other income

 

 

7,903

 

 

 

75,305

 

Interest expense

 

 

(25,810

)

 

 

(31,880

)

Total other income

 

 

824,570

 

 

 

55,296

 

   

 

 

 

 

 

 

 

Net income

 

 

1,256,642

 

 

 

796,628

 

   

 

 

 

 

 

 

 

Member’s equity (deficit), beginning of year

 

 

534,370

 

 

 

(38,604

)

Distributions to member

 

 

(473,227

)

 

 

(1,042,049

)

Member’s equity (deficit), June 30

 

 

1,317,785

 

 

 

(284,025

)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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DOCTORS SCIENTIFIC ORGANICA, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

 

June 30,
2021

 

June 30,
2020

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,256,642

 

 

$

796,628

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

2,129

 

 

 

—

 

Paycheck protection program loan forgiveness

 

 

(709,189

)

 

 

—

 

Depreciation

 

 

21,994

 

 

 

25,539

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

116,707

 

 

 

124,153

 

Inventory

 

 

(579,470

)

 

 

(670,200

)

Prepaid expenses and other current assets

 

 

26,624

 

 

 

49,098

 

Accounts payable and cash overdraft

 

 

(50,076

)

 

 

101,367

 

Related party payables

 

 

(118,375

)

 

 

242

 

Accrued expenses

 

 

(77,837

)

 

 

(174,573

)

Net cash provided by operating activities

 

 

(118,851

)

 

 

252,254

 

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(56,003

)

 

 

—

 

Net cash used in investing activities

 

 

(56,003

)

 

 

—

 

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Distributions to member

 

 

(473,227

)

 

 

(544,995

)

Paycheck protection program loan proceeds

 

 

356,439

 

 

 

352,750

 

Term loan funded

 

 

291,642

 

 

 

298,416

 

Repayments on term loan

 

 

—

 

 

 

(342,026

)

Net cash used in financing activities

 

 

174,854

 

 

 

(235,855

)

   

 

 

 

 

 

 

 

Net increase in cash

 

 

—

 

 

 

16,399

 

Cash, beginning of year

 

 

—

 

 

 

82,513

 

Cash, June 30

 

$

—

 

 

$

98,912

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

25,810

 

 

$

31,880

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-57

Table of Contents

DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Note 1 — Description of Business

Doctors Scientific Organica, LLC and its consolidated companies (collectively the “Company”) operates in Riviera Beach, Florida, and is primarily engaged in the development, marketing, manufacturing, and sale of a broad spectrum of weight management and related products.

Doctors Scientific Organica, LLC (“DSO”) was originally incorporated in the State of Nevada on February 16, 2006. On September 28, 2015, it converted to a Florida company. DSO owns 100% of Oyster Management Services, Ltd. (“Oyster”), Lawee Enterprises, L.L.C. (“Lawee”) and U.S. Medical Care Holdings, L.L.C. (“U.S. Medical”). Oyster was organized as a limited partnership in the State of Florida on April 1, 2003. Lawee Enterprises, L.L.C. was organized as a limited liability company in the State of Florida on January 3, 2005. U.S. Medical was organized as a limited liability company in the State of Florida on April 1, 2003.

Each wholly owned subsidiary services customers in different sales markets. Based in Riviera Beach, Florida, DSO operates a 35,000 square-foot FDA-certified manufacturing facility.

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements reflect the consolidated operations of DSO and its wholly owned subsidiaries from the effective date of formation and are prepared in the United States Dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include, among other items, assessing the collectability of receivables, the realization of deferred taxes, useful lives and recoverability of tangible and intangible assets, assumptions used in the valuation of options, the computation of revenue based on the proportional delivery of services, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash equivalents. At June 30, 2021 and December 31, 2020, there were no cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are presented net of an allowance for doubtful accounts of $0 and $35,016 at June 30, 2021 and December 31, 2020, respectively. The Company’s allowance for doubtful accounts represents the Company’s estimate for uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability, as well as management’s past experience with the customers.

Inventory, net

Inventory consists of raw materials, work in progress, and finished goods and is valued at the lower of cost (first-in, first-out) (replacement cost or net realizable value). An allowance for inventory obsolescence is provided for slow moving or obsolete inventory to write down historical cost to net realizable value. The Company primarily performs their manufacturing for nutraceuticals in the form of powders, tablets and capsules.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Note 2 — Summary of Significant Accounting Policies (cont.)

The allowance for obsolescence is an estimate established through charges to cost of goods sold. Management’s judgment in determining the adequacy of the allowance is based upon several factors which include, but are not limited to, analysis of slow moving inventory, analysis of the selling price of inventory, the predetermined shelf life of the product, and management’s judgment with respect to current economic conditions. Given the nature of the inventory, it is reasonably possible the Company’s estimate of the allowance for obsolescence will change in the near term.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged to expense as incurred. The Company provides for depreciation and amortization over the estimated useful lives of various assets using the straight-line method ranging from 3-7 years.

Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. The Company had no impairment of long-lived assets at June 30, 2021 and December 31, 2020.

Lease Right-of-Use Asset

The Company records a right-of-use (“ROU”) asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified either as finance or operating with the classification affecting the pattern of expense recognition.

Lease liabilities are recognized based on the present value of the remaining lease payments and are discounted using the most reasonable incremental borrowing rate. The Company uses the implicit rate when it is readily determinable. Since the Company’s lease does not provide an implicit rate, to determine the present value of lease payments, management uses the Company’s incremental borrowing rate based on the information available at lease commencement. Leases with a term of 12 months or less at inception are not recorded on our balance sheet and are expensed on a straight-line basis over the lease term.

Revenue Recognition

Impact of the initial adoption of Accounting Standards Codification (“ASC”) 606

Effective January 1, 2019, the Company now evaluates revenue recognition based on the criteria set forth in ASC 606, Revenue from Contracts with Customers. The Company adopted the new revenue recognition standard using the modified retrospective method to undelivered performance obligations on existing contracts which resulted in no impact to retained earnings.

The Company evaluates and recognize revenue by:

•        identifying the contract(s) with the customer,

•        identifying the performance obligations in the contract,

•        determining the transaction price,

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Note 2 — Summary of Significant Accounting Policies (cont.)

•        allocating the transaction price to performance obligations in the contract; and

•        recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

The Company primarily generates revenues by manufacturing and sales of weight management products under its own brands and as a contract manufacturer for customers. The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations at December 31, 2020 or 2019.

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Freight

For the six months ended June 30, 2021 and 2020, freight costs amounted to $260,718 and $273,917, respectively and have been recorded in cost of goods sold in the accompanying Consolidated Statement of Income.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the six months ended June 30, 2021 and 2020 were $628,440 and $462,900, respectively.

Income Taxes

The Company operates as a limited liability company whereby all of the tax impacts pass through to the member. Accordingly, no liability or uncertain tax positions has been recognized by the Company.

Leases

On January 1, 2019 the Company adopted issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize their operating leases on the balance sheet as right-of-use assets and lease liabilities for leases with lease terms of more than 12 months. All of the Company’s leases are operating leases and the Company recorded a right-of-use asset and lease liability for leases where the lease term is greater than 12 months. Lease liabilities are recognized based on the present value of the remaining lease payments and are discounted using the most reasonable incremental borrowing rate. The Company uses the prime rate as the discount rate, since the only debt the Company has are government issued loans at a minimal borrowing rate. Leases with a term of 12 months or less at inception are not recorded on our balance sheet and are expensed on a straight-line basis over the lease term in our Statement of Operations.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Note 3 — Inventory

Inventory consisted of the following at June 30, 2021 and 2020:

 

June 30,
2021

 

December 31,
2020

Raw materials

 

$

2,058,153

 

$

1,491,214

Finished goods

 

 

139,319

 

 

126,788

   

 

2,197,472

 

 

1,618,002

Less: allowance for obsolescence

 

 

—

 

 

—

   

$

2,197,472

 

$

1,618,002

Note 4 — Property and Equipment

Property and equipment consisted of the following at June 30, 2021 and December 31, 2020:

 

Estimated
Useful Lives
(in Years)

 

June 30,
2021

 

December 31,
2020

Furniture and fixtures

 

7

 

$

28,365

 

 

$

12,865

 

Manufacturing equipment

 

5

 

 

1,391,906

 

 

 

1,351,402

 

Leasehold improvements

 

3

 

 

68,400

 

 

 

68,400

 

Less: accumulated depreciation and amortization

     

 

(1,142,209

)

 

 

(1,120,214

)

Property and equipment, net

     

$

346,462

 

 

$

312,453

 

Depreciation expense for the six months ended June 30, 2021 totaled $21,994.

Note 5 — Lease Commitments

The Company enters into lessee arrangements consisting of operating leases for premises. The Company had one operating lease for premises as of June 30, 2021. The following table below provides supplemental information on leases at June 30:

 

June 30,
2021

 

December 31,
2020

Asset

 

 

   

 

 

Right of use asset

 

$

562,358

 

$

672,741

Total lease asset

 

$

562,358

 

 

672,741

   

 

   

 

 

Liability

 

 

   

 

 

Right of use liability, current portion

 

$

272,192

 

$

227,557

Right of use liability, net of current portion

 

 

290,166

 

 

445,184

Total lease liability

 

$

562,358

 

$

672,741

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Note 5 — Lease Commitments (cont.)

Future minimum lease payments under capital leases and rental payments required under operating leases are presented as follows:

For the Year Ended June 30:

   

2021

 

$

148,020

 

2022

 

 

296,040

 

2023

 

 

197,360

 

Total payments

 

$

641,420

 

Less: amount representing interest

 

 

(79,062

)

Lease obligation, net

 

$

562,358

 

Less: current portion

 

 

(272,192

)

Lease obligation – long-term

 

$

290,166

 

Rent expense for the six months ended June 30, 2021 and 2020 were $149,220 and $150,420.

Note 6 — Debt

PPP Loans

During April 2020, the Company was granted a loan (the “PPP Loan”) pursuant to the PPP under Division A, Title I of the Coronavirus Aid, Relief, and Economic Secures Act (the “CARES Act”) in the amount of $352,750. The PPP Loan, which was in the form of a note dated April 17, 2020, matures on April 17, 2022 and bears interest at a rate of 1.00% per annum. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act and meet the conditions established by the U.S. Small Business Administration (the “SBA”). In February 2021 and April 2021, the loans were forgiven resulting in gains on debt extinguishment on the accompanying consolidating statements of income.

Line of Credit

On June 26, 2020, the Company entered into a revolving line of credit with a bank, which permitted borrowings up to $750,000 and bears interest at 3.5%. As of June 30, 2021 and December 31, 2020, the balance of the line of credit was $740,127 and $739,657, respectively.

Notes Payable

On December 6, 2019, the Company entered into a thirteen-month financing agreement (the “2019 Thirteen-Month Financing Agreement”) with a vendor for an amount of $350,000. The agreement requires monthly payments including interest at 14.72% per annum. As of June 30, 2021 and December 31, 2020, the balance due for this loan was $0 and $31,882, respectively.

On March 6, 2020, the Company entered into a one-year financing agreement (the “2020 Financing Agreement”) with a vendor for an amount of $41,000. The agreement requires monthly payments including interest at 9.72% per annum. As of June 30, 2021 and December 31, 2020, the balance due for this loan was $0 and $14,488, respectively.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Note 6 — Debt (cont.)

Notes payable consists of the following at June 30, 2021 and December 31, 2020:

 

June 30,
2021

 

December 31,
2020

2019 Thirteen-Month Financing Agreement

 

$

—

 

$

31,882

2019 One-Year Financing Agreement

 

 

—

 

 

—

2013 Equipment Loan

 

 

—

 

 

—

2020 Financing Agreement

 

 

337,542

 

 

14,488

Total

 

$

337,542

 

$

46,370

Collateral and Guarantor

The notes payable and line of credit are collateralized by certain assets of the Company and guaranteed by the sole member of the Company (the “Member”).

Note 7 — Concentrations of Credit Risks

Credit Risks

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, accounts receivable and unbilled receivables. The Company maintains bank accounts with several financial institutions. Concentrations of credit risk with respect to accounts receivable are limited to the dispersion of customers across different industries and geographic regions.

Cash

The Company places its cash with high credit quality financial institutions. At June 30, 2021 and December 31, 2020, the Company had a cash balance of $0 and $0 in excess of the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250,000 per institution. The Company has not experienced any losses in such accounts.

Major Vendors

The Company does not have any suppliers which represent a significant portion of its supply chain. The Company’s officers are closely monitoring the relationships with all suppliers.

Note 8 — Commitments and Contingencies

COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of these consolidated financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s consolidated financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its consolidated financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of consolidated financial condition, liquidity or operations for 2020.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Note 8 — Commitments and Contingencies (cont.)

Commercial Matters

From time to time, the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

Note 9 — Related Party Transaction

The Company rents its operating facility from a non-consolidating company owned by the member. Rent expense paid to the related party for the six months ended June 30, 2021 and 2020 were $148,020 and $148,020, respectively.

Doctor Scientific Organica has provided advances to, and received advances from, its prior sole member and entities related to its prior sole member. These advances are non-interest bearing with no fixed maturity and are expected to be repaid in the near term. At June 30, 2021 and December 31, 2020, the net balance due to related parties was $0 and $118,375, respectively.

Note 10 — Subsequent Event

In July 2021, the Company was sold to Smart for Life, Inc. for approximately $12,000,000.

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DOCTORS SCIENTIFIC ORGANICA, LLC

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Management and Board of Directors Doctors Scientific Organica, LLC
Doral, Florida

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Doctors Scientific Organica, LLC (the “Company”) at December 31, 2020, and 2019, and the related consolidated statements of income and changes in member’s equity (deficit), and cash flows for each of the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Daszkal Bolton LLP

We have served as the Company’s auditor since 2021

Sunrise, Florida

August 5, 2021

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DOCTORS SCIENTIFIC ORGANICA, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 AND 2019

 

December 31, 2020

 

December 31, 2019

ASSETS

 

 

   

 

 

 

Current assets:

 

 

   

 

 

 

Cash

 

$

—

 

$

82,513

 

Accounts receivable, net

 

 

510,065

 

 

464,817

 

Inventory

 

 

1,618,002

 

 

971,060

 

Prepaid expenses and other current assets

 

 

26,624

 

 

49,598

 

Total current assets

 

 

2,154,691

 

 

1,567,988

 

   

 

   

 

 

 

Property and equipment, net

 

 

312,453

 

 

380,136

 

Other assets:

 

 

   

 

 

 

Operating lease right-of-use asset

 

 

672,741

 

 

874,686

 

Total other assets

 

 

985,194

 

 

1,254,822

 

Total assets

 

$

3,139,885

 

$

2,822,810

 

   

 

   

 

 

 

LIABILITIES AND MEMBER’S EQUITY (DEFICIT)

 

 

   

 

 

 

Current liabilities:

 

 

   

 

 

 

Accounts payable and cash overdraft

 

$

588,900

 

$

687,932

 

Accrued expenses

 

 

86,722

 

 

306,585

 

Due to related party

 

 

118,375

 

 

19,758

 

Operating lease obligation, current portion

 

 

227,557

 

 

201,945

 

Line of credit

 

 

739,657

 

 

—

 

Paycheck protection program loan

 

 

352,750

 

 

—

 

Notes payable

 

 

46,370

 

 

972,453

 

Total current liabilities

 

 

2,160,331

 

 

2,188,673

 

   

 

   

 

 

 

Long-term liabilities:

 

 

   

 

 

 

Operating lease obligation, net of current portion

 

 

445,184

 

 

672,741

 

Total long-term liabilities

 

 

445,184

 

 

672,741

 

   

 

   

 

 

 

Total liabilities

 

 

2,605,515

 

 

2,861,414

 

   

 

   

 

 

 

Commitments and contingencies

 

 

   

 

 

 

Member’s (deficit)

 

 

534,370

 

 

(38,604

)

Total liabilities and member’s equity

 

$

3,139,885

 

$

2,822,810

 

The accompanying notes are an integral part of these consolidated financial statements

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DOCTORS SCIENTIFIC ORGANICA, LLC
CONSOLIDATED STATEMENTS OF INCOME AND MEMBER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

December 31, 2020

 

December 31, 2019

Net sales

 

$

10,782,192

 

 

$

10,048,642

 

Cost of goods sold

 

 

4,436,389

 

 

 

4,777,392

 

Gross profit

 

 

6,345,803

 

 

 

5,271,250

 

   

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

4,608,331

 

 

 

3,875,983

 

Depreciation

 

 

82,786

 

 

 

97,160

 

Total operating expenses

 

 

4,691,117

 

 

 

3,973,143

 

   

 

 

 

 

 

 

 

Operating income

 

 

1,654,686

 

 

 

1,298,107

 

   

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Other income

 

 

—

 

 

 

410,500

 

Interest expense

 

 

(85,307

)

 

 

(95,076

)

Total other (expense) income

 

 

(85,307

)

 

 

315,424

 

   

 

 

 

 

 

 

 

Net income

 

 

1,569,379

 

 

 

1,613,531

 

   

 

 

 

 

 

 

 

Member’s equity (deficit), beginning of year

 

 

(38,604

)

 

 

(803,103

)

Contributions from member

 

 

2,995,090

 

 

 

4,574,513

 

Distributions to member

 

 

(3,991,495

)

 

 

(5,423,545

)

Member’s equity (deficit), end of year

 

$

534,370

 

 

$

(38,604

)

The accompanying notes are an integral part of these consolidated financial statements

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DOCTORS SCIENTIFIC ORGANICA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

December 31, 2020

 

December 31, 2019

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,569,379

 

 

$

1,613,531

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for bad debt

 

 

92,860

 

 

 

16,714

 

Depreciation

 

 

82,786

 

 

 

97,160

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(138,108

)

 

 

27,460

 

Inventory

 

 

(646,942

)

 

 

(154,183

)

Prepaid expenses and other current assets

 

 

22,974

 

 

 

(49,598

)

(Decrease) increase in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable and cash overdraft

 

 

(99,032

)

 

 

(394,503

)

Accrued expenses

 

 

(219,863

)

 

 

173,381

 

Due to related party

 

 

98,617

 

 

 

(99,042

)

Net cash provided by operating activities

 

 

762,671

 

 

 

1,230,920

 

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(15,103

)

 

 

(110,923

)

Net cash used in investing activities

 

 

(15,103

)

 

 

(110,923

)

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Distributions to member

 

 

(3,991,495

)

 

 

(5,423,545

)

Contributions from member

 

 

2,407,076

 

 

 

4,374,513

 

Proceeds from line of credit

 

 

1,937,397

 

 

 

—

 

Repayments on line of credit

 

 

(1,197,740

)

 

 

—

 

Principal repayments on notes payable

 

 

(379,069

)

 

 

(659,452

)

Proceeds from note payable

 

 

41,000

 

 

 

671,000

 

Paycheck protection program loan proceeds

 

 

352,750

 

 

 

—

 

Net cash used in financing activities

 

 

(830,081

)

 

 

(1,037,484

)

   

 

 

 

 

 

 

 

Net (decrease) increase in cash

 

 

(82,513

)

 

 

82,513

 

Cash, beginning of year

 

 

82,513

 

 

 

—

 

Cash, end of year

 

$

—

 

 

$

82,513

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

85,307

 

 

$

95,076

 

   

 

 

 

 

 

 

 

Supplemental disclosure of non-cash flow information:

 

 

 

 

 

 

 

 

Non cash deemed contributions from member via assumption of liabilities

 

$

588,014

 

 

$

200,000

 

The accompanying notes are an integral part of these consolidated financial statements

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 1 — Description of Business

Doctors Scientific Organica, LLC and its consolidated companies (collectively the “Company”) operates in Riviera Beach, Florida, and is primarily engaged in the development, marketing, manufacturing, and sale of a broad spectrum of weight management and related products.

Doctors Scientific Organica, LLC (“DSO”) was originally incorporated in the State of Nevada on February 16, 2006. On September 28, 2015, it converted to a Florida company. DSO owns 100% of Oyster Management Services, Ltd. (“Oyster”), Lawee Enterprises, L.L.C. (“Lawee”) and U.S. Medical Care Holdings, L.L.C. (“U.S. Medical”). Oyster was organized as a limited partnership in the State of Florida on April 1, 2003. Lawee Enterprises, L.L.C. was organized as a limited liability company in the State of Florida on January 3, 2005. U.S. Medical was organized as a limited liability company in the State of Florida on April 1, 2003.

Each wholly owned subsidiary services customers in different sales markets. Based in Riviera Beach, Florida, DSO operates a 35,000 square-foot FDA-certified manufacturing facility.

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements reflect the consolidated operations of DSO and its wholly owned subsidiaries Oyster, Lawee and U.S. Medical. Intercompany balances and transactions have been eliminated.

Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements 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 reported amounts of revenues and expenses during the reporting periods. These estimates include, among other items, assessing the collectability of receivables, useful lives and recoverability of tangible assets, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2020 and 2019.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are uncollateralized customer obligations due under normal trade terms. The Company does not accrue finance or interest charges. The Company uses an allowance method to account for uncollectible accounts receivable. The Company’s allowance for doubtful accounts represents the Company’s best estimate for uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability, as well as management’s past experience with the customers. Allowance for doubtful accounts were $90,731 and $35,016 at December 31, 2020 and 2019, respectively.

Inventory

Inventory consists of raw materials and finished goods and is valued at the lower of cost or net realizable value. An allowance for inventory obsolescence is provided for slow moving or obsolete inventory to write down historical cost to net realizable value. The Company primarily performs its manufacturing for nutraceuticals in the form of powders, tablets, and capsules.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2 — Summary of Significant Accounting Policies (cont.)

The allowance for obsolescence is an estimate established through charges to cost of goods sold. Management’s judgment in determining the adequacy of the allowance is based upon several factors which include, but are not limited to, analysis of slow-moving inventory, analysis of the selling price of inventory, the predetermined shelf life of the product, and management’s judgment with respect to current economic conditions. Given the nature of the inventory, it is reasonably possible the Company’s estimate of the allowance for obsolescence will change in the near term. At December 31, 2020 and 2019, there was no allowance for inventory obsolescence.

Property and Equipment

Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged to expense as incurred. Depreciation is computed on the straight-line method over the estimated useful lives of the respective assets, which range from five (5) to seven (7) years.

Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. The Company had no impairment of long-lived assets at December 31, 2020 and 2019.

Lease Right-of-Use Asset

The Company records a right-of-use (“ROU”) asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified either as finance or operating with the classification affecting the pattern of expense recognition.

Lease liabilities are recognized based on the present value of the remaining lease payments and are discounted using the most reasonable incremental borrowing rate. The Company uses the implicit rate when it is readily determinable. Since the Company’s lease does not provide an implicit rate, to determine the present value of lease payments, management uses the Company’s incremental borrowing rate based on the information available at lease commencement. Leases with a term of 12 months or less at inception are not recorded on our balance sheet and are expensed on a straight-line basis over the lease term.

Revenue Recognition

The Company evaluates revenue recognition based on the criteria set forth in ASC 606, Revenue from Contracts with Customers.

The Company evaluates and recognize revenue by:

•        identifying the contract(s) with the customer,

•        identifying the performance obligations in the contract,

•        determining the transaction price,

•        allocating the transaction price to performance obligations in the contract; and

•        recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2 — Summary of Significant Accounting Policies (cont.)

The Company primarily generates revenues by manufacturing and sales of weight management products under its own brands and as a contract manufacturer for customers. The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations at December 31, 2020 or 2019.

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Freight

The Company charges its customers a flat rate for shipping and handling. Freight costs are included in cost of goods sold in the accompanying consolidated statements of income. For the years ended December 31, 2020 and 2019, freight costs amounted to $484,503 and $599,174, respectively.

Advertising

Advertising costs are expensed as incurred. During the years ended December 31, 2020 and 2019 the Company incurred advertising costs of $1,018,570 and $374,511, respectively.

Paycheck Protection Program

The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with the Financial Accounting Standards Board (“FASB”) ASC 470, Debt . Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor.

Income Taxes

DSO, Lawee and U.S. Medical are limited liability companies that have elected to be taxed as an S Corporation. Oyster is a limited partnership. As a result, income tax liabilities are passed through to the individual member. Accordingly, no provision for income taxes is reflected in the consolidated financial statements.

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. Interest and penalties related to income tax matters, if any, would be recognized as a component of income tax expense. At December 31, 2020, the Company had no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company’s tax years subject to examinations by the U.S. federal, state and local non-U.S. tax authorities generally remain open for three years from the date of filing.

Accounting Pronouncement Adopted

The Company has adopted the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a right-of-use (“ROU”) model that requires lessees to record an ROU asset and a lease liability on the consolidated balance sheets for all leases with terms longer than 12 months. The Company adopted ASU 2016-02 during 2019, which resulted in the recognition of the right-of-use assets and related obligations on its consolidated financial statements.

Note 3 — Fair Value Disclosures

The Company’s financial instruments consist mainly of cash, accounts receivable, accounts payable, accrued expenses, and term loans. The Company believes that the carrying amounts of these financial instruments approximate its fair values due to their short-term nature or market interest rates. The term loans approximate fair value due to the current rate of interest charged.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 4 — Inventory

Inventory consisted of the following at December 31:

 

2020

 

2019

Raw materials

 

$

1,491,214

 

$

896,381

Finished goods

 

 

126,788

 

 

74,679

   

$

1,618,002

 

$

971,060

Note 5 — Property and Equipment

Property and equipment consisted of the following at December 31:

 

Estimated Useful Lives (in Years)

 

2020

 

2019

Furniture and fixtures

 

7

 

$

12,865

 

 

$

12,865

 

Equipment – Manufacturing

 

7

 

 

1,351,402

 

 

 

1,336,300

 

Leasehold improvements

 

5 – 7

 

 

68,400

 

 

 

68,400

 

       

 

1,432,667

 

 

 

1,417,565

 

       

 

 

 

 

 

 

 

Less: accumulated depreciation

     

 

(1,120,214

)

 

 

(1,037,429

)

Property and equipment, net

     

$

312,453

 

 

$

380,136

 

Depreciation expense for the years ended December 31, 2020 and 2019 totaled $82,786 and $97,160, respectively.

Note 6 — Debt

PPP Loan

During April 2020, the Company was granted a loan (the “PPP Loan”) pursuant to the PPP under Division A, Title I of the Coronavirus Aid, Relief, and Economic Secures Act (the “CARES Act”) in the amount of $352,750. The PPP Loan, which was in the form of a note dated April 17, 2020, matures on April 17, 2022 and bears interest at a rate of 1.00% per annum. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act and meet the conditions established by the U.S. Small Business Administration (the “SBA”). See Subsequent Events note.

Line of Credit

On June 26, 2020, the Company entered into a revolving line of credit with a bank, which permitted borrowings up to $750,000 and bears interest at 3.5%. As of December 31, 2020, the balance of the line of credit was $739,657. The line of credit matured on June 26, 2021.

Notes Payable

On April 16, 2010, the Company entered into a twenty-year loan (the “Loan”) with a financial institution for an amount of $570,682. The loan required monthly payments including interest at 7.49% per annum. The note was assumed by a related party during 2020.

During 2019, the Company entered into a one-year financing agreement (the “2019 One-Year Financing Agreement”) with a vendor for an amount of $41,000. The agreement requires monthly payments including interest at 9.72% per annum. The balance was fully paid during 2020.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 6 — Debt (cont.)

On December 6, 2019, the Company entered into a thirteen-month financing agreement (the “2019 Thirteen-Month Financing Agreement”) with a vendor for an amount of $350,000. The agreement requires monthly payments including interest at 14.72% per annum.

On June 17, 2013, the Company entered into an equipment loan (the “2013 Equipment Loan”) with a financial institution for an amount of $210,000 bearing an interest rate of 1.96%. The equipment loan was fully paid during 2020.

On January 26, 2012, the Company entered into an equipment loan (the “2012 Equipment Loan”) with a financial institution for an amount of $259,150 bearing an interest rate of 5.25%. The equipment loan was fully paid during 2020.

On March 6, 2020, the Company entered into a one-year financing agreement (the “2020 Financing Agreement”) with a vendor for an amount of $41,000. The agreement requires monthly payments including interest at 9.72% per annum.

Notes payable consists of the following at December 31:

 

2020

 

2019

Loan

 

$

—

 

$

427,388

2019 One-Year Financing Agreement

 

 

—

 

 

34,439

2019 Thirteen-Month Financing Agreement

 

 

31,882

 

 

350,000

2013 Equipment Loan

 

 

—

 

 

79,958

2012 Equipment Loan

 

 

—

 

 

80,668

2020 Financing Agreement

 

 

14,488

 

 

—

Total

 

$

46,370

 

$

972,453

Collateral and Guarantor

The notes payable and line of credit are collateralized by certain assets of the Company and guaranteed by the sole member of the Company (the “Member”).

Note 7 — Member’s Equity

DSO, U.S. Medical, and Oyster are limited liability companies, governed by individual operating agreements. Each company maintains separate capital accounts for the Member, who is credited for capital contributions and profits, and is debited for distributions and losses. The liability of the Member is limited to the Member’s total capital contributions.

Note 8 — Operating Lease

On September 1, 2018, the Company entered into an operating lease with an initial 5 year term with a related party for its warehouse space in Riviera Beach, Florida. The lease term is used for the amortization/depreciation life of lease assets. The lease agreement does not contain any material residual value guarantees or material restrictive covenants.

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method applied to the lease that was in place at January 1, 2019.

Discount Rate Applied to Property Operating Lease

To determine the present value of minimum future lease payments for its operating lease at January 1, 2019, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

The lease asset and liability were calculated utilizing a discount rate of 12%, according to the Company’s elected policy.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 8 — Operating Lease (cont.)

Right of Use Asset and Liability

The right of use asset and liability is included in the accompanying consolidated balance sheets as follows at December 31:

 

2020

 

2019

Non-current assets:

 

 

   

 

 

Right of use asset

 

$

672,741

 

$

874,686

   

 

   

 

 

Liability:

 

 

   

 

 

Right of use liability, current portion

 

$

227,557

 

$

201,945

Right of use liability, net of current portion

 

 

445,184

 

 

672,741

Total lease liability

 

$

672,741

 

$

874,686

Minimum lease payments under the operating lease are recognized on a straight-line basis over the term of the lease.

Years ending December 31:

   

2021

 

$

296,040

 

2022

 

 

296,040

 

2023

 

 

197,360

 

Total payments

 

 

789,440

 

Less: amount representing interest

 

 

(116,699

)

Lease obligation, net

 

 

672,741

 

Less: current portion

 

 

(227,557

)

Lease obligation – long-term

 

$

445,184

 

Rent expense for the years ended December 31, 2020 and 2019 was $303,757 and $299,967, respectively.

Note 9 — Concentrations of Credit Risks

Credit Risks

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, accounts receivable and unbilled receivables. The Company maintains bank accounts with several financial institutions. Concentrations of credit risk with respect to accounts receivable are limited to the dispersion of customers across different industries and geographic regions.

Cash

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution per entity. The Company did not have cash balances in excess of the FDIC coverage at December 31, 2020 and 2019. The Company has not experienced any losses in such accounts.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 9 — Concentrations of Credit Risks (cont.)

Sales and Accounts Receivable

The following is a summary of customer concentration in sales and accounts receivable at:

December 31, 2020

 

December 31, 2019

Customer

 

%
of Sales

 

% of Accounts Receivable

 

Customer

 

%
of Sales

 

% of Accounts Receivable

A

 

4%

 

11%

 

A

 

37%

 

62%

B

 

27%

 

12%

 

B

 

15%

 

1%

C

 

5%

 

15%

 

C

 

13%

 

0%

D

 

9%

 

30%

           

E

 

1%

 

23%

           

F

 

25%

 

<1%

           

Purchases

The following is a summary of vendor concentrations in purchases and accounts payable at:

December 31, 2020

 

December 31, 2019

Vendor

 

% of
Purchases

 

% of Accounts Payable

 

Vendor

 

% of
Purchases

 

% of Accounts Payable

A

 

3%

 

17%

 

A

 

5%

 

14%

B

 

14%

 

0%

 

B

 

1%

 

14%

C

 

12%

 

0%

 

C

 

17%

 

0%

Note 10 — Commitments and Contingencies

COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of these consolidated financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s consolidated financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its consolidated financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of consolidated financial condition, liquidity, or operations for 2021.

Litigation

From time to time, the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

Insurance Settlement

During 2019, the Company received $400,000 as a settlement from an insurance claim for hurricane damages, which is included in other income in the accompanying consolidated statements of income.

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DOCTORS SCIENTIFIC ORGANICA, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 11 — Related Party Transactions

The Company rents its operating facility from a non-consolidating company owned by the Member. Rent expense paid to the related party for the years ended December 31, 2020 and 2019 was $302,040 and 298,449, respectively.

The Company has provided advances to, and received advances from, the Member and entities related to the Member of the Company. These advances are non-interest bearing with no fixed maturity and are expected to be repaid in the near term. At December 31, 2020 and 2019, the net balance due to related parties was $118,375 and $19,758, respectively.

The Company sells its products to companies that are considered related parties due to common ownership by the Member. During the years ended December 31, 2020 and 2019, sales to related parties were $561,041 and $76,305, respectively. At December 31, 2020 and 2019, accounts receivable due from related parties was $0 and $111,218, respectively.

Note 12 — Subsequent Events

Paycheck Protection Program Loan Forgiveness

The Company used the funds of its PPP Loan for qualifying costs, and as such, received full loan forgiveness in the amount of $352,750 from the SBA in February 2021.

Paycheck Protection Program Loan

On February 10, 2021, the Company was granted an additional loan (the “Second PPP Loan”) from City National Bank of Florida, N.A pursuant to the PPP under Division A, Title I of the CARES Act in the amount of $356,438.The Second PPP Loan, which was in the form of a Note dated February 10, 2021, was set to mature on February 10, 2023. The Company used the funds of its PPP Loan for qualifying costs, and as such, received full loan forgiveness in the amount of $356,438 from the SBA in June 2021.

Acquisition

During July 2021, the Company was sold to a third party, resulting in a change in ownership.

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             Units consisting of:

Common Stock
Series A Warrants
Series B Warrants

Smart for Life, Inc.

________________________________

PROSPECTUS

________________________________

DAWSON JAMES SECURITIES, INC.

            , 2022

Through and including                   , 2022 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

  

 

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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED DECEMBER 16, 2021

Smart for Life, Inc.

26,903,184 Shares of
Common Stock

____________________________

This prospectus relates to 26,903,184 shares of common stock, par value $0.0001 per share, of Smart for Life, Inc. that may be sold from time to time by the selling stockholders named in this prospectus, which includes:

•        11,999,404 shares of common stock issuable upon the conversion of series A convertible preferred stock issued to the selling stockholders;

•        11,999,404 shares of common stock issuable upon the exercise of warrants issued to the selling stockholders at an exercise price per share that is equal to 125% of the initial public offering price for our initial public offering;

•        2,250,000 shares of common stock issuable upon the conversion of debentures issued to the selling stockholders; and

•        654,376 shares of common stock issuable to the selling stockholders under future equity agreements.

We will not receive any proceeds from the sales of outstanding common stock by the selling stockholders, but we will receive funds from the exercise of the warrants held by the selling stockholders.

Currently, no public market exists for our common stock. We have applied to list our common stock on the Nasdaq Capital Market, or Nasdaq, under the symbol “            ”. There can be no assurance that we will be able to meet Nasdaq’s initial listing requirements or that we will otherwise be approved for listing.

We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012, and as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company” and “Risk Factors — Risks Related to this Offering and Ownership of Our Common Stock.”

The selling stockholders may offer and sell the common stock being offered by this prospectus from time to time in public or private transactions, or both. These sales will occur at a fixed price of $5.00 per share until our common stock is quoted on the OTCQB or OTCQX marketplace, or listed on a national securities exchange. Thereafter, these sales will occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices. The selling stockholders may sell shares to or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the selling stockholders, the purchasers of the shares, or both. Any participating broker-dealers and any selling stockholders who are affiliates of broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, and any commissions or discounts given to any such broker-dealer or affiliates of a broker-dealer may be regarded as underwriting commissions or discounts under the Securities Act of 1933, as amended. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their common stock. See “Plan of Distribution” for a more complete description of the ways in which the shares may be sold.

Investing in our securities is highly speculative and involves a significant degree of risk.    See “Risk Factors” beginning on page 24 of this prospectus for a discussion of information that should be considered before making a decision to purchase our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is            , 2022.

 

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The Offering

Common stock offered by the selling stockholders:

 


This prospectus relates to 26,903,184 shares of common stock that may be sold from time to time by the selling stockholders named in this prospectus, which includes:

•   11,999,404 shares of common stock issuable upon the conversion of series A convertible preferred stock issued to the selling stockholders;

•   11,999,404 shares of common stock issuable upon the exercise of warrants issued to the selling stockholders at an exercise price per share that is equal to 125% of the initial public offering price for our initial public offering;

•   2,250,000 shares of common stock issuable upon the conversion of debentures issued to the selling stockholders; and

•   654,376 shares of common stock issuable to the selling stockholders under future equity agreements.

Shares outstanding:

 

            shares of common stock (or            shares if the underwriters exercise the over-allotment option in full).

Use of proceeds:

 

We will not receive any proceeds from the sales of outstanding common stock by the selling stockholders, but we will receive funds from the exercise of the warrants held by the selling stockholders.

Risk factors:

 

Investing in our securities involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 24.

Trading market and symbol:

 

We have applied to list our common stock on Nasdaq under the symbol “            .” There can be no assurance that we will be able to meet Nasdaq’s initial listing requirements or that we will otherwise be approved for listing.

The number of shares of common stock outstanding assumes the issuance by us of units pursuant to the Public Offering Prospectus filed contemporaneously herewith and includes the following shares to be issued upon closing of the initial public offering described therein:

•                    shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $500,000 that will convert upon closing of the offering at a conversion price equal to 50% of the initial public offering price;

•                    shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $3,000,000 that will convert upon closing of the offering at a conversion price equal to the initial public offering price;

•                    shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $1,900,000 that will convert upon closing of the offering at a conversion price equal to the initial public offering price;

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•                    shares of common stock to be issued upon closing of the offering under future equity agreements that we entered into with certain lenders, pursuant to which we agreed to issue to such lenders a number of shares of common stock equal to the stated value described in the future equity agreement, which may be the principal amount of the loan or the principal amount of the loan plus a premium, divided by the initial public offering price, which total stated value, in the aggregate, is $16,825,751;

•                    shares of common stock to be issued upon closing of the offering under a future equity agreement that we entered into with a lender, pursuant to which we agreed to issue to such lender a number of shares of common stock equal to 75% of all funds advanced by such lender ($1,675,000) divided by the initial public offering price;

•                    shares of common stock that we have agreed to issue to the former shareholders of GSP Nutrition pursuant to the terms of the contribution and exchange agreement.

The number of shares of common stock outstanding does not including the following:

•        1,450,000 shares of common stock issuable upon the exercise of outstanding options at an exercise price of $0.01 per share;

•        11,999,404 shares of common stock issuable upon the conversion of our outstanding series A convertible preferred stock;

•        11,999,404 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price per share that is equal to 125% of the initial public offering price for the offering;

•        1,382,441 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price of $0.0001 per share;

•        up to 2,250,000 shares of common stock issuable upon the conversion of 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 that are convertible at the option of the holders into shares of common stock at a conversion price that is equal to 50% of the effective initial public offering price (as described in the debentures); provided that after date on which the registration statement of which this prospectus forms a part is declared effective, the conversion price shall be reduced to the lower of such price and the lowest volume weighted average price during the 10 trading days immediately following the such date; and provided further, that the conversion price shall not be less than $1.00;

•        shares of common stock issuable upon the conversion of a convertible promissory note in the principal amount of $73,727.01 that is convertible at the option of the holder into shares of common stock at a conversion price that is equal to forty percent (40%) of either (i) the price per share paid by investors in our next priced equity financing, including the offering, or (ii) the volume weighted average price of the common stock for the five trading days from and including the date that the conversion notice is given;

•        shares of common stock issuable upon the exercise of the warrants issued in connection with the offering; and

•        shares of common stock issuable upon the conversion of any shares of series B convertible preferred stock issued in connection with the offering.

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USE OF PROCEEDS

We will not receive any proceeds from the sale of common stock by the selling stockholders. We may, however, receive up to $            from the exercise of warrants held by the selling stockholders.

We have no specific plan for such proceeds except to generate funds for working capital and general corporate purposes. We will have broad discretion in the way that we use these proceeds.

The selling stockholders will pay any underwriting discounts and commissions and expenses incurred by them for brokerage, accounting, tax or legal services or any other expenses incurred by them in disposing of the shares. We will bear all other costs, fees and expenses incurred in effecting the registration of the shares covered by this prospectus, including, without limitation, all registration and filing fees and fees and expenses of our counsel and our accountants.

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SELLING STOCKHOLDERS

The common stock being offered by the selling stockholders are those issuable to the selling stockholders upon the conversion or exercise of series A convertible preferred stock, warrants and debentures held by the selling stockholders. For additional information regarding the issuances of those securities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments” above. We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except for the ownership of these securities, the selling stockholders have not had any material relationship with us within the past three years and based on the information provided to us by the selling stockholders, no selling stockholder is a broker-dealer or an affiliate of a broker-dealer.

The table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by each selling stockholder, based on its ownership of the shares of series A convertible preferred stock, warrants and debentures as of            , 2022, assuming the conversion of the series A convertible preferred stock, the exercise of the warrants and the conversion of the debentures held by the selling stockholders on that date, without regard to any limitations on conversions and exercises.

The third column lists the shares of common stock being offered by this prospectus by the selling stockholders.

In accordance with the terms of a registration rights agreement with the selling stockholders, this prospectus generally covers the resale of the sum of the maximum number of shares of common stock issuable upon the conversion of all shares of series A convertible preferred stock, the exercise of all warrants and the conversion of all debentures held by the selling stockholders, each as of the trading day immediately preceding the date of this prospectus and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the conversion or exercise of these securities. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.

Under the terms of the series A convertible preferred stock, the warrants and the debentures, a selling stockholder may not convert the series A convertible preferred stock, exercise the warrants or convert the debentures to the extent such conversion or exercise would cause such selling stockholder, together with its affiliates, to beneficially own a number of shares of common stock which would exceed 4.99% of our then outstanding common stock following such conversion or exercise. This limitation may be waived (up to a maximum of 9.99%) by the selling stockholder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to us. The number of shares in the table below do not reflect this limitation. The selling stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

Name of Selling Stockholder

 

Common Stock
Beneficially
Owned Prior to
this Offering

 

Number of
Shares Being
Offered

 


Common Stock Beneficially
Owned After this Offering

Shares

 

Percent(1)

Anson East Master Fund LP(2)

 

1,640,551

 

1,640,551

 

—

 

—

Anson Investments Master Fund LP(3)

 

4,921,651

 

4,921,651

 

—

 

—

District 2 Capital Fund LP(4)

 

6,562,202

 

6,562,202

 

—

 

—

Ionic Ventures, LLC(5)

 

6,853,036

 

6,853,036

 

—

 

—

Sabby Volatility Warrant Master Fund, Ltd.(6)

 

6,562,202

 

6,562,202

 

—

 

—

Brendan O’Neil(7)

 

363,542

 

363,542

 

—

 

—

____________

(1)      Applicable percentage ownership after to this offering is based on            shares of common stock and 8,000 shares of series A convertible preferred stock deemed to be outstanding as of            , 2022. As noted above, for purposes of computing percentage ownership after this offering, we have assumed that all series A convertible preferred stock, warrants and debentures held by the selling stockholders will be converted to common stock and sold in this offering.

(2)      Consists of 749,963 shares of common stock issuable upon the conversion of series A convertible preferred stock, 749,963 shares of common stock issuable upon the exercise of warrants and 140,625 shares of common stock issuable upon the conversion of debentures. Anson Advisors Inc. and Anson Funds Management LP, the Co-Investment Advisers of Anson East Master Fund LP, hold voting and dispositive power over the shares held by Anson East Master Fund LP. Bruce Winson is the managing member

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of Anson Management GP LLC, which is the general partner of Anson Funds Management LP. Moez Kassam and Amin Nathoo are directors of Anson Advisors Inc. Mr. Winson, Mr. Kassam and Mr. Nathoo each disclaim beneficial ownership of these shares except to the extent of their pecuniary interest therein.

(3)      Consists of 2,249,888 shares of common stock issuable upon the conversion of series A convertible preferred stock, 2,249,888 shares of common stock issuable upon the exercise of warrants and 421,875 shares of common stock issuable upon the conversion of debentures. Anson Advisors Inc. and Anson Funds Management LP, the Co-Investment Advisers of Anson Investments Master Fund LP, hold voting and dispositive power over the shares held by Anson Investments Master Fund LP. Bruce Winson is the managing member of Anson Management GP LLC, which is the general partner of Anson Funds Management LP. Moez Kassam and Amin Nathoo are directors of Anson Advisors Inc. Mr. Winson, Mr. Kassam and Mr. Nathoo each disclaim beneficial ownership of these shares except to the extent of their pecuniary interest therein.

(4)      Consists of 2,999,851 shares of common stock issuable upon the conversion of series A convertible preferred stock, 2,999,851 shares of common stock issuable upon the exercise of warrants and 562,500 shares of common stock issuable upon the conversion of debentures. Michael Bigger is the Managing Member of District 2 GP LLC, the General Partner of District 2 Capital Fund LP, and has voting and dispositive power over the shares held by it. Mr. Bigger disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.

(5)      Consists of 2,999,851 shares of common stock issuable upon the conversion of series A convertible preferred stock, 2,999,851 shares of common stock issuable upon the exercise of warrants, 562,500 shares of common stock issuable upon the conversion of debentures and up to 290,834 shares of common stock to be issued under a future equity agreement that we entered into with Ionic Ventures, LLC, pursuant to which we agreed to issue to Ionic Ventures, LLC a number of shares of common stock equal to $1,163,333, divided by the initial public offering price allocated to the common stock comprising a part of the unit sold in our initial public offering that is occurring at or about the effective date of the registration statement of which this prospectus forms a part; provided that such initial offering price shall not be less than $4.00. Brendan O’Neil and Keith Coulston are the principals of Ionic Ventures, LLC and hold voting and dispositive power over the shares held by it. Mr. O’Neil and Mr. Coulston each disclaim beneficial ownership of these shares except to the extent of their pecuniary interest therein.

(6)      Consists of 2,999,851 shares of common stock issuable upon the conversion of series A convertible preferred stock, 2,999,851 shares of common stock issuable upon the exercise of warrants and 562,500 shares of common stock issuable upon the conversion of debentures. Sabby Management, LLC, the investment manager of Sabby Volatility Warrant Master Fund, Ltd., and Hal Mintz, manager of Sabby Management, LLC, may be deemed to share voting and dispositive power with respect to these securities. Each of Sabby Management, LLC and Hal Mintz disclaims beneficial ownership over the securities listed except to the extent of their pecuniary interest therein.

(7)     Consists of up to 363,542 shares of common stock to be issued under a future equity agreements that we entered into with Brendan O’Neil, pursuant to which we agreed to issue to Mr. O’Neil a number of shares of common stock equal to $1,454,167 divided by the initial public offering price allocated to the common stock comprising a part of the unit sold in our initial public offering that is occurring at or about the effective date of the registration statement of which this prospectus forms a part; provided that such initial offering price shall not be less than $4.00.

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PLAN OF DISTRIBUTION

Each selling stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on any stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales will occur at a fixed price of $5.00 per share until our common stock is quoted on the OTCQB or OTCQX marketplace, or listed on a national securities exchange. Thereafter, these sales will occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices. A selling stockholder may use any one or more of the following methods when selling securities:

•        ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•        block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

•        purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•        an exchange distribution in accordance with the rules of the applicable exchange;

•        privately negotiated transactions;

•        settlement of short sales;

•        in transactions through broker-dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated price per security;

•        through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

•        a combination of any such methods of sale; or

•        any other method permitted pursuant to applicable law.

The selling stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.

In connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

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[Alternate Page for Resale Prospectus]

We are required to pay certain fees and expenses incurred by us incident to the registration of the securities. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

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[Alternate Page for Resale Prospectus]

LEGAL MATTERS

The validity of the common stock covered by this prospectus will be passed upon by Bevilacqua PLLC.

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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common shares being registered. All amounts, other than the SEC registration fee, Nasdaq listing fee and FINRA filing fee, are estimates. We will pay all these expenses.

 

Amount

SEC registration fee

 

$

17,266.85

Nasdaq listing fee

 

 

*

FINRA filing fee

 

 

*

Accounting fees and expenses

 

 

*

Legal fees and expenses

 

 

*

Transfer agent fees and expenses

 

 

*

Printing and related fees and expenses

 

 

*

Miscellaneous fees and expenses

 

 

*

Total

 

$

*

____________

*        to be included by amendment.

Item 14. Indemnification of Directors and Officers

Section 145 of the General Corporation Law of the State of Delaware provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement in connection with specified actions, suits and proceedings whether civil, criminal, administrative, or investigative, other than a derivative action by or in the right of the corporation, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification extends only to expenses, including attorneys’ fees, incurred in connection with the defense or settlement of such action and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation’s certificate of incorporation, bylaws, disinterested director vote, stockholder vote, agreement or otherwise.

Our certificate of incorporation and bylaws provide for indemnification of directors and officers to the fullest extent permitted by law, including payment of expenses in advance of resolution of any such matter.

We intend to enter into separate indemnification agreements with our directors and officers. Each indemnification agreement will provide, among other things, for indemnification to the fullest extent permitted by law and our amended and restated certificate of incorporation and bylaws against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements will provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our amended and restated certificate of incorporation and bylaws.

We are in the process of obtaining standard policies of insurance under which coverage is provided (a) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to us with respect to payments which we may make to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.

The underwriting agreement, filed as Exhibit 1.1 to this registration statement, will provide for indemnification, under certain circumstances, by the underwriter of us and our officers and directors for certain liabilities arising under the Securities Act or otherwise.

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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 15. Recent Sales of Unregistered Securities

During the past three years, we issued the following securities, which were not registered under the Securities Act.

During the period from June 15, 2020 through April 13, 2021, we issued a total of 13,370,000 shares of our common stock to our employees and consultants in consideration for services rendered to our company. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

During the period from March 8, 2018 through January 20, 2021, we issued promissory notes to accredited investors in a series of private placements. The aggregate principal amount of the notes is $4,519,500. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

During the period from September 14, 2020 through April 13, 2021, we granted options to purchase a total of 1,450,000 shares of our common stock to officers and directors of our company. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On December 18, 2020, we entered into a future equity agreement with Peah Capital, LLC, pursuant to which we have agreed to issue to Peah Capital, LLC concurrent with the closing of this offering a number of shares of our common stock equal to 75% of all funds loaned to us by it divided by the initial public offering price. The aggregate amount loaned to us by Peah Capital, LLC is $1,675,000. We also issued a warrant for the purchase of 1,292,445 shares of common stock to Peah Capital, LLC. This warrant is exercisable for the period commencing on January 31, 2022 and ending on December 18, 2027; provided that, the warrant will automatically expire and terminate in the event a registration statement covering the resale of all shares issued pursuant the future equity agreement has been declared effective by the SEC. The exercise price of this warrant is $0.0001, subject to standard adjustments for stock splits, stock combinations, stock dividends, reclassifications and similar transactions. In addition, in the event that the number of our outstanding shares of common stock is increased prior to the 18-month anniversary of the warrant, the number of shares issuable upon exercise of the warrant shall be automatically increased to represent that number which is 9.9% of the then total outstanding capitalization. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On February 25, 2021, we issued a convertible promissory note in the principal amount of $500,000 to East West Capital LLC. This note accrues interest at 15% per annum and matures on March 31, 2023. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to 50% of the initial public offering price. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On May 10, 2021, we issued a convertible promissory note in the principal amount of $73,727.01 to Bevilacqua PLLC, our outside securities counsel. This note accrues interest at 15% per annum and matures on May 10, 2022. The note is convertible at the option of the holder into shares of common stock at a conversion price that is equal to forty percent (40%) of either (i) the price per share paid by investors in our next priced equity financing, including this offering, or (ii) the volume weighted average price of the common stock for the five trading days from and including the date that the conversion notice is given. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On July 1, 2021, we issued a convertible promissory note in the principal amount of $3,000,000 to Sasson E. Moulavi in connection with the acquisition of Doctors Scientific Organica. This note accrues interest at 6% per annum and matures on July 1, 2024. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to the initial public offering price. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On July 1, 2021, we completed a private placement in which we sold an aggregate of 6,000 shares of series A convertible preferred stock and warrants for the purchase of an aggregate of 8,999,552 shares of common stock to certain investors for gross proceeds of $6,000,000. On August 18, 2021, we completed an additional closing of this private placement in

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which we sold 2,000 shares of series A convertible preferred stock and warrants for the purchase of 2,999,852 shares of common stock for gross proceeds of $2,000,000. Please see “Description of Securities” for a description of the series A convertible preferred stock and warrants issued in this private placement. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On November 5, 2021, we completed a private placement in which we sold 12% unsecured subordinated convertible debentures in the aggregate principal amount of $2,250,000 to certain investors for gross proceeds of $2,250,000. At any time after the sixth month anniversary of the IPO date, the holders may convert the principal amount of the debentures into shares of common stock at a conversion price that is equal to 50% of the effective initial public offering price (as described in the debentures); provided that after the IPO date, the conversion price shall be reduced to the lower of such price and the lowest volume weighted average price during the 10 trading days immediately following the IPO date; provided further, that the conversion price shall not be less than $1.00. Please see “Description of Securities” for a description of the debentures issued in this private placement. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On November 8, 2021, we issued a convertible promissory note in the principal amount of $1,900,000 to Justin Francisco and Steven Rubert in connection with the acquisition of Nexus. This note accrues interest at 5% per annum and matures on November 8, 2024. This note will automatically convert into shares of common stock concurrent with the closing of this offering at a conversion price equal to the initial public offering price. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

On December 6, 2021, we issued 42,500 shares of our common stock to the shareholders of GSP Nutrition in connection with the acquisition of GSP Nutrition. In connection with this acquisition, we also issued 14,723 shares of common stock to certain vendors of GSP who agreed to settle accounts payable owed to them into our common stock. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

From May 2017 to December 15, 2021, we entered into future equity agreements with 56 lenders, pursuant to which we have agreed to issue to such lenders concurrent with the closing of this offering a number of shares of our common stock equal to the principal amount loaned to us divided by the initial public offering price. The aggregate principal amount loaned to us by these lenders is $5,880,405. The issuance of these securities was made in reliance upon an exemption from the registration requirements of Section 4(a)(2) of the Securities Act.

In instances described above where we indicate that we relied upon Section 4(a)(2) of the Securities Act in issuing securities, our reliance was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the offeree and us.

Item 16. Exhibits.

(a) Exhibits.

Exhibit No.

 

Description

1.1*

 

Form of Underwriting Agreement

3.1

 

Certificate of Incorporation of Smart for Life, Inc., as amended

3.2

 

Certificate of Designation of Series A Convertible Preferred Stock

3.3*

 

Form of Certificate of Designation of Series B Convertible Preferred Stock

3.4

 

Bylaws of Smart for Life, Inc.

4.1*

 

Form of Warrant Agency Agreement

4.2*

 

Form of Series A Warrant (included in Exhibit 4.1)

4.3*

 

Form of Series B Warrant (included in Exhibit 4.1)

4.4

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Anson East Master Fund LP on August 18, 2021

4.5

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Anson Investments Master Fund LP on August 18, 2021

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Exhibit No.

 

Description

4.6

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to District 2 Capital Fund LP on August 18, 2021

4.7

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Ionic Ventures, LLC on August 18, 2021

4.8

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Sabby Volatility Warrant Master Fund, Ltd. on August 18, 2021

4.9

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Anson East Master Fund LP on July 1, 2021

4.10

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Anson Investments Master Fund LP on July 1, 2021

4.11

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to District 2 Capital Fund LP on July 1, 2021

4.12

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Ionic Ventures, LLC on July 1, 2021

4.13

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Sabby Volatility Warrant Master Fund, Ltd. on July 1, 2021

4.14

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Peah Capital, LLC on December 18, 2020

4.15

 

Amendment No 1 to Common Stock Purchase Warrant, dated June 30, 2021, between Smart for Life, Inc. and Peah Capital, LLC

4.16

 

Common Stock Purchase Warrant issued by Smart for Life, Inc. to Leonite Capital LLC on May 18, 2017

5.1*

 

Opinion of Bevilacqua PLLC as to the legality of the shares

10.1

 

Securities Purchase Agreement, dated November 5, 2021, among Smart for Life, Inc. and the purchasers named therein

10.2

 

Subsidiary Guarantee, dated November 5, 2021, by Smart for Life, Inc., Bonne Sante Natural Manufacturing, Inc., Doctors Scientific Organica, LLC, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C., U.S. Medical Care Holdings, L.L.C. and Nexus Offers, Inc.

10.3

 

12% Unsecured Subordinated Convertible Debenture due November 30, 2022 issued by Smart for Life, Inc. to Anson East Master Fund LP on November 5, 2021

10.4

 

12% Unsecured Subordinated Convertible Debenture due November 30, 2022 issued by Smart for Life, Inc. to Anson Investments Master Fund LP on August 18, 2021

10.5

 

12% Unsecured Subordinated Convertible Debenture due November 30, 2022 issued by Smart for Life, Inc. to District 2 Capital Fund LP on November 5, 2021

10.6

 

12% Unsecured Subordinated Convertible Debenture due November 30, 2022 issued by Smart for Life, Inc. to Ionic Ventures, LLC on November 5, 2021

10.7

 

12% Unsecured Subordinated Convertible Debenture due November 30, 2022 issued by Smart for Life, Inc. to Sabby Volatility Warrant Master Fund, Ltd. on November 5, 2021

10.8

 

Securities Purchase Agreement, dated July 1, 2021, among Smart for Life, Inc. and the purchasers named therein

10.9

 

Registration Rights Agreement, dated July 1, 2021, among Smart for Life, Inc. and the purchasers named therein

10.10

 

Contribution and Exchange Agreement, dated November 29, 2021, among GSP Nutrition Inc., the shareholders of GSP Nutrition Inc. and Smart for Life, Inc.

10.11

 

Securities Purchase Agreement, dated July 21, 2021, among Smart for Life, Inc., Nexus Offers, Inc., Justin Francisco and Steven Rubert

10.12

 

Amendment No. 1 to Securities Purchase Agreement, dated November 8, 2021, among Smart for Life, Inc., Nexus Offers, Inc., Justin Francisco and Steven Rubert

10.13

 

5% Secured Subordinated Convertible Promissory Note issued by Smart for Life, Inc. to Justin Francisco and Steven Rubert on November 8, 2021

10.14

 

5% Secured Subordinated Promissory Note issued by Smart for Life, Inc. to Justin Francisco and Steven Rubert on November 8, 2021

10.15

 

Securities Purchase Agreement, dated February 11, 2020, among Smart for Life, Inc., Doctors Scientific Organica, LLC, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C., U.S. Medical Care Holdings, L.L.C. and Sasson E. Moulavi

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Exhibit No.

 

Description

10.16

 

First Amendment to Securities Purchase Agreement, dated July 7, 2020, among Smart for Life, Inc., Doctors Scientific Organica, LLC, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C., U.S. Medical Care Holdings, L.L.C. and Sasson E. Moulavi

10.17

 

Second Amendment to Securities Purchase Agreement, dated June 4, 2021, among Smart for Life, Inc., Doctors Scientific Organica, LLC, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C., U.S. Medical Care Holdings, L.L.C. and Sasson E. Moulavi

10.18

 

Third Amendment to Securities Purchase Agreement, dated July 1, 2021, among Smart for Life, Inc., Doctors Scientific Organica, LLC, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C., U.S. Medical Care Holdings, L.L.C. and Sasson E. Moulavi

10.19

 

6% Secured Subordinated Convertible Promissory Note issued by Smart for Life, Inc. to Sasson E. Moulavi on July 1, 2021

10.20

 

6% Secured Subordinated Promissory Note issued by Smart for Life, Inc. to Sasson E. Moulavi on July 1, 2021

10.21

 

Loan Agreement, dated July 1, 2021, among Smart for Life, Inc., Bonne Sante Natural Manufacturing, Inc., Doctors Scientific Organica, LLC and Diamond Creek Capital, LLC

10.22

 

Term Loan Promissory Note issued by Smart for Life, Inc., Bonne Sante Natural Manufacturing, Inc. and Doctors Scientific Organica, LLC to Diamond Creek Capital, LLC on July 1, 2021

10.23

 

Security Agreement, dated July 1, 2021, among Smart for Life, Inc., Bonne Sante Natural Manufacturing, Inc., Doctors Scientific Organica, LLC and Diamond Creek Capital, LLC

10.24

 

Loan and Security Agreement, dated December 18, 2020, among Bonne Sante Natural Manufacturing, Inc., Smart for Life, Inc. and Peah Capital, LLC

10.25

 

Loan and Security Agreement Amendment, dated April 27, 2021, among Bonne Sante Natural Manufacturing, Inc., Smart for Life, Inc. and Peah Capital, LLC

10.26

 

Promissory Note issued by Bonne Sante Natural Manufacturing, Inc. and Smart for Life, Inc. to Peah Capital, LLC on December 18, 2020

10.27

 

First Amended and Restated Promissory Note issued by Bonne Sante Natural Manufacturing, Inc. and Smart for Life, Inc. to Peah Capital, LLC on December 18, 2020

10.28

 

Seconded Amended and Restated Promissory Note issued by Bonne Sante Natural Manufacturing, Inc. and Smart for Life, Inc. to Peah Capital, LLC on April 27, 2021

10.29

 

Pledge and Security Agreement, dated December 18, 2020, among Bonne Sante Natural Manufacturing, Inc., Smart for Life, Inc., Trilogy Capital Group LLC, Mesa Lane LLC, Darren Minton, Alfonso J. Cervantes and Peah Capital, LLC

10.30

 

Corporate Guaranty, dated December 18, 2020, between Smart for Life, Inc. and Peah Capital, LLC

10.31

 

Corporate Guaranty, dated December 18, 2020, between Bonne Sante Natural Manufacturing, Inc. and Peah Capital, LLC

10.32

 

Future Equity Agreement, dated December 18, 2020, between Smart for Life, Inc. and Peah Capital, LLC

10.33

 

Lease, dated February 3, 2012, between O & B Properties, Inc. and Bonne Sante Natural Manufacturing, Inc., as amended

10.34

 

Business Lease, dated November 20, 2015, between Aqua USA Property Management LLC and Bonne Sante Natural Manufacturing, Inc.

10.35

 

Lease, dated September 1, 2018, between Scientific Real Estate Holdings LLC and Doctors Scientific Organica, LLC

10.36

 

Memorandum of Agreement of Lease, dated September 30, 2021, between The Linger Corporation and Smart for Life Canada Inc.

10.37*

 

Agreement, dated January 1, 2020, between ABG-SI, LLC and GSP Nutrition Inc., as amended

10.38†

 

Employment Agreement, dated July 1, 2020, between Smart for Life, Inc. and Alfonso J. Cervantes

10.39†

 

Employment Agreement, dated November 15, 2020, between Smart for Life, Inc. and Ryan Zackon

10.40†

 

Employment Agreement, dated July 1, 2020, between Smart for Life, Inc. and Darren C. Minton

10.41*

 

Form of Independent Director Agreement between Smart for Life, Inc. and each independent director

10.42*

 

Form of Indemnification Agreement between Smart for Life, Inc. and each independent director

10.43†

 

2020 Stock Incentive Plan

10.44†

 

Form of Stock Option Agreement for 2020 Stock Incentive Plan

10.45†

 

Form of Restricted Stock Award Agreement for 2020 Stock Incentive Plan

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Exhibit No.

 

Description

21.1

 

Subsidiaries of Smart for Life, Inc.

23.1

 

Consent of Daszkal Bolton LLP for Smart for Life, Inc.

23.2

 

Consent of Daszkal Bolton LLP for Doctors Scientific Organica, LLC

23.3

 

Consent of Daszkal Bolton LLP for Nexus Offers, Inc.

23.4*

 

Consent of Bevilacqua PLLC (included in Exhibit 5.1)

24.1

 

Power of Attorney (included on the signature page of this registration statement)

99.1

 

Consent of Richard M. Cohen (director nominee)

99.2

 

Consent of Robert S. Rein, Esq. (director nominee)

99.3

 

Consent of Roger Conley Wood (director nominee)

99.4*

 

Audit Committee Charter

99.5*

 

Compensation Committee Charter

99.6*

 

Nominating and Corporate Governance Committee Charter

____________

*        To be filed by amendment

†        Executive compensation plan or arrangement

(b) Financial Statement Schedules.

All financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or in the notes thereto.

Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1)    For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)    For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on December 16, 2021.

 

SMART FOR LIFE, INC.

   

By:

 

/s/ Ryan F. Zackon

       

Ryan F. Zackon

Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints each of Ryan F. Zackon and Alan B. Bergman as his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and to file a new registration statement under Rule 461, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

SIGNATURE

 

TITLE

 

DATE

/s/ Ryan F. Zackon

 

Chief Executive Officer and Director

 

December 16, 2021

Ryan F. Zackon

 

(principal executive officer)

   

/s/ Alan B. Bergman

 

Chief Financial Officer

 

December 16, 2021

Alan B. Bergman

 

(principal financial and accounting officer)

   

/s/ Alfonso J. Cervantes, Jr.

 

Executive Chairman of the Board

 

December 16, 2021

Alfonso J. Cervantes, Jr.

       

/s/ Darren C. Minton

 

President and Director

 

December 16, 2021

Darren C. Minton

       

/s/ Ronald S. Altbach

 

Director

 

December 16, 2021

Ronald S. Altbach

       

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Exhibit 3.1

 

  State of Delaware
  Secretary of State
  Division of Corporations
  Delivered 04:13 PM 02/07/2017
  FILED 04:13 PM 02/07/2017
  SR 20170715509 – File Number 6309637

 

CERTIFICATE OF INCORPORATION

 

OF

 

BONNE SANTÉ GROUP, INC.

 

THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows:

 

1. Name. The name of the Corporation is Bonne Santé Group, Inc. (hereinafter, the “Corporation”).

 

2. Registered Office and Agent. The address of the Corporation’s registered office in the State of Delaware is 16192 Coastal Highway, Lewes, Delaware 19958, County is Sussex. The name of its registered agent at such address is Harvard Business Services, Inc.

 

3. Purpose. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).

 

4. Authorized Capital.

 

4.1. Authorized Shares. The total number of shares of capital stock which the Corporation shall have authority to issue is one hundred million (100,000,000) shares of common stock, $0.0001 par value per share (the “Common Stock”), and ten million (10,000,000) shares of preferred stock, $0.0001 par value per share (the “Preferred Stock”).

 

4.2. Common Stock. Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designations 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 with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or pursuant to the DGCL.

 

4.3. Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the Board of Directors of the Corporation or, to the extent permitted by the DGCL, any committee thereof established by resolution of the Board of Directors pursuant to the Bylaws prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware.

 

 

 

 

5. Amendment of Bylaws. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the Bylaws of the Corporation.

 

6. Elections of Directors. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

 

7. Compromise or Arrangement. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under §291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under§279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

 

8. Liability. No director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of his duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derives an improper personal benefit. If the DGCL is amended after the date this Certificate of Incorporation becomes effective 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 Section 8 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.

 

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9. Indemnification. 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 the 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 affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.

 

10. Business Combinations with Interested Stockholders. The Corporation elects not to be governed by the terms and provisions of Section 203 of the DGCL, as the same may be amended, superseded, or replaced by a successor section, statute, or provision. No amendment to this Certificate of Incorporation, directly or indirectly, by merger or consolidation or otherwise, having the effect of amending or repealing any of the provisions of this Section shall apply to or have any effect on any transaction with an interested stockholder occurring prior to such amendment or repeal.

 

11. Incorporator. The name and mailing address of the sole Incorporator of the Corporation is Andrea Schroepfer, c/o Bevilacqua PLLC, 1629 K Street, NW, Suite 300, Washington, DC 20006.

 

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IN WITNESS WHEREOF, the undersigned, being the sole Incorporator hereinabove named, does hereby certify that the facts hereinabove stated are truly set forth and, accordingly, hereby executes this Certificate of Incorporation this 3rd day of February, 2017.

 

  By: /s/ Andrea Schroepfer
    Andrea Schroepfer, Sole Incorporator

 

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CERTIFICATE OF AMEDMENT

OF

CERTIFICATE OF INCORPORATION

OF

BONNE SANTÉ GROUP, INC.

 

(Pursuant to Section 242 of the

General Corporation Law of the State of Delaware)

 

Bonne Santé Group, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify:

 

1. This Certificate of Amendment of the Corporation’s Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation in accordance with Section 242(b)(1) of the DGCL, which provides that no meeting or vote of the stockholders shall be required to adopt an amendment to the certificate of incorporation that only effects changes of a corporation’s name.

 

2. The Certificate of Incorporation of the Corporation is hereby amended to reflect a change in the name of the Corporation by amending and restating Section 1 in its entirety as follows:

 

“1. Name. The name of the Corporation is Smart for Life, Inc. (the “Corporation”).”

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of Certificate of Incorporation to be executed this 4th day of August, 2021.

 

  By: /s/ Ryan F. Zackon
  Name:  Ryan F. Zackon
  Title: Chief Executive Officer

 

State of Delaware  
Secretary of State  
Division of Corporations  
Delivered 03:07 PM 08/04/2021  
FILED 03:07PM 08/04/2021  
SR 20212890358 - File Number 6309637  

 

 

 

 

Exhibit 3.2

 

State of Delaware

Secretary of State

Division of Corporations

Delivered 02:59 PM 06/29/2021

FILED 02:59 PM 06/29/2021

SR 20212582009 – File Number 6309637

 

BONNE SANTÉ GROUP, INC.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

 

PURSUANT TO SECTION 151 OF THE

DELAWARE GENERAL CORPORATION LAW

 

The undersigned duly authorized officer of Bonne Santé Group, Inc., a Delaware corporation (the “Corporation”), in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware (the “General Corporation Law”), hereby certifies that, pursuant to the authority conferred upon the board of directors of the Corporation (the “Board of Directors”) by the Certificate of Incorporation of the Corporation (as such may be amended, modified or restated from time to time, the “Certificate of Incorporation”), the Board of Directors on June 29, 2021 adopted a resolution which creates a series of preferred stock of the Corporation designated as Series A Convertible Preferred Stock as follows:

 

WHEREAS, the certificate of incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of ten million (10,000,000) shares, $0.0001 par value per share, issuable from time to time in one or more series;

 

WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and

  

 

 

 

WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of up to 8,000 shares of the preferred stock which the Corporation has the authority to issue, as follows:

 

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:

 

TERMS OF PREFERRED STOCK

 

Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.

 

“Alternate Consideration” shall have the meaning set forth in Section 7(e).

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d).

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Buy-In” shall have the meaning set forth in Section 6(c)(iv).

 

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of conversion or exercise of Preferred Stock and the Securities issued together with the Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of its (and all of its Subsidiaries, taken as a whole) assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

“Commission” means the United States Securities and Exchange Commission.

 

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“Common Stock” means the Corporation’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Conversion Amount” means the sum of the Stated Value at issue.

 

“Conversion Date” shall have the meaning set forth in Section 6(a).

 

“Conversion Price” shall have the meaning set forth in Section 6(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.

 

“Effective Date” means the date that the Registration Statement filed by the Corporation pursuant to the Registration Rights Agreement is first declared effective by the Commission.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Fundamental Transaction” shall have the meaning set forth in Section 7(e).

 

“GAAP” means United States generally accepted accounting principles.

 

“Holder” shall have the meaning given such term in Section 2.

 

“IPO” means the initial public offering of the Corporation.

 

“IPO Date” means the date that the Registration Statement and the registration statement registering the shares to be issued in the IPO is declared effective by the Commission or such other date as the Registration Statement is effective such that the Underlying Shares may be freely transferred and the Company’s Common Stock is listed on a Trading Market.

 

“Liquidation” shall have the meaning set forth in Section 5.

 

“New York Courts” shall have the meaning set forth in Section 11(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 6(a).

 

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“Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock pursuant to the Purchase Agreement regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Preferred Stock” shall have the meaning set forth in Section 2.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of June __, 2021, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Corporation and the original Holders, in the form of Exhibit B attached to the Purchase Agreement.

 

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Securities” means the Preferred Stock, the Warrants and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 6(c).

 

“Stated Value” shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3.

 

“Subsidiary” means any subsidiary of the Corporation and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement.

 

“Successor Entity” shall have the meaning set forth in Section 7(e).

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

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“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).

 

“Transaction Documents” means this Certificate of Designation, the Purchase Agreement, the Registration Rights Agreement, the Warrants, the Lock-Up Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.

 

“Transfer Agent” means the current transfer agent of the Corporation, and any successor transfer agent of the Corporation.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock and upon exercise of the Warrants.

 

Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as its Series A Convertible Preferred Stock (the “Preferred Stock”) and the number of shares so designated shall be up to 8,000 (which shall not be subject to increase without the written consent of all of the holders of the Preferred Stock (each, a “Holder” and collectively, the “Holders”)). Each share of Preferred Stock shall have a par value of $0.0001 per share and a stated value equal to $1,000, subject to increase set forth in Section 3 below (the “Stated Value”).

 

Section 3. Dividends.

 

a) Dividends in Cash. Holders shall be entitled to receive, and the Corporation shall accrete to Stated Value cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 7.5% per annum, increasing to 15% per annum after November 23, 2021 and 24% per annum after December 31, 2021; provided, however, following the IPO Date no dividend shall accrue on the Preferred Stock thereafter.

 

b) Dividend Calculations. Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends.

 

c) Late Fees. Any dividends, whether paid in cash or shares of Common Stock, that are not paid within three Trading Days following a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 15% per annum or the lesser rate permitted by applicable law which shall accrue daily from the Dividend Payment Date through and including the date of actual payment in full.

 

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Section 4. Voting Rights. Until the IPO Date, the Preferred Stock shall have the same voting rights as the holders of Common Stock (on an as-if-converted-to-Common-Stock-basis). On and after the IPO Date, the Preferred Stock shall have no voting rights except as set forth below. As long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or, after the IPO Date, alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) prior to the IPO Date, increase the number of authorized shares of Common Stock or Preferred Stock, (e) prior to the IPO Date, repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents, (f) prior to the IPO Date, repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Corporation, (g) prior to the IPO Date, pay cash dividends or distributions on equity securities of the Corporation, (h) prior to the IPO Date, enter into any Change of Control Transaction or (i) either prior to the IPO Date or after the IPO Date, as applicable given the reference in the applicable clause of this Section 4 above, enter into any agreement with respect to any of the foregoing.

 

Section 5. Liquidation. Prior to the IPO Date, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the greater of (a) 150% of the Stated Value, plus any accrued and unpaid dividends thereon, for each share of Preferred Stock, and (b) the amount that could otherwise be received by a Holder for the Conversion Shares issuable upon conversion of the Preferred Stock in full (ignoring for such purposes any conversion limitations hereunder) before any distribution or payment shall be made to the holders of the Common Stock, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder. A Change of Control Transaction shall be deemed a Liquidation hereunder. Following the IPO Date, upon any Liquidation, the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock.

 

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Section 6. Conversion.

 

a) Conversions at Option of Holder. Each share of Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock (plus any accrued but unpaid dividends thereon) by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile or email attachment such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.

 

b) Conversion Price. The conversion price for the Preferred Stock shall equal $0.6667, subject to adjustment herein (the “Conversion Price”); provided, however, if the pre-money valuation of the Corporation on the IPO Date is less than $75,000,000, the Conversion Price shall be reduced, and only reduced, to equal the product of (i) the then Conversion Price and (ii) the quotient obtained by dividing (A) the pre-money valuation of the Corporation on the IPO Date and (B) $75,000,000.

 

c) Mechanics of Conversion

 

i. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder Conversion Shares which, on or after the earlier of (i) the one-year anniversary of the IPO Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of the Preferred Stock. On or after the earlier of (i) the one-year anniversary of the IPO Date or (ii) the Effective Date, the Corporation shall use its best efforts to deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Corporation’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

ii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion.

 

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iii. Obligation Absolute; Partial Liquidated Damages. The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of Stated Value of Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading Day after such damages begin to accrue) for each Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.

 

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v. Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding anything to the contrary contained herein, but consistent with the provisions of this subsection with respect to fractional Conversion Shares, nothing shall prevent any Holder from converting fractional shares of Preferred Stock.

 

vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d) Beneficial Ownership Limitation. The Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request (which may be via email) of a Holder, the Corporation shall within one Trading Day confirm orally and in writing to such 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 Corporation, including the Preferred Stock, by such Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% (or, upon election by a Holder prior to the issuance of any shares of Preferred Stock, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the applicable Holder. A Holder, upon notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other 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 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Preferred Stock.

 

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Section 7. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Preferred Stock is outstanding and prior to the IPO Date, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock (such issuances, collectively, a “Dilutive Issuance”) at a price per share of Common Stock using a pre-money valuation of the Corporation equal to the lesser of (i) $9,000,000 and (ii) the last pre-money valuation used by the Corporation in connection with a Dilutive Issuance (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that uses a lower valuation, such issuance shall be deemed to have occurred at such lower valuation) (the pre-money valuation used in respect of such Dilutive Issuance, “Dilutive Issuance Valuation”), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance, the Conversion Price shall be reduced to equal the product of (i) the then Conversion Price and (ii) the quotient obtained by dividing (A) the Dilutive Issuance Valuation as to such Dilutive Issuance and (B) the lower of $9,000,000 and the immediately prior Dilutive Issuance Valuation. The adjustment provided for in this Section 7(b) shall not apply to an Exempt Issuance (as defined in the Purchase Agreement).

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents 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 of 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 conversion of such Holder’s Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to 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 Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share 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 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d)) on the conversion of this Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 7(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Preferred Stock, deliver to the Holder in exchange for this Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein.

 

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f)   Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

 

g) Notice to the Holders.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, then, if the Corporation is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 8. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered in accordance with the notice provisions of the Purchase Agreement. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered to the Holder as provided in the Purchase Agreement.

 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages and accrued dividends, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

 

c) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to the principles of conflict of laws thereof. All legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). The Corporation and each Holder hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. The Corporation and each Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding 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 Certificate of Designation 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 applicable law. The Corporation and each Holder hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designation or the transactions contemplated hereby. If the Corporation or any Holder shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

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e) Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.

 

f) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

 

i) Status of Converted or Redeemed Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series A Preferred Stock.

 

*********************

 

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RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.

 

IN WITNESS WHEREOF, the undersigned have executed this Certificate this 29th day of June 2021.

 

/s/ Alfonso J. Cervantes   /s/ Darren Minton
Name: Alfonso J. Cervantes   Darren Minton
Title: Chairman and Secretary   President

 

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ANNEX A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert Shares of Preferred Stock)

 

The undersigned hereby elects to convert the number of shares of Series A Convertible Preferred Stock indicated below into shares of common stock, par value $0.0001 per share (the “Common Stock”), of Bonne Santé Group, Inc., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.

 

Conversion calculations:

 

Date to Effect Conversion: _____________________________________________

 

Number of shares of Preferred Stock owned prior to Conversion: ________________

 

Number of shares of Preferred Stock to be Converted: ________________________

 

Stated Value of shares of Preferred Stock to be Converted: _____________________

 

Number of shares of Common Stock to be Issued: ___________________________

 

Applicable Conversion Price:___________________________________________

 

Number of shares of Preferred Stock subsequent to Conversion: ________________

 

Address for Delivery: ______________________

or

 

DWAC Instructions:

 

Broker no: _________

 

Account no: ___________

 

  [HOLDER]
   
  By:  
    Name:
    Title:

 

 

18

 

Exhibit 3.4

 

 

 

 

 

 

 

 

  

BYLAWS

OF

BONNE SANTÉ GROUP, INC.

 

(A DELAWARE CORPORATION)

 

 

 

 

 

 

 

 

 

 

 

 

 

BYLAWS
OF
BONNE SANTÉ GROUP, INC.

(the “Corporation”)

 

Adopted on February 7, 2017

 

 

 

Article I
Offices

 

1.1 Registered Office. The registered office of the Corporation in the State of Delaware shall be as set forth in the Certificate of Incorporation of the Corporation, as amended from time to time (the “Certificate of Incorporation”).

 

1.2 Other Offices. The Corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

 

Article II

Stockholders’ Meetings

 

2.1 Place of Meetings. Meetings of the stockholders of the Corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the General Corporation Law of the State of Delaware (“DGCL”).

 

2.2 Annual Meeting.

 

(a) The annual meeting of the stockholders of the Corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the Corporation’s notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section.

 

   

 

 

(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Section, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, (ii) such other business must be a proper matter for stockholder action under the DGCL, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice (as defined in this Section 2.2(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”) and Rule 14a-4(d) thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a “Solicitation Notice”).

 

(c) Notwithstanding anything in the second sentence of paragraph (b) of this Section to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

 

(d) Only such persons who are nominated in accordance with the procedures set forth in this Section shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.

 

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(e) Notwithstanding the foregoing provisions of this Section, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders’ meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.

 

(f) For purposes of this Section, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13, 14 or 15(d) of the 1934 Act.

 

2.3 Special Meetings.

 

(a) Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors (the “Chairman”) or the Executive Chairman of the Board of Directors (the “Executive Chairman”), whichever position is filled at the time, (ii), the Executive Vice-Chairman, (iii) the Chief Executive Officer, (iv) the President, (v) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (vi) by the holders of shares entitled to cast not less than 50% of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors shall fix.

 

(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, or by telegraphic or other facsimile transmission to the Chairman or Executive Chairman, the Executive Vice-Chairman, the Chief Executive Officer, or the Secretary of the Corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 2.4 of these Bylaws. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.

 

2.4 Notice of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

 

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2.5 Quorum and Voting. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Except as otherwise provided by statute, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.

 

2.6 Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

2.7 Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the Corporation on the record date, as provided in Section 2.9, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.

 

2.8 Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in Section 217(b) of the DGCL. If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.

 

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2.9 List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.

 

2.10 Organization.

 

(a) At every meeting of stockholders, the Chairman or Executive Chairman, or, if a Chairman or Executive Chairman has not been appointed or is absent, the Executive Vice-Chairman, or, if an Executive Vice-Chairman has not been appointed or is absent, the Chief Executive Officer, or, if the Chief Executive Officer is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the Chief Executive Officer, shall act as secretary of the meeting.

 

(b) The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

 

2.11 Action Without Meeting.

 

(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

 

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(b) Every written consent or electronic transmission shall bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.

 

(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the Corporation as provided in Section 228(c) of the DGCL. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.

 

(d) A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this Section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its registered office in the state of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the board of directors of the Corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

 

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Article III
Directors

 

3.1 Number and Term of Office. The authorized number of directors of the Corporation shall be fixed by the Board of Directors from time to time. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient.

 

3.2 Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.

 

3.3 Election and Term of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders in the manner set forth in Section 2.5 to serve until the next annual meeting of stockholders and his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

3.4 Vacancies. Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.

 

3.5 Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.

 

3.6 Removal. Subject to any limitations imposed by applicable law, the Board of Directors or any director may be removed from office at any time with or without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the Corporation entitled to elect such director.

 

3.7 Meetings

 

(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, including a voice-messaging system or other system designated to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for a regular meeting of the Board of Directors.

 

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(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman or Executive Chairman, the Executive Vice-Chairman, the Chief Executive Officer, the President or any director.

 

(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

 

(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, postage prepaid at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

 

(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.

 

3.8 Quorum and Voting. Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with these Bylaws; provided, however, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.

 

3.9 Organization. At every meeting of the directors, the Chairman or Executive Chairman, or, if a Chairman or Executive Chairman has not been appointed or is absent, the Executive Vice-Chairman, or, if an Executive Vice-Chairman has not been appointed or is absent, the Chief Executive Officer, or if the Chief Executive Officer is absent, the most senior executive officer, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the Chief Executive Officer, shall act as secretary of the meeting.

 

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3.10 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

3.11 Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.

 

3.12 Committees.

 

(a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the Corporation.

 

(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.

 

(c) Committee Composition. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of paragraphs (a) or (b) of this Section may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

 

(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

 

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Article IV
Officers

 

4.1 Officers Designated. As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a Chief Executive Officer and a Secretary. The Board may also elect a President, one or more Vice Presidents, one or more Assistant Vice Presidents, a Chief Financial Officer, a Treasurer, one or more Assistant Treasurers, or one or more Assistant Secretaries, and such other officers as may be appointed in accordance with the provisions of Section 4.2. Any number of offices may be held by the same person. The Board may also elect or appoint an Executive Chairman and Executive Vice-Chairman from among its directors to serve as an officer of the Corporation. If no Executive Chairman is elected or appointed, the Board shall elect or appoint from among the directors a person to act as Chairman who shall not be deemed to be an officer of the Corporation unless he or she has otherwise been elected or appointed as such.

 

4.2 Subordinate Officers. The Board of Directors may appoint, or may empower the Executive Chairman, the Chief Executive Officer or the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board of Directors or such delegate may from time to time determine.

 

4.3 Term of Office. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

 

4.4 Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the Board of Directors or to the Chief Executive Officer or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the Corporation under any contract with the resigning officer.

 

4.5 Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written or electronic consent of the directors in office at the time, or by any committee or superior officers.

 

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4.6 Duties of Officers.

 

(a) Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

 

(b) Executive Chairman. The Executive Chairman, if one shall have been elected or appointed, shall exercise such powers and perform such duties as shall be determined from time to time by resolution of the Board, including, but not limited to, sharing with the Chief Executive Officer responsibility for strategic planning, collaborating with the Chief Executive Officer on major initiatives, assisting the Chief Executive Officer and other senior officers in matters relating to communications and relationships with the Corporation’s constituents, and generally serving as a resource for the Chief Executive Officer. The Executive Chairman shall also have the power to sign certificates for shares of stock of the Corporation and affix the signature of the Corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Executive Chairman, should be executed on behalf of the Corporation.

 

(c) Executive Vice-Chairman. The Executive Vice-Chairman, if one shall have been elected or appointed, shall assist the Chairman or Executive Chairman in performing his or her duties and responsibilities. In particular, the Executive Vice-Chairman shall have an important role in monitoring the implementation of the Company’s strategies. During the period when the Chairman or Executive Chairman is absent and the normal functions of the Chairman or Executive Chairman cannot be carried out, the Executive Vice-Chairman will take the role as the acting Chairman or Executive Chairman until the Chairman or Executive Chairman resumes carrying out his or her normal duties or a new Chairman or Executive Chairman has been elected and appointed by the Board. The Executive Vice-Chairman shall also have the power to sign certificates for shares of stock of the Corporation and affix the signature of the Corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Executive Vice-Chairman, should be executed on behalf of the Corporation.

 

(d) Chief Executive Officer. The powers and duties of the Chief Executive Officer are: (a) to act as the general manager and chief executive officer of the Corporation and, subject to the direction of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation; (b) to preside at all meetings of the stockholders and the Board of Directors in the absence of the Chairman or Executive Chairman and the Executive Vice-Chairman, or if there is no Chairman, Executive Chairman, or Executive Vice-Chairman; (c) to call meetings of the stockholders and meetings of the Board of Directors to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and (d) to affix the signature of the Corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation, to sign certificates for shares of stock of the Corporation, and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.

 

(e) President. The powers and duties of the President are: (a) subject to the authority granted to the Chief Executive Officer, if any, to act as the general manager of the Corporation and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation; (b) to preside at all meetings of the stockholders and Board of Directors in the absence of the Chairman or Executive Chairman, the Executive Vice-Chairman and the Chief Executive Officer or if there be no Chairman, Executive Chairman, Executive Vice-Chairman, or Chief Executive Officer; and (c) to affix the signature of the Corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the President, should be executed on behalf of the Corporation, to sign certificates for shares of stock of the Corporation, and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

 

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(f) Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

 

(g) Chief Financial Officer. The powers and duties of the Chief Financial Officer are: (a) to supervise and control the keeping and maintaining of adequate and correct accounts of the Corporation’s properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares; (b) to have the custody of all funds, securities, evidences of indebtedness and other valuable documents of the Corporation and, at his or her discretion, to cause any or all thereof to be deposited for the account of the Corporation with such depository as may be designated from time to time by the Board of Directors; (c) to receive or cause to be received, and to give or cause to be given, receipts and acquittances for moneys paid in for the account of the Corporation; (d) to disburse, or cause to be disbursed, all funds of the Corporation as may be directed by the Chief Executive Officer, the President or the Board of Directors, taking proper vouchers for such disbursements; (e)  to render to the Chief Executive Officer, the President or to the Board of Directors, whenever either may require, accounts of all transactions as Chief Financial Officer and of the financial condition of the Corporation; and (f)  generally to do and perform all such duties as pertain to such office and as may be required by the Board of Directors or these Bylaws. The Chief Executive Officer may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time.

 

(h) Secretary. The powers and duties of the Secretary are: (a) to keep a book of minutes at the principal executive office of the Corporation, or such other place as the Board of Directors may order, of all meetings of its directors and stockholders, whether regular or special, the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at stockholders’ meetings and the proceedings thereof; (b) to keep the seal of the Corporation and to affix the same to all instruments which may require it; (c) to keep or cause to be kept at the principal executive office of the Corporation, or at the office of the transfer agent or agents, a record of the stockholders of the Corporation; (d) to keep a supply of certificates for shares of the Corporation, to fill in and sign all certificates issued or prepare the initial transaction statement or written statements for uncertificated shares, and to make a proper record of each such issuance, provided that so long as the Corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the Corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents; (e) to transfer upon the share books of the Corporation any and all shares of the Corporation, provided that so long as the Corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the Corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents; and (f) to make service and publication of all notices that may be necessary or proper and without command or direction from anyone. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The Chief Executive Officer may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time.

 

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4.7 Divisional and Other Officers. The Executive Chairman and the Chief Executive Officer shall have the power, in the exercise of his or her discretion, to appoint additional persons to hold positions and titles such as vice president of a division of the Corporation or president of a division of the Corporation, or similar such titles, as the business of the Corporation may require, subject to such limits in appointment power as the Board of Directors may determine. The Board of Directors shall be advised of any such appointment at a meeting of the Board of Directors, and the appointment shall be noted in the minutes of the meeting. The minutes shall clearly state that such persons are non-corporate officers appointed pursuant to this Section. Each such appointee shall have such title, shall serve in such capacity and shall have such authority and perform such duties as the Executive Chairman or Chief Executive Officer shall determine. Appointees may hold titles such as “president” of a division or other group within the Corporation, or “vice president” of a division or other group within the Corporation. However, any such appointee, absent specific election by the Board of Directors as an elected corporate officer, (a) shall not be considered an officer elected by the Board of Directors pursuant to this Article IV and shall not have the executive powers or authority of corporate officers elected pursuant to this Article IV and (b) shall be empowered to represent himself or herself to third parties as a divisional or group vice president or other title permitted, as applicable, only, and shall be empowered to execute documents, bind the Corporation or otherwise act on behalf of the Corporation only as authorized by the Executive Chairman or Chief Executive Officer or by resolution of the Board of Directors.

 

4.8 Salaries. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors or any committee of the Board, if so authorized by the Board.

 

4.9 Employment and Other Contracts. The Board of Directors may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the name or on behalf of the Corporation, and such authority may be general or confined to specific instances. The Board of Directors may, when it believes the interest of the Corporation will best be served thereby, authorize executive employment contracts which will contain such terms and conditions as the Board of Directors deems appropriate.

 

Article V
Shares Of Stock

 

5.1 Form and Execution of Certificates. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman or the Executive Chairman, the Executive Vice-Chairman, or the Chief Executive Officer, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

 

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5.2 Lost, Stolen or Destroyed Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The Corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the Corporation in such manner as it shall require or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

 

5.3 Restrictions on Transfer. The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the sale, transfer, assignment, pledge, or other disposal of or encumbering of any of the shares of stock of the Corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise (each, a “Transfer”) of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL. Transfers of record of shares of stock of the Corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

 

5.4 Right of First Refusal. No stockholder shall Transfer any of the shares of stock of the Corporation, except by a Transfer which meets the requirements set forth below:

 

(a) If a stockholder desires to sell or otherwise Transfer any of his shares of stock, then the stockholder shall first give written notice thereof to the Corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed Transfer.

 

(b) For thirty (30) days following receipt of such notice, the Corporation shall have the option to purchase of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the Corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other Transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the Corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d) of this Section.

 

(c) The Corporation may assign its rights hereunder.

 

(d) In the event the Corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholder’s notice, the Secretary of the Corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the Corporation receives said transferring stockholder’s notice; provided that if the terms of payment set forth in said transferring stockholder’s notice were other than cash against delivery, the Corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholder’s notice.

 

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(e) In the event the Corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholder’s notice, said transferring stockholder may, subject to the Corporation’s approval and all other restrictions on Transfer located in Section 5.3 of these Bylaws, within the sixty-day period following the expiration or waiver of the option rights granted to the Corporation and/or its assignees(s) herein, Transfer the shares specified in said transferring stockholder’s notice which were not acquired by the Corporation and/or its assignees(s) as specified in said transferring stockholder’s notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said Transfer.

 

(f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the right of first refusal in paragraph (a) of this Section:

 

(i) A stockholder’s Transfer of any or all shares held either during such stockholder’s lifetime or on death by will or intestacy to such stockholder’s immediate family or to any custodian or trustee for the account of such stockholder or such stockholder’s immediate family or to any limited partnership of which the stockholder, members of such stockholder’s immediate family or any trust for the account of such stockholder or such stockholder’s immediate family will be the general or limited partner(s) of such partnership. “Immediate family” as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such Transfer;

 

(ii) A stockholder’s bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent Transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw;

 

(iii) A stockholder’s Transfer of any or all of such stockholder’s shares to the Corporation or to any other stockholder of the Corporation;

 

(iv) A stockholder’s Transfer of any or all of such stockholder’s shares to a person who, at the time of such Transfer, is an officer or director of the Corporation;

 

(v) A corporate stockholder’s Transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder;

 

(vi) A corporate stockholder’s Transfer of any or all of its shares to any or all of its stockholders; or

 

(vii) A Transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners in accordance with partnership interests.

 

In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this Section and the transfer restrictions in Section 5.3, and there shall be no further Transfer of such stock except in accord with this Section and the transfer restrictions in Section 5.3.

 

(g) The provisions of this bylaw may be waived with respect to any Transfer either by the Corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the Corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the Corporation.

 

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(h) Any Transfer, or purported Transfer, of securities of the Corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed.

 

(i) The foregoing right of first refusal shall terminate upon the date securities of the Corporation are first offered to the public pursuant to a registration statement or offering statement filed with, and declared effective or qualified by, as applicable, the SEC under the Securities Act of 1933, as amended.

 

(j) The certificates representing shares of stock of the Corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.”  

 

(k) To the extent this Section conflicts with any written agreements between the Company and the stockholder attempting to Transfer shares, such agreement shall control.

 

5.5 Fixing Record Dates.

 

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

 

(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

 

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(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

5.6 Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

Article VI

indemnification

 

6.1 Directors and Executive Officers. The Corporation shall indemnify its directors and executive officers (for the purposes of this Article, “executive officers” shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the Corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the Corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under Section 6.4.

 

6.2 Other Officers, Employees and Other Agents. The Corporation shall have power to indemnify its other officers, employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine.

 

6.3 Expenses. The Corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer of the Corporation, or is or was serving at the request of the Corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding, provided, however, that, if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to Section 6.5, no advance shall be made by the Corporation to an executive officer of the Corporation (except by reason of the fact that such executive officer is or was a director of the Corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation.

 

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6.4 Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Article VI shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Corporation and the director or executive officer. Any right to indemnification or advances granted by this Article VI to a director or executive officer or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the Corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the Corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the Corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the Corporation) for advances, the Corporation shall be entitled to raise as a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.

 

6.5 Non-Exclusivity of Rights. The rights conferred on any person by this Article VI shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The Corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL or any other applicable law.

 

6.6 Survival of Rights. The rights conferred on any person by this Article VI shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

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6.7 Insurance. To the fullest extent permitted by the DGCL, or any other applicable law, the Corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Article VI.

 

6.8 Amendments. Any repeal or modification of this Article VI shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Corporation.

 

6.9 Saving Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law. If this Article VI shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the Corporation shall indemnify each director and executive officer to the full extent under applicable law.

 

6.10 Certain Definitions. For the purposes of this Article VI, the following definitions shall apply:

 

(a) The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

 

(b) The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

 

(c) The term the “Corporation” shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving Corporation as he would have with respect to such constituent corporation if its separate existence had continued.

 

(d) References to a “director,” “executive officer,” “officer,” “employee,” or “agent” of the Corporation shall include, without limitation, situations where such person is serving at the request of the Corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.

 

(e) References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article.

 

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Article VII
Notices

 

7.1 Notice to Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 2.4 of these Bylaws. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.

 

7.2 Notice to Directors. Any notice required to be given to any director may be given by the method stated in Section 7.1, or as provided for in Section 3.7 of these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.

 

7.3 Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.

 

7.4 Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

 

7.5 Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or these Bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

 

7.6 Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or these Bylaws, shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the Corporation within sixty (60) days of having been given notice by the Corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the Corporation.

 

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Article VIII
GENErAL

 

8.1 Loans to Officers. Except as otherwise prohibited under applicable law, the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.

 

8.2 Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation any corporate instrument or document, or to sign on behalf of the Corporation the corporate name without limitation, or to enter into contracts on behalf of the Corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation or in special accounts of the Corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

 

8.3 Execution of Other Securities. All bonds, debentures and other corporate securities of the Corporation, other than stock certificates (covered in Section 5.1 of these Bylaws), may be signed by the Chairman or Executive Chairman, the Executive Vice-Chairman, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.

 

8.4 Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman or Executive Chairman, the Executive Vice-Chairman, the Chief Executive Officer, the President, or any Vice President.

 

8.5 Declaration of Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.

 

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8.6 Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

 

8.7 Corporate Seal. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the Corporation and the inscription, “Corporate Seal-Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

 

8.8 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.

 

8.9 Interpretation and Construction. Reference in these Bylaws to any provision of the DGCL shall be deemed to include all amendments thereof. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of the provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person. All restrictions, limitations, requirements and other provisions of these Bylaws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal. Any article, section, subsection, subdivision, sentence, clause or phrase of these Bylaws which, upon being construed in the manner provided in this Section 8.9, shall be contrary to or inconsistent with any applicable provision of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these Bylaws, it being hereby declared that these Bylaws, and each article, section, subsection, subdivision, sentence, clause, or phrase thereof, would have been adopted irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal.

 

Article IX
ADOPTION, AMENDMENT OR REPEAL OF BYLAWS

 

9.1 By the Board of Directors. The Board of Directors is expressly empowered to adopt, amend or repeal bylaws of the Corporation.

 

9.2 By the Stockholders. The stockholders shall also have power to adopt, amend or repeal 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 the Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

 

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CERTIFICATE OF ADOPTION OF BYLAWS

 

OF

 

BONNE SANTÉ GROUP, INC.

 

The undersigned hereby certifies that he is the duly elected, qualified and acting Secretary of Big Cheese, Inc., a Delaware corporation (the “Corporation”), and that the foregoing Bylaws were adopted as the Corporation’s bylaws as of the date hereof by the Corporation’s Board of Directors.

 

The undersigned has executed this Certificate as of February 7, 2017.

 

 

/s/ Alfonso J. Cervantes

  Alfonso J. Cervantes
  Secretary

 

 

 

 

 

Exhibit 4.4

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

SMART FOR LIFE, INC.

 

Warrant Shares: 187,491 Initial Issuance Date: August 18, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ANSON EAST MASTER FUND LP or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Smart for Life, Inc. (formerly, Bonne Santé Group, Inc.) a Delaware corporation (the “Company”), up to 187,491 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

 

 

 

b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

  (A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding,(i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

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Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

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NOTICE OF EXERCISE

 

TO: SMART FOR LIFE, INC.

 

(1) The undersigned hereby elects to purchase                   Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

[  ] in lawful money of the United States; or

 

[  ] [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

     
     
     

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:                                           
Signature of Authorized Signatory of Investing Entity:  
Name of Authorized Signatory:  
Title of Authorized Signatory:  
Date:  

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:    
    (Please Print)
Address:    

Phone Number:

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Email Address:    

 

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Exhibit 4.5

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

SMART FOR LIFE, INC.

 

Warrant Shares: 562,472 Initial Issuance Date: August 18, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ANSON INVESTMENTS MASTER FUND LP or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Smart for Life, Inc. (formerly, Bonne Santé Group, Inc.) a Delaware corporation (the “Company”), up to 562,472 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

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Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial

 

Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

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(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

 

 

 

NOTICE OF EXERCISE

 

TO: SMART FOR LIFE, INC.

 

(1) The undersigned hereby elects to purchase                 Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below: 

   

 

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

   

   

   

  

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:  

 

Signature of Authorized Signatory of Investing Entity:  

 

Name of Authorized Signatory:  

 

Title of Authorized Signatory:  

 

Date:  

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:
  (Please Print)
Address:  

(Please Print)
   

Phone Number:

 

 
Email Address:  

 

 Dated:                               ,                       

 
     
Holder’s Signature:  
     
Holder’s Address:  

 

 

 

 

 

Exhibit 4.6

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

SMART FOR LIFE, INC.

 

Warrant Shares: 749,963   Initial Issuance Date: August 18, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, DISTRICT 2 CAPITAL FUND LP or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Smart for Life, Inc. (formerly Bonne Santé Group, Inc.) a Delaware corporation (the “Company”), up to 749,963 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

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b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) =  the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g)  Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
   
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

 

 

 

NOTICE OF EXERCISE

 

TO: SMART FOR LIFE, INC.

 

(1) The undersigned hereby elects to purchase            Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

                                                        

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

                                                       

                                                       

                                                       

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:                                                                                                                                                                                            

Signature of Authorized Signatory of Investing Entity:                                                                                                                                        

Name of Authorized Signatory:                                                                                                                                                                                  

Title of Authorized Signatory:                                                                                                                                                                                    

Date:                                                                                                                                                                                                                               

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:    
    (Please Print)
Address:    

Phone Number:
Email Address:

 

(Please Print)

 

     
     

Dated:                                   ,                   

   
Holder’s Signature:                                                     
Holder’s Address:                                                       

 

 

 

 

 

 

Exhibit 4.7

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

SMART FOR LIFE, INC.

 

Warrant Shares: 749,963 Initial Issuance Date: August 18, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, IONIC VENTURES, LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Smart for Life, Inc. (formerly, Bonne Santé Group, Inc.) a Delaware corporation (the “Company”), up to 749,963 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

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b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) =  as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

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(B) =  the Exercise Price of this Warrant, as adjusted hereunder; and

     

(X) =  the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

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iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company's control, including not approved by the Company's Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i)   registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

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d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f)  Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

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g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j)  Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

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NOTICE OF EXERCISE

 

TO: SMART FOR LIFE, INC.

 

(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

     
     
     
     
     

 

(4)   Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: ___________________________________________________________________________

Signature of Authorized Signatory of Investing Entity:_____________________________________________________

Name of Authorized Signatory: _______________________________________________________________________

Title of Authorized Signatory:________________________________________________________________________

Date:___________________________________________________________________________________________

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  
  (Please Print)
   
Address:  
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Dated: _________ , ____    
     
     
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Exhibit 4.8

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

SMART FOR LIFE, INC.

 

Warrant Shares: 749,963 Initial Issuance Date: August 18, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, SABBY VOLATILITY WARRANT MASTER FUND LTD or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”)but not thereafter, to subscribe for and purchase from Smart for Life, Inc. (formerly, Bonne Santé Group, Inc.) a Delaware corporation (the “Company”), up to 749,963 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

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Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

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(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) =    the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

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d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company's control, including not approved by the Company's Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

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Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

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NOTICE OF EXERCISE

 

TO: SMART FOR LIFE, INC.

 

(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

     
     
     
     
     

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:  
Signature of Authorized Signatory of Investing Entity:  
Name of Authorized Signatory:  
Title of Authorized Signatory:  
Date:  

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  
  (Please Print)
Address:  
   

 

Phone Number:

 

(Please Print)
Email Address:  

 

Dated:                                           ,                    

 
Holder’s Signature:                                                                  
Holder’s Address:                                                                  

 

 

 

 

 

Exhibit 4.9

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

BONNE SANTÉ GROUP, INC.

 

Warrant Shares: 562,472 Initial Issuance Date: July 1, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ANSON EAST MASTER FUND LP or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Bonne Santé Group, Inc. a Delaware corporation (the “Company”), up to 562,472 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

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Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

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(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

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Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

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NOTICE OF EXERCISE

 

TO: BONNE SANTÉ GROUP, INC.

 

(1) The undersigned hereby elects to purchase                   Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

                                                            

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

                                                            

 

                                                            

 

                                                            

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:                                                                                                                                                                      

Signature of Authorized Signatory of Investing Entity:                                                                                                                         

Name of Authorized Signatory:                                                                                                                                                             

Title of Authorized Signatory:                                                                                                                                                               

Date:                                                                                                                                                                                                       

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  
  (Please Print)
   
Address:  
  (Please Print)
   
Phone Number:  
   
Email Address:  
   
Dated:                                              ,                       
   
Holder’s Signature:                                                 
   
Holder’s Address:                                                   

 

 

 

 

Exhibit 4.10

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

BONNE SANTÉ GROUP, INC.

 

Warrant Shares: 1,687,416   Initial Issuance Date: July 1, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ANSON INVESTMENTS MASTER FUND LP or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Bonne Santé Group, Inc. a Delaware corporation (the “Company”), up to 1,687,416 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

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Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A)  =   as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

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(B)  =   the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X)  =   the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

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vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company's control, including not approved by the Company's Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

 

 

 

NOTICE OF EXERCISE

 

TO: BONNE SANTÉ GROUP, INC.

 

(1) The undersigned hereby elects to purchase                           Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐   in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

                                                              

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

                                                               

 

                                                                

 

                                                                  

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:                                                                                                                                                                                
Signature of Authorized Signatory of Investing Entity:                                                                                                                            
Name of Authorized Signatory:                                                                                                                                                                       
Title of Authorized Signatory:                                                                                                                                                                         
Date:                                                                                                                                                                                                                     

  

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  
  (Please Print)
   
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Dated:                                                                       

 
   
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Exhibit 4.11

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

BONNE SANTÉ GROUP, INC.

 

Warrant Shares: 2,249,888 Initial Issuance Date: July 1, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, DISTRICT 2 CAPITAL FUND LP or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Bonne Santé Group, Inc. a Delaware corporation (the “Company”), up to 2,249,888 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

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Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) =  as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

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(B) =  the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) =  the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

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iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company's control, including not approved by the Company's Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

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Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

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NOTICE OF EXERCISE

 

TO:   BONNE SANTÉ GROUP, INC.

 

(1) The undersigned hereby elects to purchase ___________Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)

Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

     
     
     

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:____________________________________________________________________________

Signature of Authorized Signatory of Investing Entity:______________________________________________________

Name of Authorized Signatory:________________________________________________________________________

Title of Authorized Signatory:_________________________________________________________________________

Date: _____________________________________________________________________________________________

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  
  (Please Print)
Address:  

 

(Please Print)
Phone Number:
   
Email Address:
   

Dated:_____________, ________

 
   
Holder’s Signature: ____________________________  
   
Holder’s Address: _____________________________  

 

 

 

 

 

 

Exhibit 4.12

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

BONNE SANTÉ GROUP, INC.

 

Warrant Shares: 2,249,888 Initial Issuance Date: July 1, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, IONIC VENTURES, LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Bonne Santé Group, Inc. a Delaware corporation (the “Company”), up to 2,249,888 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

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Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

  

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) =  the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

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If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

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d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

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Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and

(iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By:  
    Name:
    Title:

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

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NOTICE OF EXERCISE

 

TO: BONNE SANTÉ GROUP, INC.

 

(1) The undersigned hereby elects to purchase                       Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

 

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

 

 

 

 

 

 

 

 

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:  

 

Signature of Authorized Signatory of Investing Entity:  

 

Name of Authorized Signatory:  

 

Title of Authorized Signatory:  

 

Date:  

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:    
    (Please Print)
Address:    

 

  (Please Print)
     
Phone Number:    
     
Email Address:    
     

 

Dated:

                    ,

   
     
Holder’s Signature:       
     
Holder’s Address:      

 

 

 

 

 

Exhibit 4.13

 

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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

BONNE SANTÉ GROUP, INC.

 

Warrant Shares: 2,249,888 Initial Issuance Date: July 1, 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, SABBY VOLATILITY WARRANT MASTER FUND LTD or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 6 month anniversary of the IPO Date (the “Initial Exercise Date”) and on or prior to the five year anniversary of the Initial Exercise Date (the “Termination Date”)but not thereafter, to subscribe for and purchase from Bonne Santé Group, Inc. a Delaware corporation (the “Company”), up to 2,249,888 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, if the Conversion Price is adjusted downward pursuant to the terms of the Certificate of Designation, the number of Warrant Shares issuable hereunder shall be increased such that the number of Warrant Shares issuable hereunder equal 100% of the Conversion Shares issuable upon conversion in full of the Preferred Stock issued to the Holder pursuant to the applicable Closing (ignoring for such purposes and conversion limitations therein). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 1, 2021, among the Company and the purchasers signatory thereto.

 

Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

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b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be equal to 125% of the public offering price of securities offered in the IPO, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) =  as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

(B) =  the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) =  the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of- sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

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vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time on and after the IPO Date while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion price or exercise price at which such securities may be issued, converted or exercised.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f)   Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, then, if the Company is subject to the reporting requirements of the Exchange Act pursuant to Section 12 or Section 15(d) of Exchange Act, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.

 

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Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f)   Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i)   Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j)   Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l)   Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  BONNE SANTÉ GROUP, INC.
   
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

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NOTICE OF EXERCISE

 

TO: BONNE SANTÉ GROUP, INC.

 

(1) The undersigned hereby elects to purchase                 Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

     
     
     
     
     

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: ___________________________________________________________________________

Signature of Authorized Signatory of Investing Entity:_____________________________________________________

Name of Authorized Signatory: _______________________________________________________________________

Title of Authorized Signatory:________________________________________________________________________

Date:___________________________________________________________________________________________

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  
  (Please Print)
   
Address:  
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Dated:                                      ,                  
     
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Exhibit 4.14

 

THIS WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.

 

BONNE SANTE GROUP, INC.

 

COMMON STOCK PURCHASE WARRANT

 

DATED, as of December 18, 2020

 

 

 

Holder: PEAH CAPITAL, LLC Number of Warrants: 1,292,445

 

 

 

THIS CERTIFIES THAT Holder is the owner of the number of Warrants set forth above of Bonne Santé Group, Inc., a Delaware corporation (hereinafter called the “Company”). Each Warrant entitles the Holder to purchase one share (collectively the “Warrant Shares”) of the common stock of the Company (“Common Stock”) at an exercise price per share of $0.0001 per share (the “Exercise Price”) at any time during the period commencing on December 18, 2020 and ending on December 18 2025 (the “Expiration Date”). The number of warrants listed above shall be increased in the event the Company issues any additional shares of Common Stock prior to the effective date of any registration statement filed with the Securities and Exchange Commission (the “Effective Date”). The increased warrants shall be equal to the difference between 1,292,445 and that number of warrants which would equal 9.9% of the Company’s outstanding capitalization immediately preceding the Effective Date.

 

Notwithstanding the foregoing, this Warrant shall automatically expire and terminate in the event (i) the Company files and has declared effective a registration statement under the Act covering the resale of all shares issued pursuant to that certain Future Equity Agreement between the parties also dated as of December 18, 2020 (“the Share Registration”) or (ii) in the 17 months following the issuance date of this Warrant, the Company does not borrow, in the aggregate, at least $1,200,000 from the Holder pursuant to that certain LOAN AND SECURITY AGREEMENT dated December 18, 2020.

 

1. Method of Exercise; Payment.

 

(a)  Cash Exercise. The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company, and by the payment to the Company, by certified, cashier’s or other check acceptable to the Company or by wire transfer to an account designated by the Company, of an amount equal to the aggregate Exercise Price of the Warrant Shares being purchased.

 

(b)  Net Issue Exercise. In lieu of exercising this Warrant, the Holder may elect to receive Warrant Shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of Warrant Shares computed using the following formula:

 

     

Y (A-B)

X = ———————

      A                  
       
Where: X = the number of the Warrant Shares to be issued to the Holder.
  Y = the number of the Warrant Shares purchasable under this Warrant.
  A = the fair market value of one Share on the date of determination.
  B = the per share Exercise Price (as adjusted to the date of such calculation).

 

 

 

 

(c) Fair Market Value. For purposes of this Section 1, the per share fair market value of the Warrant Shares shall mean:

 

(i) If the Company’s Common Stock is publicly traded, the per share fair market value of the Warrant Shares shall be the average of the closing prices of the Common Stock as quoted on the or the principal exchange on which the Common Stock is listed, in each case for the three trading days immediately prior to the date the submission of an exercise notice;

 

(ii)  If the Company’s Common Stock is not so publicly traded, the per share fair market value of the Warrant Shares shall be such fair market value as is determined in good faith by the Board of Directors of the Company after taking into consideration factors it deems appropriate, including, without limitation, recent sale and offer prices of the capital stock of the Company in private transactions negotiated at arm’s length.

 

(d) Stock Certificates. In the event of any exercise of the rights represented by this Warrant, certificates for the Warrant Shares so purchased shall be delivered to the Holder within a reasonable time and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the Warrant Shares with respect to which this Warrant shall not have been exercised shall also be issued to the Holder within such time.

 

2. Stock Fully Paid; Reservation of Shares. All of the Warrant Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price therefor, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance sufficient shares of its Common Stock to provide for the exercise of the rights represented by this Warrant.

 

3.  Adjustments. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

 

(a)  Reclassification. In the case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the holder of this Warrant), or the Company shall make appropriate provision without the issuance of a new Warrant, so that the holder of this Warrant shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the Warrant Shares of Common Stock theretofore issuable upon exercise of this Warrant, (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of Warrant Shares of Common Stock then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the Holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the fair market value of the Common Stock at the time of the transaction. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers.

 

(b)  Stock Splits, Dividends and Combinations. In the event that the Company shall at any time subdivide the outstanding shares of Common Stock or shall issue a stock dividend on its outstanding shares of Common Stock the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.

 

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(c)  Dilutive Issuances. In the event that the number of outstanding shares of Common Stock of the Company is increased between now and the 18 month anniversary of this Warrant, this number of warrant shares issuable upon exercise of this Warrant shall be automatically increased to represent that number which is 9.9% of the then total outstanding capitalization.

 

4. Notice of Adjustments. Whenever the number of Warrant Shares purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3 hereof, the Company shall provide notice to the Holder setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the number and class of shares which may be purchased thereafter and the Exercise Price therefor after giving effect to such adjustment.

 

5.  Fractional Shares. The Company shall not be required to issue fractional shares of Common Stock on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same Holder, the number of full shares of Common Stock which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of shares of Common Stock acquirable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions of this Section, be issuable on the exercise of any Warrant (or specified portion thereof) then such fractional share shall be rounded up to the nearest whole share.

 

6.  Representations of the Company. The Company represents that all corporate actions on the part of the Company, its officers, directors and shareholders necessary for the sale and issuance of the Warrant Shares pursuant hereto and the performance of the Company’s obligations hereunder were taken prior to and are effective as of the effective date of this Warrant.

 

7. Representations and Warranties by the Holder. The Holder represents and warrants to the Company as follows:

 

(a)  This Warrant and the Warrant Shares issuable upon exercise thereof are being acquired for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the “Act”). Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Warrant are being acquired for investment and not with a view toward distribution or resale.

 

(b)  The Holder understands that the Warrant and the Warrant Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Act or is exempted from such registration.

 

(c) The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Warrant and the Warrant Shares purchasable pursuant to the terms of this Warrant and of protecting its interests in connection therewith.

 

(d)  The Holder is able to bear the economic risk of the purchase of the Warrant Shares pursuant to the terms of this Warrant.

 

8.  Restrictive Legend. The Warrant Shares (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT.

 

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9. Restrictions Upon Transfer and Removal of Legend.

 

(a)  The Company need not register a transfer of this Warrant or Warrant Shares bearing the restrictive legend set forth in Section 8 hereof, unless the conditions specified in such legend are satisfied. The Company may also instruct its transfer agent not to register the transfer of the Warrant Shares, unless one of the conditions specified in the legend referred to in Section 8 hereof is satisfied.

 

(b)  Notwithstanding the provisions of paragraph (a) above, no opinion of counsel shall be necessary for a transfer without consideration by any holder (i) if such holder is a partnership, to a partner or retired partner of such partnership who retires after the date hereof or to the estate of any such partner or retired partner, or (ii) if such holder is a corporation, to a shareholder of such corporation, or to any other corporation under common control, direct or indirect, with such holder.

 

10. Rights of Shareholders. No holder of this Warrant shall be entitled as a Warrant holder, to vote or receive dividends or be deemed the holder of any Warrant Shares or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. The holder of this Warrant will not be entitled to share in the assets of the Company in the event of a liquidation, dissolution or the winding up of the Company.

 

11. Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Holder, at the Holder’s address as set forth on the books of the Company, and (ii) if to the Company, at the address of its principal corporate offices (attention: Alfonso Cervantes, Chairman), or at such other address as a party may designate by ten days advance written notice to the other party pursuant to the provisions above.

 

12. Governing Law. This Warrant and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to the conflicts of law provisions of the State of Florida or of any other state.

 

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Issued as of 18th day of December 2020.
   
  BONNE SANTE GROUP INC.
   
  /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Chairman
   
  HOLDER
   
  /s/ Dan Arev
  Name: Dan Arev
  Title: Manager

 

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EXHIBIT A

 

 

 

NOTICE OF EXERCISE

 

 

 

TO: Bonne Santé Group, Inc.

10575 NW 37 TERRACE

DORAL, FLORIDA 33178

Attention: Alfonso Cervantes

 

1. The undersigned hereby elects to purchase_____Warrant Shares of Bonne Santé Group, Inc. pursuant to the terms of the attached Warrant.

 

2. Method of Exercise (Please initial the applicable blank):

 

☐ The undersigned elects to exercise the attached Warrant by means of a cash payment, and tenders herewith or by concurrent wire transfer payment in full for the purchase price of the shares being purchased, together with all applicable transfer taxes, if any.

 

☐ The undersigned elects to exercise the attached Warrant by means of the net exercise provisions of Section 1(b) of the Warrant.

 

3.  Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

(Name)

     
     
 

 

 
     

(Address)

 

4.  The undersigned hereby represents and warrants that the aforesaid Warrant Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares and all representations and warranties of the undersigned set forth in Section 7 of the attached Warrant are true and correct as of the date hereof.

 

  Name:
  Title:

 

 

 

 

 

Exhibit 4.15

 

AMENDMENT NO. 1 TO COMMON STOCK PURCHASE WARRANT

 

AMENDMENT NO. 1 TO COMMON STOCK PURCHASE WARRANT (“Amendment”) is made as of the 30th day of June, 2021 by and between Bonne Santé Group, Inc., a Delaware corporation (the “Company”) and the holder listed on the signature page attached hereto (the “Holder”). Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Warrant (as defined below).

 

WHEREAS, the Holder currently holds Warrant (the “Warrant”) to purchase 1,292,445 shares of common stock of the Company, at an exercise price per share of $0.0001 per share, which is exercisable at any time during the period commencing on December 18, 2020 and ending on December 18 2025;

 

WHEREAS, the Company and the Holder desire to change the exercise commencement date of the Warrant to January 31, 2022;

 

NOW, THEREFORE, in consideration of the Amendment and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned parties hereby agree to amend the Warrant as follows:

 

1. The second sentence of the first paragraph of the Warrant shall be amended and restated in its entirety as follows:

 

“Each Warrant entitles the Holder to purchase one share (collectively the “Warrant Shares”) of the common stock of the Company (“Common Stock”) at an exercise price per share of $0.0001 per share (the “Exercise Price”) at any time during the period commencing on January 31, 2022 and ending on December 18 2027 (the “Expiration Date”).”

 

2. Amended and Restated Warrant. Upon the request of the Holder and receipt by the Company of the original Warrant, the Company will provide the Holder with an Amended and Restated Warrant, reflecting the amendments described herein.

 

3. Full Force and Effect. Except as amended hereby, the Warrant shall remain in full force and effect in accordance with its original terms.

 

4. Governing Law. This Amendment is governed by the laws of the State of Florida.

 

Remainder of Page Intentionally Left Blank

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Common Stock Purchase Warrant as of the date first written above.

 

  BONNE SANTE GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes        
  Name: Alfonso J. Cervantes
  Title: Chairman
     
     
  PEAH CAPITAL, LLC
     
  By: /s/ Jake Weiser   
  Name: Jake Weiser 
  Title: Authorized Signatory

 

 

 

 

 

Exhibit 4.16

 

NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

BONNE SANTÉ GROUP, INC.

 

Date of Issuance: May 18, 2017 (“Issuance Date”)

 

This COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received (in connection with the Forbearance Agreement relating to the $262,500.00 senior secured convertible promissory note to the Holder (as defined below) (the “Note”), Leonite Capital, LLC, a Delaware limited liability company (including any permitted and registered assigns, the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof, to purchase from Bonne Santé Group, Inc., a Delaware corporation (the “Company”), up to the number of shares of the Common Stock of the Company, $0.0001 par value per share (the “Common Stock”) as determined by dividing the Warrant Value (as defined below) by the Applicable Price Per Share (as defined below) (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. For purposes of this Warrant, “Applicable Price Per Share” means the price per share paid by investors in an equity financing occurring after the date hereof and resulting in gross proceeds to the Company of at least $1,000,000 (excluding the conversion of any indebtedness) (a “Qualified Financing”) or, if a Qualified Financing has not yet occurred on the date that the Holder desires to exercise this Warrant, then Applicable Price Per Share shall mean the price per share proposed in good faith by the board of directors of the Company at the request of the Holder as representing the fair market value per share of the Company’s Common Stock and consented to by the Holder; and “Warrant Value” means Sixty Thousand Dollars ($60,000). This Warrant is issued by the Company as of the date hereof in connection with that certain Forbearance agreement, dated March 28, 2018, by and among the Company and the Holder (the “Forbearance Agreement”).

 

Capitalized terms used in this Warrant shall have the meanings set forth in the Forbearance Agreement unless otherwise defined in the body of this Warrant or in Section 13 below. For purposes of this Warrant, the term “Exercise Price” shall be $0.0001 per share, , subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the five-year anniversary thereof.

 

 

 

 

1. EXERCISE OF WARRANT.

 

(a)  Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by 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. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the third Trading Day (the “Warrant Share Delivery Date”) following the date on which the Company shall have received the Exercise Notice, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.

 

If the Company fails to cause its transfer agent to transmit to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion, and such failure shall be deemed an event of default under the Note.

 

If the Market Price of one share of Common Stock is greater than the Exercise Price and the Warrant Shares are not registered under an effective non-stale registration statement of the Company, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:

 

X = Y (A-B)

 

A

 

Where: X = the number of Shares to be issued to Holder.

 

Y = the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation).

 

A = the Market Price (at the date of such calculation).

 

B = Exercise Price (as adjusted to the date of such calculation).

 

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(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.

 

(c) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that after giving effect to issuance of Warrant Shares upon exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation, as defined below. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, non-exercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including without limitation any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph (d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this paragraph applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

For purposes of this paragraph, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the request of a Holder, the Company shall within two Trading 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 or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. Upon no fewer than 61 days’ prior notice to the Company, a Holder may increase or decrease the Beneficial Ownership Limitation provisions of this paragraph, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this paragraph shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company and shall only apply to such Holder and no other Holder. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant.

 

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2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a) 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 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 or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

 

(i) 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 (i) the numerator of which shall be the Closing Sale 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 of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and

 

(ii) 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 clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), 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 clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).

 

(b) Anti-Dilution Adjustments to Exercise Price. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities entitling any person or entity to acquire shares of Common Stock (upon conversion, exercise or otherwise) (including but not limited to under the Note), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 2(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 2(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

 

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3. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.

 

4. NON-CIRCUMVENTION. The Company covenants and agrees that it 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 non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).

 

5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 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.

 

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6. REISSUANCE.

 

(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

 

(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.

 

7. TRANSFER.

 

(a) Notice of Transfer. The Holder agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer. Promptly upon receiving such written notice, the Company shall present copies thereof to the Company’s counsel. If the proposed transfer may be effected without registration or qualification (under any federal or state securities laws), the Company, as promptly as practicable, shall notify the Holder thereof, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute the Assignment of Warrant attached hereto as Exhibit B and such other documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.

 

(b) If the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 7 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Holder will limit its activities in respect to such transfer or disposition as are permitted by law.

 

(c) Any transferee of all or a portion of this Warrant shall succeed to the rights and benefits of the initial Holder of this Warrant.

 

8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Purchase Agreement. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

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9. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

 

10. GOVERNING LAW. This Warrant 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. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts or federal courts located in Rockland Count, 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. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. 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 Agreement or any other Transaction Document 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 Agreement 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.

 

11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

 

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

 

(a) “Nasdaq” means The Nasdaq Stock Market (www.Nasdaq.com).

 

(b) “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Nasdaq, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Nasdaq, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Nasdaq, or (iii) if no last trade price is reported for such security by Nasdaq, the average of the bid and ask prices of any market makers for such security as reported by the OTC Markets. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

(c) “Common Stock” means the Company’s common stock, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

(d) “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

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(e) “Dilutive Issuance” is any issuance of Common Stock or Common Stock Equivalents described in Section 2(b) above; provided, however, that a Dilutive Issuance shall not include any Exempt Issuance.

 

(f) “Exempt Issuance” means the issuance of (i) shares of Common Stock or options to employees, officers, or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, and (ii) shares of Common Stock issued pursuant to real property leasing arrangement from a bank approved by the Board of Directors of the Company.

 

(g) “Principal Market” means the primary national securities exchange on which the Common Stock is then traded.

 

(h) “Market Price” means the highest traded price of the Common Stock during the thirty (30) Trading Days prior to the date of the respective Exercise Notice.

 

(i) “Trading Day” means (i) any day on which the Common Stock is listed or quoted and traded on its Principal Market, (ii) if the Common Stock is not then listed or quoted and traded on any national securities exchange, then a day on which trading occurs on any over-the-counter markets, or (iii) if trading does not occur on the over-the-counter markets, any Business Day.

 

* * * * * * *

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Chairman

 

 

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)

 

THE UNDERSIGNED holder hereby exercises the right to purchase ________________  of the shares of Common Stock (“Warrant Shares”) of Bonne Santé Group, Inc., a Delaware corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (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 (check one):

 

☐ a cash exercise with respect to ________________ Warrant Shares; or

 

☐ by cashless exercise pursuant to the Warrant.

 

2. Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable 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 to the holder _______________________ Warrant Shares in accordance with the terms of the Warrant.

 

Date: _________________________

 

   
  (Print Name of Registered Holder)

 

  By:                       
  Name:  
  Title:    

 

 

 

 

EXHIBIT B

 

ASSIGNMENT OF WARRANT

 

(To be signed only upon authorized transfer of the Warrant)

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto __________________ the right to purchase ____________________ shares of common stock of Bonne Santé Group, Inc., to which the within Common Stock Purchase Warrant relates and appoints _________________, as attorney-in-fact, to transfer said right on the books of Bonne Santé Group, Inc. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.

 

Dated: _________________________

 

   
  (Signature) *
   
   
  (Name)
   
   
  (Address)
   
   
  (Social Security or Tax Identification No.)

 

* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.

 

 

 

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of November 5, 2021, between Smart for Life, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“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; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally open for use by customers on such day.

 

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1(a).

 

 

 

 

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.

 

“Closing Statement” means the Closing Statement in the form on Annex A attached hereto.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Company Counsel” means Bevilacqua PLLC.

 

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

 

“Conversion Shares” shall have the meaning ascribed to such term in the Debentures.

 

“Debentures” means the 12% Unsecured Subordinated Convertible Debentures due, subject to the terms therein, 12 months from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

“EGS” means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.

 

“Effective Date” means the earliest of the date that (a) the Registration Statement has been declared effective by the Commission, (b) all of the Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, (c) following the one year anniversary of the Closing Date provided that a holder of the Underlying Shares is not an Affiliate of the Company or (d) all of the Underlying Shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the Securities Act without volume or manner-of-sale restrictions and Company Counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

 

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“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(s).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, directors or consultants of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company (provided if to consultants such issuance shall not exceed 100,000 in any calendar month, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder, warrants to the Placement Agent in connection with the transactions pursuant to this Agreement and any securities upon exercise of warrants to the Placement Agent and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement or commitments to issue shares of common stock, which commitments are in existence on the date of this Agreement, provided that such securities or such commitments have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“FDA” shall have the meaning ascribed to such term in Section 3.1(jj).

 

“FDCA” shall have the meaning ascribed to such term in Section 3.1(jj).

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(p).

 

“IPO” means the initial public offering of the Company.

 

“IPO Date” means the date that the registration statement registering the shares to be issued in the IPO and the Registration Statement are both declared effective by the Commission.

 

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“July Purchase Agreement” shall mean the Securities Purchase Agreement, dated as of July 1, 2021, by and among the Company and the Purchasers.

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

“Lock-Up Agreement” means the Lock-Up Agreements entered into pursuant to the July Purchase Agreement.

 

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Pharmaceutical Product” shall have the meaning ascribed to such term in Section 3.1(ll).

 

“Placement Agent” means Dawson James Securities, Inc.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Public Information Failure” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of July 1, 2021, among the Company and the Purchasers, in the form of Exhibit B to the July Purchase Agreement.

 

“Registration Statement” means a registration statement on Form S-1, meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.

 

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“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Debentures (including Underlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Debentures and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock). 

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit B attached hereto.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).

 

“Transaction Documents” means this Agreement, the Debentures, the Subsidiary Guarantee, the Lock-Up Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

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“Transfer Agent” means the transfer agent of the Company, and any successor transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable pursuant to the terms of the Debenture, including without limitation, shares of Common Stock issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures, in each case without respect to any limitation or restriction on the conversion of the Debentures.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

 

“VWAP” means, for any date following the IPO Date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closing. Substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $2,250,000 in principal amount of the Debentures. On the Closing Date, each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Debenture, and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree.

 

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2.2 Deliveries.

 

(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i) this Agreement duly executed by the Company;

 

(ii) a legal opinion of Company Counsel, in the form acceptable to the Purchasers;

 

(iii) a Debenture with a principal amount equal to such Purchaser’s Subscription Amount, registered in the name of such Purchaser;

 

(iv) any Lock-Up Agreements from current directors, officers, and 5% stockholders of the Company that did not deliver such agreements pursuant to the July Purchase Agreement; and

 

(v) the Company shall have provided each Purchaser with the Company’s wire instructions, on Company letterhead and executed by the Chief Executive Officer or Chief Financial Officer.

 

(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, the following:

 

(i) this Agreement duly executed by such Purchaser;

 

(ii) a subordination agreement in customary form that is reasonably satisfactory to such Purchaser executed and entered into with the “Senior Creditors” listed on Schedule 3.1(ff); and

 

(iii) such Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company.

 

2.3 Closing Conditions.

 

(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

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(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(v) from the date hereof to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or warranty otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.

 

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(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c) Authorization; Enforcement.

 

(i) The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(ii) With respect to the Subsidiary Guarantee, each of the Subsidiaries has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by such agreement and otherwise to carry out its obligations thereunder. The execution and delivery of the Subsidiary Guarantee and the consummation by the Company of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company, and no further action is required by the respective Subsidiary, its managers or its members in connection therewith. The Subsidiary Guarantee has been (or upon delivery will have been) duly executed by the respective Subsidiaries and, when delivered in accordance with the terms thereof, will constitute the valid and binding obligation of the respective Subsidiary enforceable against such Subsidiary in accordance with its terms, except (A) as listed by general equitable principals and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (B) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (C) insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (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 any Subsidiary, or give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or 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 or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii) the filing with the Commission pursuant to the Registration Rights Agreement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Conversion Shares for trading thereon on the IPO Date and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).

 

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(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

 

(g) Capitalization. The capitalization of the Company as of the date hereof is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or as set forth on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers). There are no outstanding securities or instruments of the Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company or any Subsidiary. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all 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 securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

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(h) Financial Statements. The financial statements of the Company provided to the Purchasers have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), 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 and its consolidated Subsidiaries 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, immaterial, year-end audit adjustments.

 

(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest unaudited year end financial statements, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses 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 disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (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 and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition, that would result in a Material Adverse Effect.

 

(j) Litigation. Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”). None of the Actions set forth on Schedule 3.1(j), (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

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(k) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l) Compliance. Neither the Company nor any Subsidiary: (i) is 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 or any Subsidiary under), nor has the Company or any Subsidiary received 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 agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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(n) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(o) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens in favor of Diamond Creek, (ii) Liens in favor of Peah Capital LLC, (iii) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (iv) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(p) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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(q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to $2 million. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage 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.

 

(r) Transactions with Affiliates and Employees. Except as set forth on Schedule 3.1(r), none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

(s) Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information that will be required to be disclosed by the Company in the reports it will file or submit following the IPO under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

 

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(t) Certain Fees. Except pursuant to those certain agreements by and among the Company and the Placement Agent, dated February 15, 2021 and March 1, 2021, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(u) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

(v) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(w) Registration Rights. Other than each of the Purchasers, no Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiaries.

 

(x) Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(y) Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information that will not be disclosed publicly at or prior to the consummation of the IPO. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

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(z) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

(aa) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(bb) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

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(bb) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise 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 and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

 

(cc) No General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(dd) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, 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 any Subsidiary (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 FCPA.

 

(ee) Accountants. The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Registration Statement.

 

(ff) Seniority. As of the Closing Date, except as set forth on Schedule 3.1(ff), no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

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(gg) No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

(hh) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(ii) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

(jj) FDA. As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical Product”), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Material Adverse Effect. There is no pending, completed or, to the Company’s knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA.  The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company.

 

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(kk) Stock Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

 

(ll) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(mm) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.

 

(nn) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

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(oo) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

 

(pp) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.

 

(qq) Other Covered Persons. Other than the Placement Agent, the Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Securities.

 

(rr) Notice of Disqualification Events. The Company will notify the Purchasers and the Placement Agent in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.

 

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3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):

 

(a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it converts any Debentures it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), (a)(8), (a)(9), (a)(12), or (a)(13) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

 

(d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

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(e) General Solicitation. Such Purchaser is not, to such Purchaser’s knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.

 

(f) Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and 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 Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its 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.  Such Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement Agent has provided such Purchaser with any information or advice with respect to the Securities nor is such information or advice necessary or desired.  Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company or the quality of the Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect to the Company which such Purchaser agrees need not be provided to it.  In connection with the issuance of the Securities to such Purchaser, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser.

 

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), 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 Agreement and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement.

 

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(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] 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. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders (as defined in the Registration Rights Agreement) thereunder.

 

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(c) Following the IPO Date, the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent or the Purchaser promptly after the Effective Date if required by the Transfer Agent to effect the removal of the legend hereunder, or if requested by a Purchaser, respectively. If all or any portion of a Debenture is converted at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares 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. Following the IPO Date, the Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend.

 

(d) In addition to such Purchaser’s other available remedies, following the IPO Date, the Company shall pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each $2,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $5 per Trading Day (increasing to $10 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend and (ii) if the Company fails to (a) issue and deliver (or cause to be delivered) to a Purchaser by the Legend Removal Date a certificate representing the Securities so delivered to the Company by such Purchaser that is free from all restrictive and other legends and (b) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated receiving from the Company without any restrictive legend, then, an amount equal to the excess of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “Buy-In Price”) over the product of (A) such number of Underlying Shares that the Company was required to deliver to such Purchaser by the Legend Removal Date multiplied by (B) the lowest closing sale price of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to the Company of the applicable Underlying Shares (as the case may be) and ending on the date of such delivery and payment under this clause (ii).

 

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(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

4.3 Furnishing of Information; Public Information.

 

(a) Following the IPO Date and until the earliest of the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and 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 even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

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(b) At any time during the period commencing from the twelve (12) month anniversary of the IPO Date and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144 (i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to one percent (1.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the Purchasers to transfer the Underlying Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.”  Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured.  In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. Notwithstanding the foregoing in no event will the Company be liable for liquidated damages, in the aggregate, under this Section 4.3 and Section 2(d) of the Registration Rights Agreement in excess of 1.0% of the aggregate Subscription Amount in any single month and the maximum aggregate liquidated damages payable to a Purchaser, in the aggregate, under this Section 4.3 and Section 2(d) of the Registration Rights Agreement shall be ten percent (10%) of the aggregate Subscription Amount.

 

4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.5 Conversion Procedures. Each of the form of Notice of Conversion included in the Debentures set forth the totality of the procedures required of the Purchasers in order to convert the Debentures. Without limiting the preceding sentences, no ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required in order to convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to convert their Debentures. The Company shall honor all conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

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4.6 Securities Laws Disclosure; Publicity. From and after the IPO Date, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the IPO Date, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with (i) any registration statement contemplated by the Registration Rights Agreement and (ii) the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

 

4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.8 Non-Public Information. Following the IPO Date, except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.6, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. Following the IPO Date, to the extent that the Company, any of its Subsidiaries, or any of their respective officers, director, agents, employees or Affiliates delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that, following the IPO Date, any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

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4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.

 

4.10 Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser 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 Purchaser (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 persons (each, a “Purchaser 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 Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is solely based upon a material breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

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4.11 Reservation and Listing of Securities.

 

(a) The Company shall maintain a reserve of the Required Minimum from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.

 

(b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

 

(c) The Company shall, if applicable, on the IPO Date: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market on the IPO Date, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. On and after the IPO Date, the Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

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4.12 [RESERVED]

 

4.13 Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to such Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.14 Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until the IPO Date, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced in connection with the IPO, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the IPO Date and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the IPO Date.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

4.15 Form D; Blue Sky Filings. 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, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.16 Participation in Future Financing. Section 4.12 of the July Purchase Agreement is hereby confirmed and amended such that “Pro Rata Portion” shall be deemed to include the Subscription Amounts hereunder.

 

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4.17 July Purchase Agreement. Unless specifically addressed hereunder, all of the covenants of the Company set forth in Article IV of the July Purchase Agreement are hereby confirmed and ratified by the Company as satisfied and are incorporated by reference as if made under this Agreement. Any references to Securities or pro-rata rights of a Purchaser hereunder or under the July Purchase Agreement shall include in such determination the aggregate amount of Securities or Subscription Amounts, as applicable, under, collectively, the July Purchase Agreement and this Agreement. Additionally, the Company acknowledges and agrees that any reference to “public offering price” in “Transaction Document”, as defined in the July Purchase Agreement or Transaction Document hereunder shall be deemed to be the “effective” public offering price per share of Common Stock. Each of the Purchasers hereby consents to the issuance of the Securities hereunder and waives its right to enforce strict compliance with Section 4.12 or 4.13 of the July Purchase Agreement or any other covenant in the July Purchase Agreement or other Transaction Document (as defined in the July Purchase Agreement) solely to the extent that it conflicts with the offering of Securities hereunder.

 

4.18 Registration Rights. The Registration Rights Agreement is hereby amended such that the Conversion Shares issuable pursuant to the Debentures (converted in full without regard to any limitations or restrictions thereunder) are hereby added to the definition of “Registrable Securities” set forth in the Registration Rights Agreement without any further action by the Company or the Purchasers. Within 20 days of the date hereof (solely as related to the Conversion Shares, the “Filing Date”), the Company shall file an amendment to the Registration Statement adding the Conversion Shares to the Registration Statement.

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof, provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).

 

5.2 Fees and Expenses. At the Closing, the Company has agreed to pay to the lead Purchaser (“Lead Purchaser”) an origination fee equal to $50,000. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

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5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered electronically via email attachment as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least 50.1% in interest of the Debentures based on the initial Subscription Amounts hereunder (or, prior to the Closing, the Company and each Purchaser) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.

 

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

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5.8 No Third Party Beneficiaries. The Placement Agent shall be the third-party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10 and this Section 5.8.

 

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding 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 Agreement 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. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.

 

5.10 Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

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5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that, in the case of a rescission of a conversion of a Debenture, Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion notice.

 

5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

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5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any Action or Proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

5.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent any of the Purchasers and only represents the Lead Purchaser. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

 

5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

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5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.21 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. 

 

Smart for Life, Inc.   Address for Notice:
     
By: /s/ Alfonso J. Cervantes   Alfonso J. Cervantes, Jr.
   Name:  Alfonso J. Cervantes   Executive Chairman
  Title: Executive Chairman   990 Biscayne Blvd., Suite 503
    Miami, Florida 33132
     
With a copy to (which shall not constitute notice):   Louis A. Bevilacqua
    Managing Member
    Bevilacqua PLLC
    1050 Connecticut Ave., NW
    Suite 500
    Washington, DC 20036
    Tel:
    Fax:
    Email:

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

 

 

[PURCHASER SIGNATURE PAGES TO SFL debenture SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:

  ANSON EAST MASTER FUND LP
     
Signature of Authorized Signatory of Purchaser:   /s/ Amin Nathoo
     
Name of Authorized Signatory:   Amin Nathoo
     
Title of Authorized Signatory:   Director, Anson Advisors Inc.
     
Email Address of Authorized Signatory:    
     
Address for Notice to Purchaser:    

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount: $140,625.00

Principal Amount: $140,625.00

Beneficial Ownership Blocker ☐ 4.99% or ■ 9.99%

EIN Number:

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[PURCHASER SIGNATURE PAGES TO SFL debenture SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:

  ANSON INVESTMENTS MASTER FUND LP
     
Signature of Authorized Signatory of Purchaser:   /s/ Amin Nathoo
     
Name of Authorized Signatory:   Amin Nathoo
     
Title of Authorized Signatory:   Director, Anson Advisors Inc.
     
Email Address of Authorized Signatory:    
     
Address for Notice to Purchaser:    

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount: $421,875.00

Principal Amount: $421,875.00

Beneficial Ownership Blocker ☐ 4.99% or ■ 9.99%

EIN Number:

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[PURCHASER SIGNATURE PAGES TO SFL debenture SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:

  District 2 Capital Fund LP
     
Signature of Authorized Signatory of Purchaser:   /s/ Eric J. Schlanger
     
Name of Authorized Signatory:   Eric J. Schlanger
     
Title of Authorized Signatory:   Partner
     
Email Address of Authorized Signatory:    
     
Address for Notice to Purchaser:    

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount: $562,500

Principal Amount: $562,500

Beneficial Ownership Blocker ■  4.99% or ☐ 9.99%

EIN Number:

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[PURCHASER SIGNATURE PAGES TO SFL debenture SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:

   Ionic Ventures, LLC
     
Signature of Authorized Signatory of Purchaser:    /s/ Brendan O’Neil
     
Name of Authorized Signatory:    Brendan O’Neil
     
Title of Authorized Signatory:    Authorized Signatory
     
Email Address of Authorized Signatory:    
     
Address for Notice to Purchaser:    

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount: $562,500

Principal Amount: $562,500

Beneficial Ownership Blocker ■ 4.99% or ☐ 9.99%

EIN Number:

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[PURCHASER SIGNATURE PAGES TO SFL debenture SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:

   Sabbly Volatility Warrant Master Fund, Ltd.
     
Signature of Authorized Signatory of Purchaser:    /s/ Robert Grundstein
     
Name of Authorized Signatory:    Robert Grundstein
     
Title of Authorized Signatory:    COO of Purchaser’s Investment Manager
     
Email Address of Authorized Signatory:    
     
Address for Notice to Purchaser:    

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount: $562,500

Principal Amount: $562,500

Beneficial Ownership Blocker ■ 4.99% or ☐ 9.99%

EIN Number:

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

 

Exhibit 10.2

 

SUBSIDIARY GUARANTEE

 

SUBSIDIARY GUARANTEE, dated as of November 5, 2021 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Smart for Life, Inc., a Delaware corporation (the “Company”) and the Purchasers.

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Debentures, subject to the terms and conditions set forth therein; and

 

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

 

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

 

1. Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

 

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

 

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor. 

 

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2. Guarantee.

 

(a) Guarantee.

 

(i) The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

 

(ii) Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

 

(iii)   Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

 

(iv) The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

 

(v) No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

 

(vi) Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company’s Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company’s failure to perform such Obligations in accordance with the Transaction Documents.

 

(b) Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

 

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(c) No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

 

(d) Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

 

(e) Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

 

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(f)   Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

 

(g) Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

 

3. Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

 

(a) Organization and Qualification. The Guarantor is a corporation, duly incorporated, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor’s ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

 

(b) Authorization; Enforcement. The Guarantor has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

 

(c) No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation or By-laws or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, 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 Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

 

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(d) Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

 

(e) Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company’s knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor’s knowledge.

 

(f)   Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

 

4. Covenants.

 

(a)   Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

 

(b)   Each Purchaser hereby acknowledges and agrees that the indebtedness evidenced by the Debenture is subordinated in right of payment to the indebtedness that is described in Schedule 3.1(ff) of the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness.

 

(c)   Prior to the IPO Date, so long as any of the Obligations are outstanding, unless Purchasers holding at least 51% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

 

(i)   other than Permitted Indebtedness (as defined in the Debenture), enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

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(ii) other than Permitted Liens (as defined in the Debenture), enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

(iii) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

(iv) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers, directors or employees of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

 

(v) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) Indebtedness that is senior to the Debentures and set forth on Schedule 3.1(ff) to the Purchase Agreement, (ii) Indebtedness set forth on Schedule 3.1(aa) of the Purchase Agreement that is repaid from the proceeds of the IPO, (iii) the Debentures if on a pro-rata basis, and (iv) regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted in the case of clause (v) if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

(vi) pay cash dividends or distributions on any equity securities of the Company;

 

(vii) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

(viii) enter into any agreement with respect to any of the foregoing

 

5. Miscellaneous.

 

(a) Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers.

 

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(b) Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

 

(c) No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

 

(d) Enforcement Expenses; Indemnification.

 

(i) Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

 

(ii) Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

 

(iii) Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

 

(iv) The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

 

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(e) Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

 

(f)   Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

 

(g) Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

(h) Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

(i) Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

 

(j) Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

 

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(k) Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding 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 Guarantee 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 manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

 

(l) Acknowledgements. Each Guarantor hereby acknowledges that:

 

(i) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

 

(ii) the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

 

(iii)   no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

 

(m) Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

 

(n) Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

 

(o) Seniority. The Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

 

(p) WAIVER OF JURY TRIAL. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

 

*********************

 

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

 

SMART FOR LIFE, INC.  
     
By: /s/ Alfonso J. Cervantes, Jr.  
Name: Alfonso J. Cervantes, Jr.  
Executive Chairman  
   
BONNE SANTÉ NATURAL MANUFACTURING, INC.  
   
By: /s/ Alfonso J. Cervantes, Jr.  
Name: Alfonso J. Cervantes, Jr.  
Executive Chairman  
   
DOCTORS SCIENTIFIC ORGANICA, LLC  
   
By: /s/ Alfonso J. Cervantes, Jr.  
Name: Alfonso J. Cervantes, Jr.  
Executive Chairman  
   
OYSTER MANAGEMENT SERVICES, LTD  
   
By: /s/ Alfonso J. Cervantes, Jr.  
Name: Alfonso J. Cervantes, Jr.  
Executive Chairman  
   
LAWEE ENTERPRISES, LLC  
   
By: /s/ Alfonso J. Cervantes, Jr.  
Name: Alfonso J. Cervantes, Jr.  
Executive Chairman  
   
US MEDICAL CARE HOLDINGS, LLC  
   
By: /s/ Alfonso J. Cervantes, Jr.  
Name: Alfonso J. Cervantes, Jr.  
Executive Chairman  
   
NEXUS OFFERS, INC.  
   
By: /s/ Alfonso J. Cervantes, Jr.  
Name: Alfonso J. Cervantes, Jr.  
Executive Chairman  

 

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SCHEDULE 1

 

GUARANTORS

 

The following are the names, notice addresses and jurisdiction of organization of each Guarantor.

 

NAME AND ADDRESS   JURISDICTION OF
INCORPORATION 		  COMPANY
OWNED BY
PERCENTAGE 		 
SMART FOR LIFE, INC.   DELAWARE     100 %
BONNE SANTÉ NATURAL MANUFACTURING, INC.   FLORIDA     100 %
DOCTORS SCIENTIFIC ORGANICA LLC, LLC   FLORIDA     100 %
OYSTER MANAGEMENT SERVICES, LTD   FLORIDA     100 %
LAWEE ENTERPRISES, LLC   FLORIDA     100 %
US MEDICAL CARE HOLDINGS, LLC   FLORIDA     100 %
NEXUS OFFERS, INC.   FLORIDA     100 %

 

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Annex 1 to

SUBSIDIARY GUARANTEE

 

ASSUMPTION AGREEMENT, dated as of ____ __, ______ made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

 

W I T N E S S E T H :

 

WHEREAS, Smart for Life, Inc., a Delaware corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2021 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

 

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2021 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

 

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

 

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

 

NOW, THEREFORE, IT IS AGREED:

 

1. Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

 

2. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

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IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.


 

  [ADDITIONALGUARANTOR]
     
  By:                                           
  Name:  
  Title:  

 

 

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Exhibit 10.3

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES

 

Original Issue Date: November 5, 2021

 

$140,625.00

 

12% Unsecured SUBORDINATED CONVERTIBLE DEBENTURE

DUE November 30, 2022

 

THIS 12% UNSECURED SUBORDINATED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 12% Unsecured Subordinated Convertible Debentures of Smart for Life, Inc., a Delaware corporation (the “Company”), having its principal place of business at 990 Biscayne Blvd., Suite 503, Miami, Florida 33132, designated as its 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, the Company promises to pay to ANSON EAST MASTER FUND LP or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $140,625.00 on November 30, 2022 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

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“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

 

“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; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

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“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall have the meaning set forth in Section 2(c).

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.

 

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the Conversion Shares issuable upon conversion in full of the Optional Redemption Amount to the Holder would not violate the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information, (j) for each Trading Day in a period of 60 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $500,000 per Trading Day and (k) the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”.

 

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“Event of Default” shall have the meaning set forth in Section 8(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“IPO” means the initial public offering of the Corporation.

 

“IPO Date” means the date that the Registration Statement and the registration statement registering the shares to be issued in the IPO is declared effective by the Commission or such other date as the Registration Statement is effective such that the Underlying Shares may be freely transferred and the Company’s Common Stock is listed on a Trading Market.

 

“Late Fees” shall have the meaning set forth in Section 2(d).

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) following the IPO Date, the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“New York Courts” shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Optional Redemption” shall have the meaning set forth in Section 6.

 

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“Optional Redemption Amount” means the sum of (a) 115% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

 

“Optional Redemption Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Period” shall have the meaning set forth in Section 6.

 

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $100,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (d) indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the 91st day following the Maturity Date.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

 

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“Purchase Agreement” means the Securities Purchase Agreement, dated as of November 5, 2021 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated July 1, 2021, among the Company and the original Holders.

 

“Registration Statement” means a registration statement on Form S-1 meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).

 

“VWAP” means, following the IPO Date, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)).

 

Section 2. Interest.

 

a) Payment of Interest. The outstanding principal balance of this Debenture shall bear interest accruing from the date made to the IPO Date at the rate of twelve percent (12%) per annum. Interest shall be due and payable in cash on the earliest of the Conversion Date (as to the amount being converted), the Optional Redemption Date (as to the amount being redeemed) and or the Maturity Date.

 

b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until the date of payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.

 

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c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

d) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the six-month anniversary of the IPO Date until this Debenture is no longer outstanding, the principal amount of this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

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b) Conversion Price. The conversion price for this Debenture shall equal 50% of the “effective” IPO price per share of Common Stock to the public (such that, if the IPO price is $10 for a unit consisting of 2 shares of Common Stock, the “effective” price per share is $5.00 and the Conversion Price hereunder is $2.50, subject to adjustment herein (the “Conversion Price”); provided, however, the Conversion Price shall be reduced, and only reduced, after the IPO Date to the lower of the Conversion Price on the IPO Date and the lowest VWAP during the 10 Trading Days immediately following the IPO Date provided that the Conversion Price shall not be reduced to less than $1.00, subject to adjustment for reverse and forward stock splits and the like. For the avoidance of doubt, the current proposed structure of the securities being sold in the IPO is the sale of units consisting of one share, one warrant with an exercise price equal to 50% of the unit price and a second warrant with an exercise price equal to 100% of the unit price, but the second warrant automatically becomes exercisable on a cashless basis without the payment of any consideration on the tenth day following the IPO Date. Assuming an IPO price per Unit of $10.00, the effective price would be $5.00.

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest. On or after the earlier of (i) the six-month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

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iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of principal amount being converted, $50 per Trading Day (increasing to $100 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.

 

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vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), 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 (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

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Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding and prior to the IPO Date, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock (such issuances, collectively, a “Dilutive Issuance”) at a price per share of Common Stock using a pre-money valuation of the Corporation equal to the lesser of (i) $17,000,000.00 and (ii) the last pre-money valuation used by the Corporation in connection with a Dilutive Issuance (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that uses a lower valuation, such issuance shall be deemed to have occurred at such lower valuation) (the pre-money valuation used in respect of such Dilutive Issuance, “Dilutive Issuance Valuation”), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance, the Conversion Price shall be reduced to equal the product of (i) the then Conversion Price and (ii) the quotient obtained by dividing (A) the Dilutive Issuance Valuation as to such Dilutive Issuance and (B) the lower of $9,000,000 and the immediately prior Dilutive Issuance Valuation. The adjustment provided for in this Section 7(b) shall not apply to an Exempt Issuance (as defined in the Purchase Agreement).

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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 Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 Debenture and the other Transaction Documents 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 Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

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g) Notice to the Holder.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company(and all of its Subsidiaries, taken as a whole) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. Following the IPO Date, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6. Optional Redemption at Election of Company. Subject to the provisions of this Section 6, at any time after the IPO Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date” which shall not be prior to the IPO Date) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 60th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 60 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

Section 7. Negative Covenants. Prior to the IPO Date, as long as any portion of this Debenture remains outstanding, unless the holders of at least 50.1% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

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c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers, directors or employees of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

 

e) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) Indebtedness that is senior to the Debentures and set forth on Schedule 3.1(ff) to the Purchase Agreement, (ii) Indebtedness set forth on Schedule 3.1(aa) of the Purchase Agreement that is repaid from the proceeds of the IPO, (iii) the Debentures if on a pro-rata basis, and (iv) regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted in the case of clause (v) if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

f) pay cash dividends or distributions on any equity securities of the Company;

 

g) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

h) enter into any agreement with respect to any of the foregoing.

 

Section 8. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

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ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 10 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 15 Trading Days after the Company has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);;

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. After the IPO Date, the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii. the Company (and all of its Subsidiaries, taken as a whole) shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix. any Person shall breach the Lock-Up Agreements delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;

 

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x. following the IPO Date, the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xi. the Company abandons the IPO; or

 

xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

 

b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash; provided, however, that in the case of all Events of Default other than those described in 8(a)(iii)(B), (vi), (viii) and (xii) (the “Mandatory Default Exclusions”) an amount equal to the Mandatory Default Amount shall be paid. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount (or, in the case of an Event of Default involving a Mandatory Default Exclusion, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration) the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

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Section 9. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of the Holder appearing on the books of the Company, or if no such email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

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d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding 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 Debenture 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 applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

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g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

Section 10. Disclosure. Following the IPO Date, upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 11. Subordination. By acceptance of this Debenture, the Holder hereby acknowledges and agrees that the indebtedness evidenced by this Debenture is subordinated in right of payment to the indebtedness that is described in Schedule 3.1(ff) of the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

  SMART FOR LIFE, INC.
     
  By: /s/ Alfonso J. Cervantes, Jr.
  Name:  Alfonso J. Cervantes, Jr.
  Title: Executive Chairman
     
  Email for delivery of Notices:

 

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

 

The undersigned hereby elects to convert principal under the 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 of Smart for Life, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:    
    Date to Effect Conversion:
     
    Principal Amount of Debenture to be Converted:
     
    Number of shares of Common Stock to be issued:
     
    Signature:
     
    Name:
     
    Address for Delivery of Common Stock Certificates:
     
    Or
     
    DWAC Instructions:
     
    Broker No:                                
    Account No:                            

 

 

 

 

Exhibit 10.4

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES

 

Original Issue Date: November 5, 2021

 

$421,875.00

 

12% Unsecured SUBORDINATED CONVERTIBLE DEBENTURE

DUE November 30, 2022

 

THIS 12% UNSECURED SUBORDINATED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 12% Unsecured Subordinated Convertible Debentures of Smart for Life, Inc., a Delaware corporation (the “Company”), having its principal place of business at 990 Biscayne Blvd., Suite 503, Miami, Florida 33132, designated as its 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, the Company promises to pay to ANSON INVESTMENTS MASTER FUND LP or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $421,875.00 on November 30, 2022 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

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“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

 

“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; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

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“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall have the meaning set forth in Section 2(c).

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.

 

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the Conversion Shares issuable upon conversion in full of the Optional Redemption Amount to the Holder would not violate the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information, (j) for each Trading Day in a period of 60 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $500,000 per Trading Day and (k) the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”.

 

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“Event of Default” shall have the meaning set forth in Section 8(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“IPO” means the initial public offering of the Corporation.

 

“IPO Date” means the date that the Registration Statement and the registration statement registering the shares to be issued in the IPO is declared effective by the Commission or such other date as the Registration Statement is effective such that the Underlying Shares may be freely transferred and the Company’s Common Stock is listed on a Trading Market.

 

“Late Fees” shall have the meaning set forth in Section 2(d).

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) following the IPO Date, the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“New York Courts” shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Optional Redemption” shall have the meaning set forth in Section 6.

 

“Optional Redemption Amount” means the sum of (a) 115% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

 

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“Optional Redemption Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Period” shall have the meaning set forth in Section 6.

 

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $100,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (d) indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the 91st day following the Maturity Date.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

 

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“Purchase Agreement” means the Securities Purchase Agreement, dated as of November 5, 2021 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated July 1, 2021, among the Company and the original Holders.

 

“Registration Statement” means a registration statement on Form S-1 meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).

 

“VWAP” means, following the IPO Date, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)).

 

Section 2. Interest.

 

a) Payment of Interest. The outstanding principal balance of this Debenture shall bear interest accruing from the date made to the IPO Date at the rate of twelve percent (12%) per annum. Interest shall be due and payable in cash on the earliest of the Conversion Date (as to the amount being converted), the Optional Redemption Date (as to the amount being redeemed) and or the Maturity Date.

 

b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until the date of payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.

 

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c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

d) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the six-month anniversary of the IPO Date until this Debenture is no longer outstanding, the principal amount of this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

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b) Conversion Price. The conversion price for this Debenture shall equal 50% of the “effective” IPO price per share of Common Stock to the public (such that, if the IPO price is $10 for a unit consisting of 2 shares of Common Stock, the “effective” price per share is $5.00 and the Conversion Price hereunder is $2.50, subject to adjustment herein (the “Conversion Price”); provided, however, the Conversion Price shall be reduced, and only reduced, after the IPO Date to the lower of the Conversion Price on the IPO Date and the lowest VWAP during the 10 Trading Days immediately following the IPO Date provided that the Conversion Price shall not be reduced to less than $1.00, subject to adjustment for reverse and forward stock splits and the like. For the avoidance of doubt, the current proposed structure of the securities being sold in the IPO is the sale of units consisting of one share, one warrant with an exercise price equal to 50% of the unit price and a second warrant with an exercise price equal to 100% of the unit price, but the second warrant automatically becomes exercisable on a cashless basis without the payment of any consideration on the tenth day following the IPO Date. Assuming an IPO price per Unit of $10.00, the effective price would be $5.00.

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest. On or after the earlier of (i) the six-month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

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iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of principal amount being converted, $50 per Trading Day (increasing to $100 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.

 

vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

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vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), 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 (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

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Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding and prior to the IPO Date, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock (such issuances, collectively, a “Dilutive Issuance”) at a price per share of Common Stock using a pre-money valuation of the Corporation equal to the lesser of (i) $17,000,000.00 and (ii) the last pre-money valuation used by the Corporation in connection with a Dilutive Issuance (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that uses a lower valuation, such issuance shall be deemed to have occurred at such lower valuation) (the pre-money valuation used in respect of such Dilutive Issuance, “Dilutive Issuance Valuation”), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance, the Conversion Price shall be reduced to equal the product of (i) the then Conversion Price and (ii) the quotient obtained by dividing (A) the Dilutive Issuance Valuation as to such Dilutive Issuance and (B) the lower of $9,000,000 and the immediately prior Dilutive Issuance Valuation. The adjustment provided for in this Section 7(b) shall not apply to an Exempt Issuance (as defined in the Purchase Agreement).

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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 Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 Debenture and the other Transaction Documents 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 Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

g) Notice to the Holder.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company(and all of its Subsidiaries, taken as a whole) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. Following the IPO Date, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6. Optional Redemption at Election of Company. Subject to the provisions of this Section 6, at any time after the IPO Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date” which shall not be prior to the IPO Date) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 60th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 60 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

Section 7. Negative Covenants. Prior to the IPO Date, as long as any portion of this Debenture remains outstanding, unless the holders of at least 50.1% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

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c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers, directors or employees of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

 

e) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) Indebtedness that is senior to the Debentures and set forth on Schedule 3.1(ff) to the Purchase Agreement, (ii) Indebtedness set forth on Schedule 3.1(aa) of the Purchase Agreement that is repaid from the proceeds of the IPO, (iii) the Debentures if on a pro-rata basis, and (iv) regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted in the case of clause (v) if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

f) pay cash dividends or distributions on any equity securities of the Company;

 

g) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

h) enter into any agreement with respect to any of the foregoing.

 

Section 8. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

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ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 10 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 15 Trading Days after the Company has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);;

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. After the IPO Date, the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii. the Company (and all of its Subsidiaries, taken as a whole) shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix. any Person shall breach the Lock-Up Agreements delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;

 

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x. following the IPO Date, the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xi. the Company abandons the IPO; or

 

xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

 

b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash; provided, however, that in the case of all Events of Default other than those described in 8(a)(iii)(B), (vi), (viii) and (xii) (the “Mandatory Default Exclusions”) an amount equal to the Mandatory Default Amount shall be paid. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount (or, in the case of an Event of Default involving a Mandatory Default Exclusion, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration) the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

Section 9. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of the Holder appearing on the books of the Company, or if no such email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

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b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding 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 Debenture 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 applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

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e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

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h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

Section 10. Disclosure. Following the IPO Date, upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 11. Subordination. By acceptance of this Debenture, the Holder hereby acknowledges and agrees that the indebtedness evidenced by this Debenture is subordinated in right of payment to the indebtedness that is described in Schedule 3.1(ff) of the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

  SMART FOR LIFE, INC.
   
  By: /s/ Alfonso J. Cervantes, Jr.
  Name:  Alfonso J. Cervantes, Jr.
  Title: Executive Chairman
     
  Email for delivery of Notices:

 

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 of Smart for Life, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:    
    Date to Effect Conversion:
     
    Principal Amount of Debenture to be Converted:
     
    Number of shares of Common Stock to be issued:
     
    Signature:
     
    Name:
     
    Address for Delivery of Common Stock Certificates:
     
    Or
     
    DWAC Instructions:
     
    Broker No:                                
    Account No:                            

 

 

 

 

 

Exhibit 10.5

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES

 

Original Issue Date: November 5, 2021

 

$562,500.00

 

12% Unsecured SUBORDINATED CONVERTIBLE DEBENTURE

DUE November 30, 2022

 

THIS 12% UNSECURED SUBORDINATED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 12% Unsecured Subordinated Convertible Debentures of Smart for Life, Inc., a Delaware corporation (the “Company”), having its principal place of business at 990 Biscayne Blvd., Suite 503, Miami, Florida 33132, designated as its 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, the Company promises to pay to DISTRICT 2 CAPITAL FUND LP or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $562,500.00 on November 30, 2022 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

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“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

 

“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; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

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“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall have the meaning set forth in Section 2(c).

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.

 

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the Conversion Shares issuable upon conversion in full of the Optional Redemption Amount to the Holder would not violate the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information, (j) for each Trading Day in a period of 60 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $500,000 per Trading Day and (k) the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”.

 

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“Event of Default” shall have the meaning set forth in Section 8(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“IPO” means the initial public offering of the Corporation.

 

“IPO Date” means the date that the Registration Statement and the registration statement registering the shares to be issued in the IPO is declared effective by the Commission or such other date as the Registration Statement is effective such that the Underlying Shares may be freely transferred and the Company’s Common Stock is listed on a Trading Market.

 

“Late Fees” shall have the meaning set forth in Section 2(d).

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) following the IPO Date, the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“New York Courts” shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Optional Redemption” shall have the meaning set forth in Section 6.

 

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“Optional Redemption Amount” means the sum of (a) 115% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

 

“Optional Redemption Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Period” shall have the meaning set forth in Section 6.

 

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $100,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (d) indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the 91st day following the Maturity Date.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

 

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“Purchase Agreement” means the Securities Purchase Agreement, dated as of November 5, 2021 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated July 1, 2021, among the Company and the original Holders.

 

“Registration Statement” means a registration statement on Form S-1 meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).

 

“VWAP” means, following the IPO Date, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)).

 

Section 2. Interest.

 

a) Payment of Interest. The outstanding principal balance of this Debenture shall bear interest accruing from the date made to the IPO Date at the rate of twelve percent (12%) per annum. Interest shall be due and payable in cash on the earliest of the Conversion Date (as to the amount being converted), the Optional Redemption Date (as to the amount being redeemed) and or the Maturity Date.

 

b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until the date of payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.

 

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c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

d) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the six-month anniversary of the IPO Date until this Debenture is no longer outstanding, the principal amount of this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

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b) Conversion Price. The conversion price for this Debenture shall equal 50% of the “effective” IPO price per share of Common Stock to the public (such that, if the IPO price is $10 for a unit consisting of 2 shares of Common Stock, the “effective” price per share is $5.00 and the Conversion Price hereunder is $2.50, subject to adjustment herein (the “Conversion Price”); provided, however, the Conversion Price shall be reduced, and only reduced, after the IPO Date to the lower of the Conversion Price on the IPO Date and the lowest VWAP during the 10 Trading Days immediately following the IPO Date provided that the Conversion Price shall not be reduced to less than $1.00, subject to adjustment for reverse and forward stock splits and the like. For the avoidance of doubt, the current proposed structure of the securities being sold in the IPO is the sale of units consisting of one share, one warrant with an exercise price equal to 50% of the unit price and a second warrant with an exercise price equal to 100% of the unit price, but the second warrant automatically becomes exercisable on a cashless basis without the payment of any consideration on the tenth day following the IPO Date. Assuming an IPO price per Unit of $10.00, the effective price would be $5.00.

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest. On or after the earlier of (i) the six-month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

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iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of principal amount being converted, $50 per Trading Day (increasing to $100 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.

 

vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

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vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), 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 (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

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Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding and prior to the IPO Date, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock (such issuances, collectively, a “Dilutive Issuance”) at a price per share of Common Stock using a pre-money valuation of the Corporation equal to the lesser of (i) $17,000,000.00 and (ii) the last pre-money valuation used by the Corporation in connection with a Dilutive Issuance (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that uses a lower valuation, such issuance shall be deemed to have occurred at such lower valuation) (the pre-money valuation used in respect of such Dilutive Issuance, “Dilutive Issuance Valuation”), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance, the Conversion Price shall be reduced to equal the product of (i) the then Conversion Price and (ii) the quotient obtained by dividing (A) the Dilutive Issuance Valuation as to such Dilutive Issuance and (B) the lower of $9,000,000 and the immediately prior Dilutive Issuance Valuation. The adjustment provided for in this Section 7(b) shall not apply to an Exempt Issuance (as defined in the Purchase Agreement).

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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 Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 Debenture and the other Transaction Documents 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 Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

g) Notice to the Holder.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company(and all of its Subsidiaries, taken as a whole) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. Following the IPO Date, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6. Optional Redemption at Election of Company. Subject to the provisions of this Section 6, at any time after the IPO Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date” which shall not be prior to the IPO Date) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 60th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 60 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

Section 7. Negative Covenants. Prior to the IPO Date, as long as any portion of this Debenture remains outstanding, unless the holders of at least 50.1% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

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c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers, directors or employees of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

 

e) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) Indebtedness that is senior to the Debentures and set forth on Schedule 3.1(ff) to the Purchase Agreement, (ii) Indebtedness set forth on Schedule 3.1(aa) of the Purchase Agreement that is repaid from the proceeds of the IPO, (iii) the Debentures if on a pro-rata basis, and (iv) regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted in the case of clause (v) if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

f) pay cash dividends or distributions on any equity securities of the Company;

 

g) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

h) enter into any agreement with respect to any of the foregoing.

 

Section 8. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

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ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 10 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 15 Trading Days after the Company has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);;

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. After the IPO Date, the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii. the Company (and all of its Subsidiaries, taken as a whole) shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix. any Person shall breach the Lock-Up Agreements delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;

 

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x. following the IPO Date, the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xi. the Company abandons the IPO; or

 

xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

 

b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash; provided, however, that in the case of all Events of Default other than those described in 8(a)(iii)(B), (vi), (viii) and (xii) (the “Mandatory Default Exclusions”) an amount equal to the Mandatory Default Amount shall be paid. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount (or, in the case of an Event of Default involving a Mandatory Default Exclusion, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration) the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

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Section 9. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of the Holder appearing on the books of the Company, or if no such email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

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d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding 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 Debenture 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 applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

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g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

Section 10. Disclosure. Following the IPO Date, upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 11. Subordination. By acceptance of this Debenture, the Holder hereby acknowledges and agrees that the indebtedness evidenced by this Debenture is subordinated in right of payment to the indebtedness that is described in Schedule 3.1(ff) of the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

  SMART FOR LIFE, INC.
     
  By: /s/ Alfonso J. Cervantes, Jr.
  Name:  Alfonso J. Cervantes, Jr.
  Title: Executive Chairman
     
  Email for delivery of Notices:

 

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 of Smart for Life, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:  
  Date to Effect Conversion:
   
  Principal Amount of Debenture to be Converted:
   
  Number of shares of Common Stock to be issued:
   
  Signature:
   
  Name:
   
  Address for Delivery of Common Stock Certificates:
   
  Or
   
  DWAC Instructions:
   
  Broker No:_______________
  Account No:_____________

 

 

 

 

Exhibit 10.6

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES

 

Original Issue Date: November 5, 2021

 

$562,500.00

 

 

12% Unsecured SUBORDINATED CONVERTIBLE DEBENTURE

DUE November 30, 2022

 

THIS 12% UNSECURED SUBORDINATED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 12% Unsecured Subordinated Convertible Debentures of Smart for Life, Inc., a Delaware corporation (the “Company”), having its principal place of business at 990 Biscayne Blvd., Suite 503, Miami, Florida 33132, designated as its 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, the Company promises to pay to IONIC VENTURES, LLC or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $562,500.00 on November 30, 2022 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

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“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

 

“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; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

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“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall have the meaning set forth in Section 2(c).

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.

 

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the Conversion Shares issuable upon conversion in full of the Optional Redemption Amount to the Holder would not violate the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information, (j) for each Trading Day in a period of 60 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $500,000 per Trading Day and (k) the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”.

 

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“Event of Default” shall have the meaning set forth in Section 8(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“IPO” means the initial public offering of the Corporation.

 

“IPO Date” means the date that the Registration Statement and the registration statement registering the shares to be issued in the IPO is declared effective by the Commission or such other date as the Registration Statement is effective such that the Underlying Shares may be freely transferred and the Company’s Common Stock is listed on a Trading Market.

 

“Late Fees” shall have the meaning set forth in Section 2(d).

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) following the IPO Date, the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“New York Courts” shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Optional Redemption” shall have the meaning set forth in Section 6.

 

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“Optional Redemption Amount” means the sum of (a) 115% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

 

“Optional Redemption Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Period” shall have the meaning set forth in Section 6.

 

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $100,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (d) indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the 91st day following the Maturity Date.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

 

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“Purchase Agreement” means the Securities Purchase Agreement, dated as of November 5, 2021 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated July 1, 2021, among the Company and the original Holders.

 

“Registration Statement” means a registration statement on Form S-1 meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).

 

“VWAP” means, following the IPO Date, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)).

 

Section 2. Interest.

 

a) Payment of Interest. The outstanding principal balance of this Debenture shall bear interest accruing from the date made to the IPO Date at the rate of twelve percent (12%) per annum. Interest shall be due and payable in cash on the earliest of the Conversion Date (as to the amount being converted), the Optional Redemption Date (as to the amount being redeemed) and or the Maturity Date.

 

b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until the date of payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.

 

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c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

d) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the six-month anniversary of the IPO Date until this Debenture is no longer outstanding, the principal amount of this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

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b) Conversion Price. The conversion price for this Debenture shall equal 50% of the “effective” IPO price per share of Common Stock to the public (such that, if the IPO price is $10 for a unit consisting of 2 shares of Common Stock, the “effective” price per share is $5.00 and the Conversion Price hereunder is $2.50, subject to adjustment herein (the “Conversion Price”); provided, however, the Conversion Price shall be reduced, and only reduced, after the IPO Date to the lower of the Conversion Price on the IPO Date and the lowest VWAP during the 10 Trading Days immediately following the IPO Date provided that the Conversion Price shall not be reduced to less than $1.00, subject to adjustment for reverse and forward stock splits and the like. For the avoidance of doubt, the current proposed structure of the securities being sold in the IPO is the sale of units consisting of one share, one warrant with an exercise price equal to 50% of the unit price and a second warrant with an exercise price equal to 100% of the unit price, but the second warrant automatically becomes exercisable on a cashless basis without the payment of any consideration on the tenth day following the IPO Date. Assuming an IPO price per Unit of $10.00, the effective price would be $5.00.

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest. On or after the earlier of (i) the six-month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

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iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of principal amount being converted, $50 per Trading Day (increasing to $100 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.

 

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vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), 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 (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

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Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding and prior to the IPO Date, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock (such issuances, collectively, a “Dilutive Issuance”) at a price per share of Common Stock using a pre-money valuation of the Corporation equal to the lesser of (i) $17,000,000.00 and (ii) the last pre-money valuation used by the Corporation in connection with a Dilutive Issuance (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that uses a lower valuation, such issuance shall be deemed to have occurred at such lower valuation) (the pre-money valuation used in respect of such Dilutive Issuance, “Dilutive Issuance Valuation”), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance, the Conversion Price shall be reduced to equal the product of (i) the then Conversion Price and (ii) the quotient obtained by dividing (A) the Dilutive Issuance Valuation as to such Dilutive Issuance and (B) the lower of $9,000,000 and the immediately prior Dilutive Issuance Valuation. The adjustment provided for in this Section 7(b) shall not apply to an Exempt Issuance (as defined in the Purchase Agreement).

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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 Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 Debenture and the other Transaction Documents 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 Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

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g) Notice to the Holder.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company(and all of its Subsidiaries, taken as a whole) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. Following the IPO Date, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6. Optional Redemption at Election of Company. Subject to the provisions of this Section 6, at any time after the IPO Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date” which shall not be prior to the IPO Date) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 60th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 60 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

Section 7. Negative Covenants. Prior to the IPO Date, as long as any portion of this Debenture remains outstanding, unless the holders of at least 50.1% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

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c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers, directors or employees of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

 

e) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) Indebtedness that is senior to the Debentures and set forth on Schedule 3.1(ff) to the Purchase Agreement, (ii) Indebtedness set forth on Schedule 3.1(aa) of the Purchase Agreement that is repaid from the proceeds of the IPO, (iii) the Debentures if on a pro-rata basis, and (iv) regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted in the case of clause (v) if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

f) pay cash dividends or distributions on any equity securities of the Company;

 

g) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

h) enter into any agreement with respect to any of the foregoing.

 

Section 8. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

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ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 10 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 15 Trading Days after the Company has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);;

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. After the IPO Date, the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii. the Company (and all of its Subsidiaries, taken as a whole) shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix. any Person shall breach the Lock-Up Agreements delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;

 

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x. following the IPO Date, the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xi. the Company abandons the IPO; or

 

xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

 

b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash; provided, however, that in the case of all Events of Default other than those described in 8(a)(iii)(B), (vi), (viii) and (xii) (the “Mandatory Default Exclusions”) an amount equal to the Mandatory Default Amount shall be paid. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount (or, in the case of an Event of Default involving a Mandatory Default Exclusion, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration) the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

Section 9. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of the Holder appearing on the books of the Company, or if no such email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

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b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding 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 Debenture 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 applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

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e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

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g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

Section 10. Disclosure. Following the IPO Date, upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 11. Subordination. By acceptance of this Debenture, the Holder hereby acknowledges and agrees that the indebtedness evidenced by this Debenture is subordinated in right of payment to the indebtedness that is described in Schedule 3.1(ff) of the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

  SMART FOR LIFE, INC.
     
  By: /s/ Alfonso J. Cervantes, Jr.
  Name:  Alfonso J. Cervantes, Jr.
  Title: Executive Chairman
     
  Email for delivery of Notices:

 

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 of Smart for Life, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:    
  Date to Effect Conversion:
     
  Principal Amount of Debenture to be Converted:
     
  Number of shares of Common Stock to be issued:
     
  Signature:
     
  Name:
   
  Address for Delivery of Common Stock Certificates:
     
  Or
     
  DWAC Instructions:
     
Broker No:  
Account No:   

 

 

 

 

 

Exhibit 10.7

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES

 

Original Issue Date: November 5, 2021

 

$562,500.00

 

12% Unsecured SUBORDINATED CONVERTIBLE DEBENTURE

DUE November 30, 2022

 

THIS 12% UNSECURED SUBORDINATED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 12% Unsecured Subordinated Convertible Debentures of Smart for Life, Inc., a Delaware corporation (the “Company”), having its principal place of business at 990 Biscayne Blvd., Suite 503, Miami, Florida 33132, designated as its 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, the Company promises to pay to SABBY VOLATILITY WARRANT MASTER FUND LTD. or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $562,500.00 on November 30, 2022 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

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“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

 

“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; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

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“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall have the meaning set forth in Section 2(c).

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.

 

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the Conversion Shares issuable upon conversion in full of the Optional Redemption Amount to the Holder would not violate the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information, (j) for each Trading Day in a period of 60 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $500,000 per Trading Day and (k) the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”.

 

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“Event of Default” shall have the meaning set forth in Section 8(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“IPO” means the initial public offering of the Corporation.

 

“IPO Date” means the date that the Registration Statement and the registration statement registering the shares to be issued in the IPO is declared effective by the Commission or such other date as the Registration Statement is effective such that the Underlying Shares may be freely transferred and the Company’s Common Stock is listed on a Trading Market.

 

“Late Fees” shall have the meaning set forth in Section 2(d).

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) following the IPO Date, the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“New York Courts” shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Optional Redemption” shall have the meaning set forth in Section 6.

 

4

 

 

“Optional Redemption Amount” means the sum of (a) 115% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

 

“Optional Redemption Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice” shall have the meaning set forth in Section 6.

 

“Optional Redemption Notice Date” shall have the meaning set forth in Section 6.

 

“Optional Redemption Period” shall have the meaning set forth in Section 6.

 

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $100,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (d) indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the 91st day following the Maturity Date.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

 

5

 

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November 5, 2021 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated July 1, 2021, among the Company and the original Holders.

 

“Registration Statement” means a registration statement on Form S-1 meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).

 

“VWAP” means, following the IPO Date, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)).

 

Section 2. Interest.

 

a) Payment of Interest. The outstanding principal balance of this Debenture shall bear interest accruing from the date made to the IPO Date at the rate of twelve percent (12%) per annum. Interest shall be due and payable in cash on the earliest of the Conversion Date (as to the amount being converted), the Optional Redemption Date (as to the amount being redeemed) and or the Maturity Date.

 

b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until the date of payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.

 

6

 

 

c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

d) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the six-month anniversary of the IPO Date until this Debenture is no longer outstanding, the principal amount of this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

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b) Conversion Price. The conversion price for this Debenture shall equal 50% of the “effective” IPO price per share of Common Stock to the public (such that, if the IPO price is $10 for a unit consisting of 2 shares of Common Stock, the “effective” price per share is $5.00 and the Conversion Price hereunder is $2.50, subject to adjustment herein (the “Conversion Price”); provided, however, the Conversion Price shall be reduced, and only reduced, after the IPO Date to the lower of the Conversion Price on the IPO Date and the lowest VWAP during the 10 Trading Days immediately following the IPO Date provided that the Conversion Price shall not be reduced to less than $1.00, subject to adjustment for reverse and forward stock splits and the like. For the avoidance of doubt, the current proposed structure of the securities being sold in the IPO is the sale of units consisting of one share, one warrant with an exercise price equal to 50% of the unit price and a second warrant with an exercise price equal to 100% of the unit price, but the second warrant automatically becomes exercisable on a cashless basis without the payment of any consideration on the tenth day following the IPO Date. Assuming an IPO price per Unit of $10.00, the effective price would be $5.00.

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest. On or after the earlier of (i) the six-month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

8

 

 

iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of principal amount being converted, $50 per Trading Day (increasing to $100 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.

 

vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

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vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), 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 (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

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Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding and prior to the IPO Date, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock (such issuances, collectively, a “Dilutive Issuance”) at a price per share of Common Stock using a pre-money valuation of the Corporation equal to the lesser of (i) $17,000,000.00 and (ii) the last pre-money valuation used by the Corporation in connection with a Dilutive Issuance (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that uses a lower valuation, such issuance shall be deemed to have occurred at such lower valuation) (the pre-money valuation used in respect of such Dilutive Issuance, “Dilutive Issuance Valuation”), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance, the Conversion Price shall be reduced to equal the product of (i) the then Conversion Price and (ii) the quotient obtained by dividing (A) the Dilutive Issuance Valuation as to such Dilutive Issuance and (B) the lower of $9,000,000 and the immediately prior Dilutive Issuance Valuation. The adjustment provided for in this Section 7(b) shall not apply to an Exempt Issuance (as defined in the Purchase Agreement).

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to 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 Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. 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 Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 Debenture and the other Transaction Documents 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 Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

g) Notice to the Holder.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company(and all of its Subsidiaries, taken as a whole) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. Following the IPO Date, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6. Optional Redemption at Election of Company. Subject to the provisions of this Section 6, at any time after the IPO Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date” which shall not be prior to the IPO Date) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 60th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 60 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

Section 7. Negative Covenants. Prior to the IPO Date, as long as any portion of this Debenture remains outstanding, unless the holders of at least 50.1% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

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c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers, directors or employees of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

 

e) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) Indebtedness that is senior to the Debentures and set forth on Schedule 3.1(ff) to the Purchase Agreement, (ii) Indebtedness set forth on Schedule 3.1(aa) of the Purchase Agreement that is repaid from the proceeds of the IPO, (iii) the Debentures if on a pro-rata basis, and (iv) regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted in the case of clause (v) if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

f) pay cash dividends or distributions on any equity securities of the Company;

 

g) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

h) enter into any agreement with respect to any of the foregoing.

 

Section 8. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

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ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 10 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 15 Trading Days after the Company has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);;

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. After the IPO Date, the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii. the Company (and all of its Subsidiaries, taken as a whole) shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix. any Person shall breach the Lock-Up Agreements delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;

 

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x. following the IPO Date, the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xi. the Company abandons the IPO; or

 

xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

 

b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash; provided, however, that in the case of all Events of Default other than those described in 8(a)(iii)(B), (vi), (viii) and (xii) (the “Mandatory Default Exclusions”) an amount equal to the Mandatory Default Amount shall be paid. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount (or, in the case of an Event of Default involving a Mandatory Default Exclusion, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration) the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

Section 9. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of the Holder appearing on the books of the Company, or if no such email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

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b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding 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 Debenture 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 applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

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e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

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h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

Section 10. Disclosure. Following the IPO Date, upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 11. Subordination. By acceptance of this Debenture, the Holder hereby acknowledges and agrees that the indebtedness evidenced by this Debenture is subordinated in right of payment to the indebtedness that is described in Schedule 3.1(ff) of the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

  SMART FOR LIFE, INC.
     
  By: /s/ Alfonso J. Cervantes, Jr.
  Name:  Alfonso J. Cervantes, Jr.
  Title: Executive Chairman
     
  Email for delivery of Notices:

 

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 12% Unsecured Subordinated Convertible Debenture due November 30, 2022 of Smart for Life, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:  
  Date to Effect Conversion:
   
  Principal Amount of Debenture to be Converted:
   
  Number of shares of Common Stock to be issued:
   
  Signature:
   
  Name:
   
  Address for Delivery of Common Stock Certificates:
   
  Or
   
  DWAC Instructions:
   
  Broker No:                        
  Account No:                         

 

 

 

 

 

Exhibit 10.8

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of July 1, 2021, among Bonne Santé Group, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Certificate of Designation (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“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; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

“Certificate of Designation” means the Certificate of Designation to be filed prior to the Closing by the Company with the Secretary of State of Delaware, in the form of Exhibit A attached hereto.

 

 

 

 

“Closings” means the First Closing and the Second Closing.

 

“Closing Dates” means the First Closing Date and the Second Closing Date, as applicable.

 

“Closing Statement” means the Closing Statement in the form on Annex A attached hereto.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Company Counsel” means Bevilacqua PLLC.

 

“Conversion Price” shall have the meaning ascribed to such term in the Certificate of Designation.

 

“Conversion Shares” shall have the meaning ascribed to such term in the Certificate of Designation.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

“EGS” means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.

 

“Effective Date” means the earliest of the date that (a) the Registration Statement has been declared effective by the Commission, (b) all of the Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, (c) following the one year anniversary of the applicable Closing Date provided that a holder of the Underlying Shares is not an Affiliate of the Company or (d) all of the Underlying Shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the Securities Act without volume or manner-of-sale restrictions and Company Counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

 

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“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(s).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, directors or consultants of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company (provided if to consultants such issuance shall not exceed 100,000 in any calendar month, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder, warrants to the Placement Agent in connection with the transactions pursuant to this Agreement and any securities upon exercise of warrants to the Placement Agent and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement or commitments to issue shares of common stock, which commitments are in existence on the date of this Agreement, provided that such securities or such commitments have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) solely with respect to Sections 4.12 and 4.13 hereunder, securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company or solely with respect to Section 4.13, securities issued in financing transactions, the primary purpose of which is to finance acquisitions or strategic transactions approved by a majority of the disinterested directors fo the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period in Section 4.13(a) herein, and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) solely with respect to Sections 4.12 and 4.13 hereunder, shares of Common Stock, options or convertible securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by a majority of the disinterested directors of the Company, (e) solely with respect to Sections 4.12 and 4.13 hereunder, shares of Common Stock, options or convertible securities issued to in connection with the provision of goods pursuant to transactions approved by a majority of the disinterested directors of the Company, (f) solely with respect to Sections 4.12 and 4.13 hereunder, shares of Common Stock, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development, marketing or other similar agreements or strategic partnerships approved a majority of the disinterested directors of the Company and (g) a promissory note in the aggregate principal amount of up to $3,000,000 to Diamond Creek Capital, LLC (“Diamond Creek”) pursuant to that certain Loan Agreement to be entered into among the Company, Diamond Creek and the other parties thereto to be dated on or about the First Closing Date and the right to receive up to $250,000 of the same securities or units sold in the Company’s IPO at a price per security or unit equal to the IPO price per security or unit as a success fee as described therein.

 

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“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“First Closing” means the closing of the purchase and sale of Securities pursuant to Section 2.1(a).

 

“First Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the First Closing Subscription Amount and (ii) the Company’s obligations to deliver the Securities purchased at such First Closing, in each case, have been satisfied or waived, but in no event later than the second Trading Day following the date hereof.

 

“FDA” shall have the meaning ascribed to such term in Section 3.1(ll).

 

“FDCA” shall have the meaning ascribed to such term in Section 3.1(ll).

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(p).

 

“IPO” means the initial public offering of the Company.

 

“IPO Date” means the date that the registration statement registering the shares to be issued in the IPO and the Registration Statement are both declared effective by the Commission.

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

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“Lock-Up Agreement” means the Lock-Up Agreement, dated as of the date hereof, by and among the Company and the directors, officers, and 5% stockholders of the Company, in the form of Exhibit C attached hereto.

 

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Pharmaceutical Product” shall have the meaning ascribed to such term in Section 3.1(ll).

 

“Placement Agent” means Dawson James Securities, Inc.

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Preferred Stock” means the up to 8,000 shares of the Company’s Series A Convertible Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Designation.

 

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Public Information Failure” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated on or about the date hereof, among the Company and the Purchasers, in the form of Exhibit B attached hereto.

 

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“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon conversion in full of all shares of Preferred Stock issuable hereunder and issuable upon exercise in full of all of the Warrants, ignoring any conversion or exercise limits set forth therein.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Second Closing” means the closing of the purchase and sale of Securities pursuant to Section 2.1(b).

 

“Second Closing Date” means the date of the Second Closing.

 

“Securities” means the Preferred Stock, the Warrants and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock).

 

“Stated Value” means $1,000 per share of Preferred Stock.

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Preferred Stock and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

 

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

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“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a), and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).

 

“Transaction Documents” means this Agreement, the Certificate of Designation, the Warrants, the Registration Rights Agreement, the Lock-Up Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means the transfer agent of the Company, and any successor transfer agent of the Company.

 

“Underlying Shares” means the Warrant Shares and shares of Common Stock issued and issuable upon conversion of the Preferred Stock issuable hereunder, without respect to any limitation or restriction on exercise set forth in the Warrants or conversion set forth in the Certificate of Designation.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

 

“VWAP” means, for any date following the IPO Date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable 6 months following the IPO Date and have a term of exercise equal to five years, in the form of Exhibit D attached hereto.

 

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

 

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ARTICLE II.

PURCHASE AND SALE

 

2.1 Closings.

 

(a) First Closing. Substantially concurrent with the execution and delivery of this Agreement by the parties hereto, subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, an aggregate of $6 million of Preferred Stock and Warrants. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as to the First Closing as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Preferred Stock and Warrants, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the First Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the First Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree.

 

(b) Second Closing. Within 3 Trading Days of the later of (i) the date that the Company files the Registration Statement with the Commission and (ii) the date that the Company files the registration statement registering the shares of Common Stock to be issued in the IPO, upon the terms and conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, an aggregate of $2 million of Preferred Stock and Warrants. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as to the Second Closing as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Shares and Warrants, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Second Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Second Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree.

 

2.2 Deliveries.

 

(a) On or prior to each Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i) as to the First Closing only, this Agreement duly executed by the Company;

 

(ii) as to the First Closing only, a legal opinion of Company Counsel, substantially in the form acceptable to the Purchasers;

 

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(iii) a certificate evidencing a number of shares of Preferred Stock equal to such Purchaser’s Subscription Amount as to the applicable Closing as set forth on the Purchaser’s signature page hereto divided by the Stated Value, registered in the name of such Purchaser;

 

(iv) a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of such Purchaser’s Conversion Shares on the applicable Closing Date, subject to adjustment therein;

 

(v) the Company shall have provided each Purchaser with the Company’s wire instructions, on Company letterhead and executed by the Chief Executive Officer or Chief Financial Officer

 

(vi) as to the First Closing, the Lock-Up Agreements;

 

(vii) evidence of the filing and acceptance of the Certificate of Designation from the Secretary of State of Delaware;

 

(viii) as to the First Closing, a draft of the Registration Statement and registration statement for the IPO and confirmation that the Company shall use reasonable best efforts to file such registration statements within 90 days of the First Closing Date; and

 

(ix) as to the First Closing only, the Registration Rights Agreement duly executed by the Company.

 

(b) On or prior to each Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i) As to the First Closing only, this Agreement duly executed by such Purchaser;

 

(ii) such Purchaser’s Subscription Amount as to the applicable Closing as set forth on such Purchaser’s signature hereto by wire transfer to the account specified in writing by the Company; and

 

(iii) as to the First Closing only, the Registration Rights Agreement duly executed by such Purchaser.

 

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2.3 Closing Conditions.

 

(a) The obligations of the Company hereunder in connection with each Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) on the applicable Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the applicable Closing Date shall have been performed; and

 

(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b) The respective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the applicable Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;

 

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(v) from the date hereof to each Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the applicable Closing.

 

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or warranty otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.

 

(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (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 any Subsidiary, or give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or 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 or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii) the filing with the Commission pursuant to the Registration Rights Agreement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Conversion Shares and Warrant Shares for trading thereon on the IPO Date, and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).

 

(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

 

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(g) Capitalization. The capitalization of the Company as of the date hereof is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or as set forth in Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers). There are no outstanding securities or instruments of the Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company or any Subsidiary. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all 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 securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

(h) Financial Statements. The financial statements of the Company provided to the Purchasers have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), 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 and its consolidated Subsidiaries 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, immaterial, year-end audit adjustments.

 

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(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest unaudited year end financial statements, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses 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 disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (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 and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition, that would result in a Material Adverse Effect.

 

(j) Litigation. Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”). None of the Actions set forth on Schedule 3.1(j), (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(k) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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(l) Compliance. Neither the Company nor any Subsidiary: (i) is 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 or any Subsidiary under), nor has the Company or any Subsidiary received 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 agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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(n) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(o) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens in favor of Diamond Creek that will become effective at or about the First Closing Date, (ii) Liens in favor of Peah Capital LLC that will become subordinate to Diamond Creek at or about the First Closing Date, (iii) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (iv) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(p) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal $2 million. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage 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.

 

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(r) Transactions with Affiliates and Employees. Except as set forth on Schedule 3.1(r), none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

(s) Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of each Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information that will be required to be disclosed by the Company in the reports it will file or submit to the Commission following the IPO under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

 

(t) Certain Fees. Except pursuant to those certain agreements by and among the Company and the Placement Agent, dated February 15, 2021 and March 1, 2021, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

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(u) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

(v) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(w) Registration Rights. Other than each of the Purchasers, no Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiaries.

 

(x) Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(y) Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information that will not be disclosed publicly at or prior to the consummation of the IPO. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

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(z) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

(aa) Solvency. Based on the consolidated financial condition of the Company as of each Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the applicable Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

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(bb) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise 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 and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

 

(cc) No General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(dd) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, 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 any Subsidiary (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 FCPA.

 

(ee) Accountants. The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Registration Statement.

 

(ff) Seniority. As of each Closing Date, except as set forth on Schedule 3.1(ff) of the Disclosure Schedules, no other equity of the Company is senior to the Preferred Stock in right of payment, whether with respect to dividends or upon liquidation or dissolution, or otherwise.

 

(gg) No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

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(hh) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(ii) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(g) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

(jj) [RESERVED] 

 

(kk) FDA. There is no pending, completed or, to the Company's knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the U.S Food and Drug Administration (“FDA”) or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA.  The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company.

 

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(ll) Stock Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

 

(mm) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(nn) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.

 

(oo) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

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(pp) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

 

(qq) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.

 

(rr) Other Covered Persons. Other than the Placement Agent, the Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Securities.

 

(ss) Notice of Disqualification Events. The Company will notify the Purchasers and the Placement Agent in writing, prior to the applicable Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.

 

3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of each Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):

 

(a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it converts any Preferred Stock into Conversion Shares or exercises any Warrants it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), (a)(8), (a)(9), (a)(12), or (a)(13) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

 

(d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e) General Solicitation. Such Purchaser is not, to such Purchaser’s knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.

 

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(f) Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and 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 Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its 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.  Such Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement Agent has provided such Purchaser with any information or advice with respect to the Securities nor is such information or advice necessary or desired.  Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company or the quality of the Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect to the Company which such Purchaser agrees need not be provided to it.  In connection with the issuance of the Securities to such Purchaser, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser.

 

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), 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 Agreement and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement.

 

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(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] 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. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders (as defined in the Registration Rights Agreement) thereunder.

 

(c) Following the IPO Date the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144 (assuming cashless exercise of the Warrants), (iii) if such Underlying Shares are eligible for sale under Rule 144 (assuming cashless exercise of the Warrants), without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent or the Purchaser promptly after the Effective Date if required by the Transfer Agent to effect the removal of the legend hereunder, or if requested by a Purchaser, respectively. If all or any shares of Preferred Stock or all or any portion of the Warrant is converted at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 (assuming cashless exercise of the Warrants) as to such Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares 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. Following the IPO Date the Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend.

 

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(d) In addition to such Purchaser’s other available remedies, following the IPO Date, the Company shall pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each $2,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $5 per Trading Day (increasing to $10 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend and (ii) if the Company fails to (a) issue and deliver (or cause to be delivered) to a Purchaser by the Legend Removal Date a certificate representing the Securities so delivered to the Company by such Purchaser that is free from all restrictive and other legends and (b) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated receiving from the Company without any restrictive legend, then, an amount equal to the excess of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “Buy-In Price”) over the product of (A) such number of Underlying Shares that the Company was required to deliver to such Purchaser by the Legend Removal Date multiplied by (B) the lowest closing sale price of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to the Company of the applicable Underlying Shares (as the case may be) and ending on the date of such delivery and payment under this clause (ii).

 

(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

4.3 Furnishing of Information; Public Information.

 

(a) Following the IPO Date and until the earliest of the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and 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 even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

(b) At any time during the period commencing from the twelve (12) month anniversary of the IPO Date and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144 (i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to one percent (1.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the Purchasers to transfer the Underlying Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.”  Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured.  In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. Notwithstanding the foregoing in no event will the Company be liable for liquidated damages, in the aggregate, under this Section 4.3 and Section 2(d) of the Registration Rights Agreement in excess of 1.0% of the aggregate Subscription Amount in any single month and the maximum aggregate liquidated damages payable to a Purchaser, in the aggregate, under this Section 4.3 and Section 2(d) of the Registration Rights Agreement shall be ten percent (10%) of the aggregate Subscription Amount.

 

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4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.5 Conversion and Exercise Procedures. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Certificate of Designation set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Preferred Stock, as the case may be. Without limiting the preceding sentences, no ink-original Notice of Exercise or Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required in order to convert the shares of Preferred Stock or any Notice of Exercise to exercise the Warrants, as the case may be. No additional legal opinion, other information or instructions shall be required of the Purchasers convert their shares of Preferred Stock or exercise the Warrants. The Company shall honor conversions of the Preferred Stock and exercise of the Warrants and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.6 Securities Laws Disclosure; Publicity. From and after the IPO Date, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the IPO Date, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with (i) any registration statement contemplated by the Registration Rights Agreement and (ii) the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

 

4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.8 Non-Public Information. Following the IPO Date, except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.6, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. Following the IPO Date, to the extent that the Company, any of its Subsidiaries, or any of their respective officers, director, agents, employees or Affiliates delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that following the IPO Date any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

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4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.

 

4.10 Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser 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 Purchaser (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 persons (each, a “Purchaser 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 Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is solely based upon a material breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

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4.11 Reservation and Listing of Securities.

 

(a) The Company shall maintain a reserve of the Required Minimum from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.

 

(b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

 

(c) The Company shall, if applicable on the IPO Date: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market on the IPO Date, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. On and after the IPO Date, the Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

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4.12 Participation in Future Financing.

 

(a) From the date hereof until the one-year anniversary of the IPO Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, Indebtedness or a combination of units thereof (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the aggregate amount raised thereunder (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

 

(b) At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

 

(c) Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice that such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from a Purchaser as of such fifth (5th) Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

 

(d) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

(e) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased hereunder by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased hereunder by all Purchasers participating under this Section 4.12.

 

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(f) The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within fifteen (15) Trading Days after the date of the initial Subsequent Financing Notice.

 

(g) The Company and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision that, directly or indirectly, will, or is intended to, exclude one or more of the Purchasers from participating in a Subsequent Financing, including, but not limited to, provisions whereby such Purchaser shall be required to agree to any restrictions on trading as to any securities of the Company or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of such Purchaser.

 

(h) Notwithstanding anything to the contrary in this Section 4.12 and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser will not be in possession of any material, non-public information, by the fifteen (15) Business Days following delivery of the Subsequent Financing Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.

 

(i) Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance.

 

4.13 Subsequent Equity Sales.

 

(a) From the date hereof until the 180th day following the IPO Date, neither the Company nor any Subsidiary shall (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents or (ii) file any registration statement or any amendment or supplement thereto, in each case other than as contemplated pursuant to the Registration Rights Agreement.

 

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(b) From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. For the avoidance of doubt, an “at-the-market” offering of securities under an effective shelf registration statement shall not be considered a Variable Rate Transaction. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

(c) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance or the securities issued and issuable in the IPO, except that no Variable Rate Transaction shall be an Exempt Issuance.

 

4.14 Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to such Transaction Documents. Further, the Company shall not make any payment on the Preferred Stock and/or Warrants which are disproportionate to the respective Stated Value of outstanding Preferred Stock at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.15 Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending on the IPO Date.  Each Purchaser, severally and not jointly with the other Purchasers, covenants that until the IPO Date, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced in connection with the IPO, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the IPO Date and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the IPO Date.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

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4.16 Lock-Up Agreements. The Company shall not amend, modify, waive or terminate any provision of any of the Lock-Up Agreements except to extend the term of the lock-up period and shall enforce the provisions of each Lock-Up Agreement in accordance with its terms. If any party to a Lock-Up Agreement breaches any provision of a Lock-Up Agreement, the Company shall promptly use its best efforts to seek specific performance of the terms of such Lock-Up Agreement.

 

4.17 Form D; Blue Sky Filings. 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, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at each Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.18 D&O Insurance. On or before the IPO Date the Company shall have obtained directors and officers insurance coverage at least equal $3 million.

 

4.19 Board Designee. In the event that the IPO has not occurred on or prior to January 31, 2022, the Company agrees that it will appoint to its Board of Directors the directors designated in writing by each Purchaser (such designees and as such designees may be replaced as provided herein, the “Designees”) within five days of such designation, such that the Designees shall comprise a majority of the Board of Directors. Each Purchaser, severally and not jointly with the other Purchasers, shall have the right to appoint one director to comprise the majority of the directors (if required, existing directors shall resign to allow for the Purchasers to hold a majority of the board).  Further, until the IPO Date, the Company shall continue to recommend to its stockholders that it elect the Designees to serve as directors on the Company’s Board. The Company further agrees that it will not take action to remove, or recommend the removal of, the Designees without cause therefore. Upon any removal or resignation of the Designees, the Company shall, within five days of the receipt of written notice from the applicable Purchaser of the identification of a replacement designee, appoint to fill the vacancy so created with such replacement designee subject to the paragraph below. The Designee, once a Director of the Company, shall be entitled to all of the rights enjoyed by other non-employee Directors of the Company, including receipt of information, reimbursement of expenses and coverage under applicable director and officer insurance policies. Further, each Purchaser, severally and not jointly with the other Purchasers, agrees that it will not propose any individual as the Designee to be a member of the Company’s Board of Directors whose background does not comply with or would disqualify the Company from complying with (i) applicable securities laws, (ii) contractual obligations to and rules of Trading Market and (iii) the criteria for directors set forth in the then current charter of the Company, if any, and will not disqualify the Company from being able to conduct any public offering or private placement pursuant to either Rule 506 (b) or (c) and any “bad boy“ provisions of any state securities laws.  Furthermore, each Purchaser, severally and not jointly with the other Purchasers, agrees that it will not propose any individual as the Designee to be a member of the Company’s Board of Directors who is an affiliate of a competitor of the Company. To the extent that any Designee who becomes a director and does not satisfy the conditions of the preceding sentence, that person will immediately resign, and the applicable Purchaser will have the right to propose a replacement person to fill such vacancy otherwise in accordance with the terms of this Agreement. Any Purchaser may disclaim their right to appoint a director and this right shall terminate on the IPO Date.

 

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ARTICLE V.

MISCELLANEOUS

 

5.1 Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the First Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof, provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).

 

5.2 Fees and Expenses. At the First Closing, the Company has agreed to pay to the lead Purchaser an origination fee equal to $75,000. The Company shall deliver to each Purchaser, prior to each Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

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5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile or email attachement at the facsimile number or email attachment as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least 50.1% in interest of the Preferred Stock and Warrants based on the initial Subscription Amounts hereunder (or, prior to each Closing, the Company and each Purchaser) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.

 

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8 No Third Party Beneficiaries. The Placement Agent shall be the third-party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10 and this Section 5.8.

 

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5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding 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 Agreement 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. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.

 

5.10 Survival. The representations and warranties contained herein shall survive each Closing and the delivery of the Securities.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

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5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that, in the case of a rescission of a conversion Preferred Stock or exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Preferred Stock (if delivered) and/or Common Stock, as applicable, subject to any such rescinded conversion notice.

 

5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any Action or Proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

38

 

 

5.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent any of the Purchasers and only represents the lead Purchaser. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

 

5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts accrued under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all accrued and unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.21 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

(Signature Pages Follow)

 

39

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

BONNE SANTÉ GROUP, inc.    Address for Notice:
       
By: /s/ Alfonso J. Cervantes   Alfonso J. Cervantes
Name: Alfonso J. Cervantes   Founder and Executive Chairman
Title: Founder and Executive Chairman   Bonne Santé Group, Inc.
       
  Tel:
      Mobile:
With a copy to (which shall not constitute notice):   FAX:
      Email:
       
      Louis A. Bevilacqua
      Managing Member
      Bevilacqua PLLC
      1050 Connecticut Ave., NW
      Suite 500
      Washington, DC 20036
      Tel:
      Fax:
      Email:

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

40

 

 

[PURCHASER SIGNATURE PAGES TO bonne santé SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: ANSON EAST MASTER FUND LP
Signature of Authorized Signatory of Purchaser:  /s/ Amin Nathoo
Name of Authorized Signatory: Amin Nathoo
Title of Authorized Signatory: Director, Anson Advisors Inc.
Email Address of Authorized Signatory:
Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

  

Subscription Amount:

 

First Closing: $375,000.00

Second Closing: $125,000.00

 

Shares of Preferred Stock issuable:

 

First Closing: 375

Second Closing: 125

 

Underlying Shares issuable:

 

First Closing: 562,472

Second Closing: 187,491

 

Warrant Shares:

 

First Closing: 562,472

Second Closing: 187,491

 

EIN Number:

 

41

 

 

[PURCHASER SIGNATURE PAGES TO bonne santé SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: ANSON INVESTMENTS MASTER FUND LP
Signature of Authorized Signatory of Purchaser: /s/ Amin Nathoo
Name of Authorized Signatory: Amin Nathoo
Title of Authorized Signatory: Director, Anson Advisors Inc.
Email Address of Authorized Signatory:
Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

  

Subscription Amount:

 

First Closing: $1,125,000.00

Second Closing: $375,000.00

 

Shares of Preferred Stock issuable:

 

First Closing: 1125

Second Closing: 375

 

Underlying Shares issuable:

 

First Closing: 1,687,416

Second Closing: 562,472

 

Warrant Shares:

 

First Closing: 1,687,416

Second Closing: 562,472

 

EIN Number:

 

42

 

 

[PURCHASER SIGNATURE PAGES TO bonne santé SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: District 2 Capital Fund LP
Signature of Authorized Signatory of Purchaser: /s/ Michael Bigger
Name of Authorized Signatory: Michael Bigger
Title of Authorized Signatory: Managing Member of the GP
Email Address of Authorized Signatory:
Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

  

Subscription Amount:

 

First Closing: $1,500,000

Second Closing: $500,000

 

Shares of Preferred Stock issuable:

 

First Closing:

Second Closing:

 

Underlying Shares issuable:

 

First Closing:

Second Closing:

 

Warrant Shares:

 

First Closing:

Second Closing:

 

EIN Number:

 

43

 

 

[PURCHASER SIGNATURE PAGES TO bonne santé SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: Ionic Ventures, LLC
Signature of Authorized Signatory of Purchaser: /s/ Brendan O’Neil
Name of Authorized Signatory: Brendan O’Neil
Title of Authorized Signatory: Authorized Signatory
Email Address of Authorized Signatory:
Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount:

 

First Closing: $1,500,000

Second Closing: $500,000

  

Shares of Preferred Stock issuable:

 

First Closing: 1,500

Second Closing: 500

 

Underlying Shares issuable:

 

First Closing: 2,249,888

Second Closing: 749,963

 

Warrant Shares:

 

First Closing: 2,249,888

Second Closing: 749,963

 

EIN Number:

 

44

 

 

[PURCHASER SIGNATURE PAGES TO bonne santé SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: Sabby Volatility Master Fund, Ltd.
Signature of Authorized Signatory of Purchaser: /s/ Robert Grundstein
Name of Authorized Signatory: Robert Grundstein
Title of Authorized Signatory: COO of Purchaser’s Investment Manager
Email Address of Authorized Signatory:
Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount:

 

First Closing: $1,500,000

Second Closing: $500,000

 

Shares of Preferred Stock issuable:

 

First Closing: 1,500

Second Closing: 500

 

Underlying Shares issuable:

 

First Closing: 2,249,888

Second Closing: 749,963

 

Warrant Shares:

 

First Closing: 2,249,888

Second Closing: 749,963

 

EIN Number:

 

 

45

 

 

Exhibit 10.9

 

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into as of July 1, 2021, between Bonne Santé Group, Inc., a Delaware corporation (the “Company”), and each of the several purchasers signatory hereto (each such purchaser, a “Purchaser” and, collectively, the “Purchasers”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “Purchase Agreement”).

 

The Company and each Purchaser hereby agrees as follows:

 

1.  Definitions.

 

Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

“Advice” shall have the meaning set forth in Section 6(c).

 

“Effectiveness Date” means, with respect to the Initial Registration Statement required to be filed hereunder, the earlier of (a) the IPO Date and (b) January 31, 2022.

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Event” shall have the meaning set forth in Section 2(d).

 

“Event Date” shall have the meaning set forth in Section 2(d).

 

“Filing Date” means, with respect to the Initial Registration Statement required hereunder, the 45th calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

 

 

 

“Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement.

 

“Losses” shall have the meaning set forth in Section 5(a).

 

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

 

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means, as of any date of determination, (a) all of the shares of Common Stock then issued and issuable upon conversion in full of the Preferred Stock (assuming on such date the shares of Preferred Stock are converted in full without regard to any conversion limitations therein), (b) all dividends that have accrued on the Preferred Stock and will accrue assuming such Preferred Stock is held until the one-year anniversary of the IPO Date, (c) all of the shares of Common Stock then issued and issuable upon exercise in full of the Warrants (assuming on such date the shares of Warrants are exercised in full without regard to any exercise limitations therein), (d) any additional shares of Common Stock issued and issuable in connection with the anti-dilution provisions in the Certificate of Designation and Warrants (without giving effect to any limitations on exercise or conversion set forth therein) and (e) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company and Warrant are exercised via cashless exercise).

 

2 

 

 

“Registration Statement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“Selling Stockholder Questionnaire” shall have the meaning set forth in Section 3(a).

 

“SEC Guidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

 

2.  Shelf Registration.

 

(a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 51% in interest of the Holders) substantially the “Plan of Distribution” attached hereto as Annex A and substantially the “Selling Stockholder” section attached hereto as Annex B; provided, however, that no Holder shall be required to be named as an “underwriter” without such Holder’s express prior written consent. Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “Effectiveness Period”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. (New York City time) on a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. (New York City time) on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d).

 

3 

 

 

(b)  Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); with respect to filing on Form S-3 or other appropriate form, and subject to the provisions of Section 2(d) with respect to the payment of liquidated damages; provided, however, that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.

 

(c) Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:

 

a. First, the Company shall reduce or eliminate any securities to be included other than Registrable Securities; and

 

b. Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders); and

 

c. Third, the Company shall reduce Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders).

 

4 

 

 

In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

(d) If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date, or (ii) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (iii) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “Event”, and for purposes of clauses (i) and (ii), the date on which such Event occurs, and for purpose of clause (iii) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 1.0% multiplied by the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 12% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. Notwithstanding the foregoing in no event will the Company be liable for liquidated damages, in the aggregate, under this Section 2(d) and Section 4.3(b) of the Purchase Agreement in excess of 1.0% of the aggregate Subscription Amount in any single month and the maximum aggregate liquidated damages payable to a Holder, in the aggregate, under this Section 2(d) and Section 4.3(b) of the Purchase Agreement shall be ten percent (10%) of the aggregate Subscription Amount.

 

5 

 

 

(e) If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.

 

(f) Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as any Underwriter without the prior written consent of such Holder.

 

3.  Registration Procedures.

 

In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a) Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “Selling Stockholder Questionnaire”) on a date that is not less than two (2) Trading Days prior to the Filing Date or by the end of the fourth (4th) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.

 

6 

 

 

(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.

 

(d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided, however, that in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

 

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(e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission, provided that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.

 

(g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

 

(h)  Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

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(i) If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

(j) Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will 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, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.

 

(k) Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.

 

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(l) The Company shall use its best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

 

(m) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

 

4.  Registration Expenses. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

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5.  Indemnification.

 

(a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and 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 each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and 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 each such controlling Person, 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, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of 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 or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(c). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(f).

 

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(b) Indemnification by Holders. Each Holder 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 all Losses, as incurred, to the extent arising out of or based solely upon: 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 Holder 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 Holder’s information provided in the Selling Stockholder Questionnaire or the proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto. In no event shall the liability of a selling Holder be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof, provided that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.

 

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party, provided that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

 

(d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

 

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6.  Miscellaneous.

 

(a) Remedies. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

 

(b) No Piggyback on Registrations; Prohibition on Filing Other Registration Statements. Except as set forth on Schedule 6(b) attached hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement so long as no new securities are registered on any such existing registration statements.

 

(c) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).

 

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(d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 50.1% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security), provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(d). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

(e) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

 

(f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.

 

(g) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(i), neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

 

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(h) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

(i) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

 

(j) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

 

(k) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(l) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

(m) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.

 

********************

 

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Founder and Executive Chairman

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

 

 

 

[SIGNATURE PAGE OF HOLDERS TO Bonne sante RRA]

 

Name of Holder: ANSON EAST MASTER FUND LP

 

Signature of Authorized Signatory of Holder: /s/ Amin Nathoo                          

 

Name of Authorized Signatory: Amin Nathoo

 

Title of Authorized Signatory: Director, Anson Advisors Inc.

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[SIGNATURE PAGE OF HOLDERS TO Bonne sante RRA]

 

Name of Holder: ANSON INVESTMENTS MASTER FUND LP

 

Signature of Authorized Signatory of Holder: /s/ Amin Nathoo                          

 

Name of Authorized Signatory: Amin Nathoo

 

Title of Authorized Signatory: Director, Anson Advisors Inc.

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[SIGNATURE PAGE OF HOLDERS TO Bonne sante RRA]

 

Name of Holder: District 2 Capital Fund LP

 

Signature of Authorized Signatory of Holder: /s/ Michael Bigger                          

 

Name of Authorized Signatory: Michael Bigger

 

Title of Authorized Signatory: Managing Member of the GP

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[SIGNATURE PAGE OF HOLDERS TO Bonne sante RRA]

 

Name of Holder: Ionic Ventures, LLC

 

Signature of Authorized Signatory of Holder: /s/ Brendan O’Neil                          

 

Name of Authorized Signatory: Brendan O’Neil

 

Title of Authorized Signatory: Authorized Signatory

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

[SIGNATURE PAGE OF HOLDERS TO Bonne sante RRA]

 

Name of Holder: Sabby Volatility Warrant Master Fund, Ltd.

 

Signature of Authorized Signatory of Holder: /s/ Robert Grundstein                          

 

Name of Authorized Signatory: Robert Grundstein

 

Title of Authorized Signatory: COO of Holders’ Investment Manager

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

Annex A

 

Plan of Distribution

 

Each Selling Stockholder (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

● block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

● purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

● an exchange distribution in accordance with the rules of the applicable exchange;

 

● privately negotiated transactions;

 

● settlement of short sales;

 

● in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

● through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

● a combination of any such methods of sale; or

 

● any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.

 

 

 

 

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

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SELLING SHAREHOLDERS

 

The common stock being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those shares of common stock and warrants, see “Private Placement of Shares of Common Stock and Warrants” above. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling shareholders have not had any material relationship with us within the past three years.

 

The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and warrants, as of ________, 2021, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises.

 

The third column lists the shares of common stock being offered by this prospectus by the selling shareholders.

 

In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of shares of common stock issued to the selling shareholders in the “Private Placement of Shares of Common Stock and Warrants” described above and (ii) the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.

 

Under the terms of the warrants [and other warrants held by selling shareholders], a selling shareholder may not exercise [the] [any such] warrants to the extent such exercise would cause such selling shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% or 9.99%, as applicable, of our then outstanding common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of such warrants which have not been exercised. The number of shares in the second and fourth columns do not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

 

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Name of Selling Shareholder

  Number of shares of Common Stock Owned Prior to Offering   Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus   Number of shares of Common Stock Owned After Offering
             
             

 

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Annex C

 

bonne santé group, INC.

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “Registrable Securities”) of Bonne Santé Group, Inc., a Delaware corporation (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “Selling Stockholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

 

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The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder
     
     

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     

  

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
     

 

2. Address for Notices to Selling Stockholder:

 

                                                    
   
 
   
 
  Telephone:
 
  Fax:
 
  Contact Person:
 

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes ☐ No ☐

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes ☐ No ☐

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

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(c) Are you an affiliate of a broker-dealer?

 

Yes ☐ No ☐

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes ☐ No ☐

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.

 

(a) Type and Amount of other securities beneficially owned by the Selling Stockholder:
     
     
     
     

   

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5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
   
     
   

 

The undersigned agrees to promptly notify the Company of any material inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective; provided, that the undersigned shall not be required to notify the Company of any changes to the number of securities held or owned by the undersigned or its affiliates.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date:                   Beneficial Owner:
                       
      By:             
    Name:   
      Title:   

 

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PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO:

 

Schedule 6(b)

 

The Company anticipates that the Registration Statement covering the Registrable Securities shall contain two prospectuses, one for the resale of the Registrable Securities and the second for the primary offering of the Company’s Common Stock in a firm commitment underwritten offering. Hence, the shares issued in the primary offering will be included under the same Registration Statement as the Registrable Securities.

 

 

 

 

 

Exhibit 10.10

 

CONTRIBUTION AND EXCHANGE AGREEMENT

 

THIS CONTRIBUTION AND EXCHANGE AGREEMENT (this “Agreement”) is entered into as of November 29, 2021 by and among GSP Nutrition, Inc., a Delaware corporation (“GSP Nutrition”), the shareholders of GSP Nutrition, Inc. set forth on Schedule A hereto (each, a “GSP Shareholder” and collectively, the “GSP Shareholders”), and Smart for Life, Inc., a Delaware corporation (the “Company”).

 

RECITALS

 

WHEREAS, each GSP Shareholder owns the number of shares of common stock, par value $0.001 per share (the “GSP Common Stock”), of GSP Nutrition set forth opposite such GSP Shareholder’s name on Schedule A attached hereto (collectively, the “Outstanding GSP Shares”); and

 

WHEREAS, the Outstanding GSP Shares constitute all of the outstanding GSP Common Stock; and

 

WHEREAS, the GSP Shareholders desire to contribute the Outstanding GSP Shares to the Company in exchange for the issuance by the Company to the GSP Shareholders of an aggregate number of shares of common stock, par value $0.0001 per share (the “Company Common Stock”), of the Company (the “Estimated Aggregate Company Share Issuance”) determined by dividing the Purchase Price (as defined below) by $10.00 (the “Estimated PPS”), which Estimated Aggregate Company Share Issuance shall be subject to increase as set forth herein if the IPO PPS (as defined herein) is less than the Estimated PPS (the contribution by the GSP Shareholders of the Outstanding GSP Shares to the Company and the issuance by the Company to the GSP Shareholders of shares of Company Common Stock in exchange thereof are referred to as, the “GSP Contribution Transactions”); and

 

WHEREAS, the Estimated Aggregate Company Share Issuance shall be allocated among the GSP Shareholders as set forth on Schedule B hereto; and

 

WHEREAS, the parties desire to effect the GSP Contribution Transactions on the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants 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. Contribution and Exchange; Closing.

 

(a) Contribution. On the Closing Date (as defined herein) and pursuant to the terms and conditions of this Agreement, each GSP Shareholder shall contribute, transfer, assign and convey to the Company, free and clear of any lien, claim, charge, mortgage, pledge, security interest, restriction or other encumbrance (collectively, “Encumbrances”), all right, title, and interest in and to all of the Outstanding GSP Shares owned by such GSP Shareholder as set forth opposite such GSP Shareholder’s name on Schedule A (each, a “GSP Shareholder Contribution” and collectively, the “GSP Shareholder Contributions”), together with any and all rights, privileges and benefits appertaining thereto, reserving unto the GSP Shareholders no rights or interests therein whatsoever.

 

 

 

 

(b) Exchange. On the Closing Date and pursuant to the terms and conditions of this Agreement, in exchange for the GSP Shareholder Contributions, the Company shall issue to each GSP Shareholder the number of shares of Company Common Stock set forth opposite such GSP Shareholder’s name on Schedule B hereto (collectively, the “Exchange”). In addition, if the IPO PPS is less than the Estimated PPS, the Estimated Aggregate Company Share Issuance shall be increased to an amount determined by dividing the Purchase Price by the IPO PPS (the “Final Aggregate Company Share Issuance”), and the Additional Company Shares (as defined below) shall be allocated among, and promptly issued to, the GSP Shareholders based on their percentage ownership of the Outstanding GSP Shares immediately prior to the Closing.

 

(c) Closing. The closing of the GSP Shareholder Contributions and the Exchange (the “Closing”) shall take place remotely via the exchange of executed documents on the date that is the second (2nd) business day following the satisfaction or waiver of the conditions set forth in Section 7 (other than any such condition required to be performed at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), unless another date or method of Closing is agreed to in writing by the Company and the GSP Shareholders. The actual date and time of the Closing are herein referred to as the “Closing Date.”

 

(d) Satisfaction of Payables. The accounts payable of GSP Nutrition as of the date hereof are set forth on Schedule 1(d), which schedule also identifies each Person to whom such accounts payable are owed (each, a “Third-Party Vendor”). Those Third-Party Vendors that are willing to accept shares of the Company’s Common Stock in full satisfaction of their accounts payable are listed on Schedule 1(d) under the heading “Satisfaction in Company Common Stock” and those Third-Party Vendors that must be paid in cash are listed under the heading “Satisfaction in Cash.” Schedule 1(d) shall be updated by GSP Nutrition at least two (2) days prior to the Closing. At the Closing, the Company shall issue to each Third-Party Vendor the number of shares of Company Common Stock set forth opposite such Third-Party Vendor’s name on Schedule 1(d) in satisfaction of the amounts owed to such Third-Party Vendor. The shares will be issued pursuant to a subscription agreement in a form mutually agreed upon by GSP and the Company. The number of shares of Company Common Stock to be issued to the Third-Party Vendors shall be subject to adjustment in a manner consistent with the adjustment in favor of the GSP Shareholders set forth in Section 1(b) above and as set forth in the applicable subscription agreement. At the Closing, the Company shall also pay, or cause GSP Nutrition to pay, in cash to each Person listed on Schedule 1(d) under the heading “Satisfaction in Cash” the amounts set forth opposite such Person’s name on Schedule 1(d). The total amount dollar value of accounts payable at the Closing shall not exceed $360,000.

 

2. Defined Terms. For purposes of this Agreement, the following terms shall have the respective meanings set forth below:

 

(a) “Additional Company Shares” means the amount by which the Final Aggregate Company Share Issuance exceeds the Estimated Aggregate Company Share Issuance.

 

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(b) “Affiliate” means, with respect to the indicated Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, the indicated Person. For purposes of this definition, the terms “control”, “controlled by” and “under common control with” means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of the indicated Person, whether through the ownership of voting securities, by trust, agreement, contract or otherwise.

 

(c) “Applicable Law” means any applicable federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, judgment, ruling, order or other requirement issued, enacted, adopted, promulgated, implemented, rendered or otherwise put into effect by or under the authority of any Governmental Entity.

 

(d) “Governmental Entity” means any (i) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature, (ii) federal, state, local, municipal, foreign or other government or (iii) governmental or quasi-governmental authority of any nature including any governmental division, department, agency, taxing authority, commission, instrumentality, official, organization, unit or body and any court or other tribunal.

 

(e) “GSP Fundamental Representations” means the representations and warranties made pursuant to Sections 3(a), 3(d), 3(e), 4(a), 4(c), 4(f) and 4(m).

 

(f)   “GSP Material Adverse Effect” means any material adverse effect on the assets, properties, condition (financial or otherwise), operations of GSP Nutrition, provided, however, that a Material Adverse Effect shall not include: (i) changes in the national or world economy or financial markets as a whole or changes in general economic conditions that affect the industries in which GSP Nutrition conducts its business, so long as such changes or conditions do not adversely affect GSP Nutrition in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (ii) any change in applicable law or U.S. Generally Accepted Accounting Principles or interpretation thereof after the date hereof, so long as such changes do not adversely affect GSP Nutrition in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (iii) the transactions contemplated by this Agreement becoming public; or (iv) compliance with the terms of, and taking any action required by, this Agreement, or the taking or not taking any actions at the request of, or with the consent of, the Company.

 

(g) “Inventory” means all inventories of raw materials, supplies, work-in-process, finished goods, and other materials used in or held for use in the business GSP Nutrition.

 

(h) “IPO PPS” means the effective price per share of Company Common Stock as set forth in the final prospectus related to the Company’s initial underwritten public offering of the Company Common Stock under the Securities Act of 1933, as amended (the “Securities Act”). For the avoidance of doubt, the current proposed structure of the securities being sold in the Company’s initial public offering is the sale of units consisting of one share, one warrant with an exercise price equal to 50% of the unit price and a second warrant with an exercise price equal to 100% of the unit price, but the second warrant automatically becomes exercisable on a cashless basis without the payment of any consideration on the tenth day following the IPO Date. Assuming an a initial public offering price per Unit of $10.00, the IPO PPS would be $5.00.

 

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(i) “Percentage Interest” means, with respect to a GSP Shareholder, a fraction, the numerator of which is the shares of Company Common Stock received by such GSP Shareholder pursuant to Section 1(b) of this Agreement and the denominator of which is the aggregate number of shares of Company Common Stock issued to all GSP Shareholders pursuant to Section 1(b) of this Agreement.

 

(j) “Person” means any natural person, corporation, partnership, limited liability company, limited company, company, trust, association, unincorporated organization, Governmental Entity, or other legal entity.

 

(k) “Purchase Price” means Four Hundred Twenty Five Dollars ($425,000) minus, to the extent not paid by the GSP Nutrition before the Closing, the amount of all fees, costs and expenses (including legal, accounting, investment banking, broker's, finder's and other professional or advisory fees and expenses) of GSP Nutrition incurred by or on behalf of, or to be paid by, GSP Nutrition in connection with the negotiation and execution of this Agreement and the other transaction documents and the consummation of the transactions contemplated by this Agreement (excluding any amounts due and payable to any Person as set forth on Schedule 1(d) and the fees payable pursuant to Section 6(c) of this Agreement, which amounts and fees shall not reduce the Purchase Price).

 

(l) “Representatives” means, with respect to any Person, the respective directors, officers, employees, counsel, accountants and other representatives of such Person.

 

(m) “Specific GSP Shareholder” means Stuart Benson, SIGroup Ventures, LLC, NutraGlobal, LLC, HCFP Capital Partners, LLC, HCFP Direct Investments and GSP Sports Brands, Inc.

 

(n) “Taxes” means all federal, state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, transfer, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever, in each case, imposed by any Taxing Authority.

 

(o) “Taxing Authority” means any governmental entity having or purporting to exercise jurisdiction with respect to any Tax.

 

(p) “Tax Returns” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, filed or required to be filed with any Taxing Authority.

 

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(q) “Transaction Proposal” means any written bona fide proposal made by a third party relating to (i) any direct or indirect acquisition or purchase of all or substantially all of the assets of GSP Nutrition, (ii) any direct or indirect acquisition or purchase of a majority of the combined voting power of the Outstanding GSP Shares, or (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving GSP Nutrition in which the other party thereto or its stockholders will own 51% or more of the combined voting power of the parent entity resulting from any such transaction.

 

3. Representations and Warranties of the GSP Shareholders. Each GSP Shareholder hereby, severally and not jointly, represents and warrants to the Company as of the date hereof and as of the Closing Date as follows:

 

(a) Organization; Authority; Binding Agreement.  With respect to each GSP Shareholder that is an entity, (i) such GSP Shareholder is a corporation, limited liability company or limited partnership (as applicable), duly organized and validly existing under the laws of the state of its organization and (ii) the execution, delivery and performance by such GSP Shareholder of this Agreement and any other document being delivered by such GSP Shareholder pursuant to this Agreement have been duly authorized by all necessary corporate, limited liability company or limited partnership (as applicable) action.  With respect to any GSP Shareholder that is an individual, such GSP Shareholder has full power and authority to enter into this Agreement and any other document being delivered by such GSP Shareholder pursuant to this Agreement and to carry out his or her obligations hereunder and to consummate the transactions contemplated hereby.  This Agreement is a valid and binding agreement of such GSP Shareholder, enforceable against such GSP Shareholder in accordance with its terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors’ rights generally or by general equitable principles and except insofar as the enforceability of any provision of such agreement would be restricted or void by reason of public policy.

 

(b) Non-contravention.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate any agreement or contract to which such GSP Shareholder is a party or by which such GSP Shareholder is bound, or any Applicable Law of any Governmental Entity having jurisdiction over such GSP Shareholder or any order, judgment or decree applicable to such GSP Shareholder or (ii) result in the creation or imposition of any Encumbrance on any of the Outstanding GSP Shares owned by such GSP Shareholder.

 

(c) No Consents.  No notice to, filing with, or authorization, registration, consent or approval of any Governmental Entity or other Person is necessary for the execution, delivery or performance by such GSP Shareholder of this Agreement or the consummation of the transactions contemplated hereby.  The sale of the Outstanding GSP Shares being contributed, transferred and assigned by such GSP Shareholder to the Company will not trigger any right of first refusal or co-sale rights.

 

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(d) Ownership of Outstanding GSP Shares.  Such GSP Shareholder owns the Outstanding GSP Shares set forth opposite such GSP Shareholder’s name on Schedule A hereto, free and clear of all Encumbrances.  The Outstanding GSP Shares set forth opposite such GSP Shareholder’s name on Schedule A hereto are the only shares of capital stock of GSP owned, directly or indirectly, by such GSP Shareholder, and such GSP Shareholder has no convertible notes or other convertible securities, options, rights or warrants to purchase additional shares of capital stock of GSP Nutrition.  After giving effect to the GSP Shareholder Contribution of such GSP Shareholder, such GSP Shareholder shall have no ownership interest in GSP Nutrition and GSP Nutrition shall not be indebted to such GSP Shareholder for any amounts.  Such GSP Shareholder has the absolute and unrestricted right, power and capacity to contribute, transfer and assign such GSP Shareholder’s Outstanding GSP Shares to the Company, free and clear of any Encumbrances.  The Outstanding GSP Shares being contributed, transferred and assigned by the GSP Shareholders, as set forth on Schedule A hereto, represent one hundred percent (100%) of the outstanding capital stock of GSP Nutrition, and, subject to Section 7(a)(vi), as of the Closing Date no Person has any rights, options or warrants to purchase shares of capital stock or other equity interests of GPS Nutrition (whether from GSP Nutrition or from any third party).

 

(e) Brokers’ and Finders’ Fees.  Such GSP Shareholder has not incurred, nor will such GSP Shareholder incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or the transactions contemplated hereby.

 

(f)   Legal Proceedings.  There are no claims, actions, causes of action, demands, lawsuits, arbitrations, inquiries, audits, notices of violation, proceedings, litigation, citations, summons, subpoenas, or investigations of any nature, whether at law or in equity pending or threatened against or by such GSP Shareholder.

 

(g) Affiliate Agreements.  GSP Nutrition is not a party to, or bound by, any written or oral agreement or arrangement with such GSP Shareholder, any family member thereof or any Person Affiliated with such GSP Shareholder or family member.  No GSP Shareholder or any family member or Affiliate thereof (i) owns any property or right, tangible or intangible, that is used by GSP Nutrition or any of its subsidiaries in the operation or conduct of its business or (ii) has any claim or cause of action against GSP Nutrition.

 

(h) Investment Representations. With respect to the Company Common Stock to be issued to such GSP Shareholder in connection with the Exchange:

 

(i) Such GSP Shareholder acknowledges that such GSP Shareholder has received all the information that such GSP Shareholder considers necessary or appropriate for deciding whether to acquire the Company Common Stock. Such GSP Shareholder further represents that such GSP Shareholder has had an opportunity to ask questions and receive answers from the Company regarding the Company and the Company Common Stock.

 

(ii)   Such GSP Shareholder acknowledges that such GSP Shareholder can bear the economic risk of his, her or its investment, and has such knowledge and experience in financial or business matters that makes such GSP Shareholder capable of evaluating the merits and risks of the investment in the Company Common Stock.

 

(iii)   Such GSP Shareholder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act.

 

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(iv) Such GSP Shareholder acknowledges that the Company Common Stock are characterized as “restricted securities” under the federal securities laws insofar as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations the Company Common Stock may not be resold without registration under the Securities Act except in certain limited circumstances. Therefore, such GSP Shareholder represents that he, she or it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Securities Act, and understands the resale limitations imposed thereby and by the Securities Act.

 

(v) Such GSP Shareholder recognizes that an investment in the Company Common Stock involves a high degree of risk, including, but not limited to, the risk of economic losses from operations of the Company.

 

(vi) Such GSP Shareholder is in a financial position to hold the Company Common Stock for an indefinite period of time and is able to bear the economic risk and withstand a complete loss of such GSP Shareholder’s investment in the Company Common Stock.

 

(vii)   Such GSP Shareholder is a bona fide resident of, is domiciled in and received the offer and made the decision to be issued the Company Common Stock in the state identified in the address of such GSP Shareholder on the signature pages hereto.

 

4. Representations and Warranties Concerning GSP Nutrition. Each Specific GSP Shareholder (but not any non-Specific GSP Shareholder) hereby, severally and not jointly, represents and warrants to the Company as of the date hereof and as of the Closing Date as follows:

 

(a) Organization; Standing and Power; Authority and Enforceability. Organization; Authority; Binding Agreement. GSP Nutrition is a corporation duly organized and validly existing under the laws of the State of Delaware. The execution, delivery and performance by GSP Nutrition of this Agreement and any other document being delivered by the GSP Nutrition pursuant to this Agreement have been duly authorized by all necessary corporate action. This Agreement is a valid and binding agreement of GSP Nutrition, enforceable against GSP Nutrition in accordance with its terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors’ rights generally or by general equitable principles and except insofar as the enforceability of any provision of such agreement would be restricted or void by reason of public policy.

 

(b) No Subsidiaries. GSP Nutrition does not have any subsidiaries, nor does it control, directly or indirectly, or have any direct or indirect equity participation in any corporation, partnership, trust, or other business association.

 

(c) Capitalization.

 

(i) Schedule 4(c) sets forth the authorized, issued and outstanding securities of GSP Nutrition and identifies each of the owners of such securities.

 

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(ii)   GSP Nutrition has no plans or agreements pursuant to which it has granted or committed to grant any option or right to acquire capital stock or any other award payable in or based upon the capital stock of GSP Nutrition. There are no outstanding options, warrants or other securities or subscription, preemptive or other rights convertible into or exchangeable or exercisable for any capital stock or other equity or voting interests of GSP Nutrition and there are no “phantom interest” rights, interest appreciation rights or other similar rights with respect to GSP Nutrition. There are no contracts of any kind to which GSP Nutrition is a party or by which GSP Nutrition is bound, obligating GSP Nutrition to issue, deliver, grant or sell, or cause to be issued, delivered, granted or sold, additional capital stock or other equity or voting interests in, or options, warrants or other securities or subscription, preemptive or other rights convertible into, or exchangeable or exercisable for, capital stock, or other equity or voting interests in, GSP Nutrition, or any “phantom interests” right, interest appreciation right or other similar right with respect to GSP Nutrition, or obligating GSP Nutrition to enter into any such contract.

 

(iii)   There are no securities or other instruments or obligations of GSP Nutrition, the value of which is in any way based upon or derived from any equity or voting interests of GSP Nutrition or having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which any of GSP Nutrition’ members may vote.

 

(iv) There are no contracts, contingent or otherwise, obligating GSP Nutrition to repurchase, redeem or otherwise acquire any capital stock of, or other equity or voting interests in, GSP Nutrition. There are no voting trusts, registration rights agreements or stockholder or member agreements to which GSP Nutrition is a party with respect to the voting of capital stock in GSP Nutrition or with respect to the granting of registration rights for any of the capital stock in GSP Nutrition. There are no rights plans affecting GSP Nutrition.

 

(v) GSP Nutrition has no outstanding indebtedness for borrowed money.

 

(d) Non-contravention. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate any agreement or contract to which GSP Nutrition is a party or by which GSP Nutrition is bound (or the organizational documents of GSP Nutrition), or any applicable law of any governmental entity having jurisdiction over GSP Nutrition or any order, judgment or decree applicable to GSP Nutrition or (ii) result in the creation or imposition of any encumbrance on any assets of the GSP Nutrition.

 

(e) Financial Statements. Schedule 4(e) contains true and complete copies of (i) the unaudited combined balance sheet of GSP Nutrition as of December 31, 2020 and December 31, 2019 and the related unaudited combined statements of income, stockholders’ equity and cash flows for the two years ended December 31, 2020 and December 31, 2019 (the “Annual Financial Statements”) and (ii) the unaudited combined balance sheet of GSP Nutrition and their Subsidiaries as of September 30, 2021 and the related statements of income, stockholders’ equity and cash flows for the nine-month period ended September 30, 2021 (the “Interim Financial Statements” and, together with the Annual Financial Statements, the “Financial Statements”). Except as set forth in Schedule 4.5, the Financial Statements fairly present, in all material respects, the financial condition and results of operations of GSP Nutrition as of the indicated dates and for the indicated periods (subject to normal year-end adjustments and the absence of notes).

 

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(f)   Taxes. Except as set forth in Schedule 4.6:

 

(i) All material Tax Returns required to have been filed by GSP Nutrition has been filed, and each such Tax Return reflects the liability for Taxes in all material respects. All Taxes shown on such Tax Returns as due have been paid or accrued.

 

(ii)   To the actual knowledge of the GSP Shareholders, there is no audit pending against GSP Nutrition in respect of any Taxes. There are no liens on any of the assets of GSP Nutrition that arose in connection with any failure (or alleged failure) to pay any Tax, other than liens for Taxes not yet due and payable.

 

(iii)   GSP Nutrition has withheld and paid or accrued for all material Taxes required to have been withheld and paid or accrued for in connection with amounts paid or owing to any third party.

 

(iv) GSP Nutrition has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

(v) GSP Nutrition is not a party to any Tax allocation or sharing agreement.

 

(g) Compliance with Laws and Orders; Permits.

 

(i) To the actual knowledge of the GSP Shareholders, GSP Nutrition is in compliance with all laws and orders to which the businesses of GSP Nutrition are subject, except where such failure to comply would not reasonably be expected to have, individually or in the aggregate, a GSP Material Adverse Effect.

 

(ii)   GSP Nutrition owns, holds, possesses, or lawfully uses in the operation of their businesses all permits that are necessary for it to conduct its businesses as now conducted, except where such failure to own, hold, possess or lawfully use such Permit would not reasonably be expected to have, individually or in the aggregate, a GSP Material Adverse Effect.

 

(h) No Undisclosed Liabilities. GSP Nutrition does not have any liabilities, except for (a) liabilities set forth in the Interim Financial Statements, (b) liabilities which have arisen since the date of the Interim Financial Statements in the ordinary course of business, or (c) liabilities arising in connection with the transactions contemplated thereby.

 

(i) Real Property. GSP Nutrition does not own or lease any real property.

 

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(j) ABG-SI License Agreement.

 

(i) Except as set forth on Schedule 4.10, neither GSP Nutrition nor, to the actual knowledge of the GSP Shareholders, the other parties to the ABG-SI License Agreement are in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in the ABG-SI License Agreement.

 

(ii)   The ABG-SI License Agreement is a legal, valid and binding obligation of the parties thereto, enforceable against each party thereto in accordance with its terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to creditors’ rights generally and (ii) general principles of equity, whether such enforceability is considered in a proceeding in equity or at law. The ABG-SI License Agreement is in full force and effect.

 

(k) Contracts. Except for the ABG-SI License Agreement or as set forth on Schedule 4(k), as of the date hereof, GSP Nutrition is not a party to or bound by any: (i) contract not contemplated by this Agreement that materially limits the ability of GSP Nutrition to engage or compete in any manner, of the businesses presently conducted by GSP Nutrition or the Company; (ii) contract that creates a partnership or joint venture or similar arrangement with respect to any material businesses of the Company; (iii) indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other evidence of indebtedness or agreement providing for indebtedness for borrowed money in excess of $25,000; (iv) contract that relates to the acquisition or disposition of any material business (whether by merger, sale of equity, sale of assets or otherwise) other than this Agreement; or (v) contract that involves performance of services or delivery of goods or materials by or to GSP Nutrition in an amount or with a value in excess of $25,000.

 

(l) Legal Proceedings. There are no claims, actions, causes of action, demands, lawsuits, arbitrations, inquiries, audits, notices of violation, proceedings, litigation, citations, summons, subpoenas, or investigations of any nature, whether at law or in equity pending or, to the actual knowledge of the GSP Shareholders, threatened against or by GSP Nutrition.

 

(m) Brokers’ and Finders’ Fees. GSP Nutrition has not incurred, nor will the GSP Nutrition incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or the transactions contemplated hereby.

 

(n) Inventory. All Inventory is owned by GSP Nutrition, and, to the actual knowledge of the GSP Shareholders, all such inventory consists of a quality and quantity usable and salable for sale in the ordinary course of business at customary gross margins, except for any inventory that is obsolete, discontinued, damaged, or of below standard quality or merchantability that has been written down to realizable fair market value on the Financial Statements. To the actual knowledge of the GSP Shareholders, none of such inventory is obsolete, discontinued, damaged, overage, or of below standard quality or merchantability, except for items that have been written down to realizable market value on the Financial Statements.

 

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5. Representations and Warranties of the Company. The Company hereby represents and warrants to the GSP Shareholders as of the date hereof and as of the Closing Date as follows:

 

(a) Organization; Authority; Binding Agreement. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. The execution, delivery and performance by the Company of this Agreement and any other document being delivered by the Company pursuant to this Agreement have been duly authorized by all necessary corporate action. This Agreement is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors’ rights generally or by general equitable principles and except insofar as the enforceability of any provision of such agreement would be restricted or void by reason of public policy.

 

(b) Non-contravention. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate any agreement or contract to which the Company is a party or by which the Company is bound (or the organizational documents of the Company), or any applicable law of any governmental entity having jurisdiction over the Company or any order, judgment or decree applicable to the Company or (ii) result in the creation or imposition of any encumbrance on any assets of the Company.

 

(c) No Consents. Assuming the accuracy of the representations and warranties made by the GSP Shareholders in Section 3, no notice to, filing with, or authorization, registration, consent or approval of any governmental entity or other Person is necessary for the execution, delivery or performance by the Company of this Agreement or the consummation of the transactions contemplated hereby, except for filings, if any, pursuant to Regulation D of the Securities Act and applicable state securities laws.

 

(d) Capitalization; Issuance of Estimated Aggregate Company Share Issuance. Immediately following the consummation of the GSP Contribution Transactions, the capitalization of the Company shall be as set forth on Schedule 5(d) to the Agreement. When issued and delivered in accordance with this Agreement, the Company Common Stock issued to the GSP Shareholders will be validly issued and nonassessable, free and clear of all preemptive rights and any other Encumbrances.

 

(e) Subsidiaries. Immediately following the consummation of the GSP Contribution Transactions, the Company shall own, directly or indirectly, the percentage of each of the entities set forth on Schedule 5(e) hereto (each, a “Company Subsidiary”). Except for the Company Subsidiaries listed on Schedule 5(e), the Company does not own, directly or indirectly (including through any Company Subsidiary), any ownership interest in or to any other Person.

 

(f)   Brokers’ and Finders’ Fees. The Company has not incurred, nor will the Company incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or the transactions contemplated hereby.

 

(g) Legal Proceedings. Except as set forth on Schedule 5(g), there are no claims, actions, causes of action, demands, lawsuits, arbitrations, inquiries, audits, notices of violation, proceedings, litigation, citations, summons, subpoenas, or investigations of any nature, whether at law or in equity pending or threatened against or by the Company or any of its subsidiaries.

 

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6. Covenants.

 

(a) Conditions. Each of the Company and the GSP Shareholders shall use their commercially reasonable efforts to cause the conditions set forth in this Agreement to be satisfied and to consummate the transactions contemplated herein as soon as practicable after the date hereof.

 

(b) Further Actions. If at any time after the Closing, the Company shall consider or be advised that any further assignments, conveyances, transfers, or any other similar actions or things, may be necessary or appropriate to transfer to the Company any right, title or interest of the GSP Shareholders in or to the Outstanding GSP Shares, each of the GSP Shareholders agrees to promptly execute, deliver and record, or cause to be executed, delivered and recorded, any and all such further instruments of assignment, conveyance and transfer and take, or cause to be taken, all actions and do, or cause to be done, all things, as may be reasonably requested by the Company to transfer to the Company all right, title and interest of the GSP Shareholders in and to the Outstanding GSP Shares.

 

(c) ABG-SI License Fees. Concurrently with the Closing, the Company shall, or shall cause GSP Nutrition to, pay the outstanding license fees due and owing to ABG-SI, LLC by GSP Nutrition pursuant to that certain License Agreement, effective as of June 1, 2020 and as amended (the “ABG-SI License Agreement”), by and between ABG-SI, LLC and GSP Nutrition.

 

(d) Releases of GSP Shareholders. Effective as of the Closing, each GSP Shareholder, on such GSP Shareholder’s own behalf, hereby forever releases, remises and discharges GSP Nutrition and each of its officers, directors and employees (collectively, the “Released Parties”) from any and all claims, demands, controversies, actions, causes of action, obligations, liabilities, costs, expenses, fees and damages whatsoever in character, nature and kind, at law or in equity which such GSP Shareholder now has, had ever had or may hereafter have against GSP Nutrition or any of the other Released Parties arising from conduct occurring on or prior to the Closing Date. Each GSP Shareholder hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim, or commencing, instituting or causing to be commenced, any proceeding of any kind against any of the Released Parties, based upon any matter purported to be released hereby.

 

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(e) Operation of the Company’ Business. During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Section 8(c), GSP Nutrition, except (i) as otherwise contemplated by this Agreement, (ii) as required by applicable law or (iii) with the prior written consent of the Company (which consent will not be unreasonably withheld, conditioned, or delayed), shall:

 

(i) use commercially reasonable efforts to carry on its business in a manner consistent with past practice and refrain from extraordinary transactions;

 

(ii)   use commercially reasonable efforts to maintain the properties and other assets of the GSP Nutrition in good working order (normal wear excepted); and

 

(iii)   use GSP Nutrition’s commercially reasonable efforts to maintain its business and employees, customers, assets and operations as a going concern and in accordance with past practice.

 

(f)   Access. During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Section 8(c), GSP Nutrition will provide reasonable access to its financial, accounting, business records, contracts and other legal documents maintained by it for the purpose of the Company completing its due diligence investigation. The Company shall not contact or communicate with any of GSP Nutrition’s employees, customers, suppliers or advisors without the prior written consent of GSP Nutrition and in the presence of the GSP Nutrition’s management. The parties hereto will cooperate to complete due diligence in a reasonably expeditious timeframe.

 

(g) Notice of Developments. The GSP Shareholders and GSP Nutrition will give prompt written notice to the Company of any event that would reasonably be expected to give rise to, individually or in the aggregate, a GSP Material Adverse Effect or would reasonably be expected to cause a breach of any of their respective representations, warranties, covenants or other agreements contained herein. The Company will give prompt written notice to GSP Nutrition of any event that could reasonably be expected to cause a breach of any of its representations, warranties, covenants or other agreements contained herein or could reasonably be expected to, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by this Agreement. Except as set forth below, the delivery of any notice pursuant to this Section 6(g) will not limit, expand or otherwise affect the remedies available hereunder (if any) to the party receiving such notice; provided, however, if GSP Nutrition provides notice of any such GSP Material Adverse Effect or breach of this Agreement pursuant to this Section 6(g) and the Company elects to consummate the Closing notwithstanding such GSP Material Adverse Effect or breach, the GSP Shareholders shall have no liability under this Agreement arising out of such GSP Material Adverse Effect or breach.

 

(h) No Solicitation.

 

(i) Each of the GSP Shareholders and GSP Nutrition will and will cause each of their Representatives to cease immediately any existing discussions regarding a Transaction Proposal.

 

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(ii)   During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Section 8(c), without the prior consent of the Company, GSP Nutrition shall not, nor will it authorize or permit any of its Representatives, including, without limitation, any GSP Shareholder to, directly or indirectly through another Person to, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate any inquiries, proposals or offers from any Person that constitute, or would reasonably be expected to constitute, a Transaction Proposal, (ii) participate in any discussions or negotiations (including by way of furnishing information) regarding any Transaction Proposal or (iii) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing. GSP Nutrition shall immediately communicate to the Company the terms of any Transaction Proposal received by any of the GSP Shareholders or GSP Nutrition, or any of their Representatives.

 

(i) Financial Information. GSP Nutrition shall reasonably cooperate with the Company and the Company’s independent certified public accounting firm, in order to enable the Company to create audited financial statements prepared in accordance with GAAP for the two full fiscal years preceding the Closing Date by making available GSP Nutrition’s records as they are maintained in the ordinary course of business and answering reasonable questions.

 

(j) Confidentiality. Except as otherwise required by applicable law, each of the parties executing this Agreement will treat and hold as confidential all of the other party’s Confidential Information (as defined below), refrain from disclosing any of the Confidential Information except in connection with the transactions contemplated hereby, and deliver promptly to the other party or destroy, at the request and option of the other party, all tangible embodiments (and all copies) of the other party’s Confidential Information which are in its possession. Notwithstanding the foregoing, either party may disclose the other party’s Confidential Information to its employees, directors, attorneys, accountants, investors or prospective investors and other representatives who have a need to know such Confidential Information in order to enable the disclosing party to use such Confidential Information for purposes permitted in this summary of terms provided such representatives agree to be bound to use and disclose such Confidential Information for no other purpose. Each party shall take such steps as are required to insure the confidentiality of Confidential Information used by its representatives. For purposes of this summary of terms, “Confidential Information” means with respect to a party, any information concerning the organization, business or finances of such party, or of any third party that such party is under an obligation to keep confidential that is maintained by such party as confidential, and that is not available to the party from public or other sources. Confidential Information includes, but is not limited to, trade secrets or confidential information respecting inventions, products, designs, methods, know-how, show-how, techniques, systems, models, algorithms, processes, software programs, works of authorship, customer lists, projects, plans and proposals. From and after the Closing Date, this Section 6(k) shall no longer apply to the Company in respect of GSP Nutrition and, prior to the Closing Date, the Company shall be permitted to disclose Confidential Information as required by applicable federal securities laws in connection with the filing of a registration statement by the Company with the SEC.

 

(k) Disclosure Schedule. The parties acknowledge and agree that (i) none of the Company nor the GSP Shareholder and GSP Nutrition have yet delivered a definitive disclosure schedules to this Agreement to the other parties, and (ii) none of the parties has been provided with copies of, nor had an opportunity to review, the items to be referred to on the disclosure schedules once delivered. Each of the parties shall deliver to the other parties the respective schedules to the Agreement, and documents referred to thereon, in final form within 7 days of the date hereof. The parties shall have 7 days following delivery of such schedules and such documents in which to terminate this Agreement if no party objects to any information contained in such schedules or the contents of any such document and parties cannot agree on mutually satisfactory modifications thereto.

 

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7. Conditions to Closing.

 

(a) Conditions to the Company’s Obligations. The obligations of the Company to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment (except to the extent waived in writing by the Company) at or prior to Closing of the following conditions:

 

(i) Each of the representations and warranties made by the GSP Shareholders in Section 3 of this Agreement shall be true and correct in all respects as of the Closing Date. The GSP Shareholders shall have performed in all material respects and complied in all material respects with all agreements and conditions contained in this Agreement that are required to be performed or complied with by them prior to or at the Closing;

 

(ii)   All authorizations, consents, orders, declarations or approvals of, or filings with, or terminations or expirations of waiting periods imposed by, any Governmental Entity with respect to the transactions contemplated by this Agreement shall have been obtained or made, as applicable, and shall be in full force and effect;

 

(iii)   GSP Nutrition shall have delivered the consent of ABG-SI, LLC to the assignment of the ABG-SI License Agreement (the “ABG-SI Consent”), which ABG-SI Consent shall be conditioned upon payment of the outstanding license fees due and owing to ABG-SI, LLC concurrently with the Closing as contemplated by Section 6(c) above.

 

(iv) Each GSP Shareholder shall have delivered to the Company certificates, if any, representing the Outstanding GSP Shares owned by such GSP Shareholder, duly endorsed in blank or with stock powers duly endorsed in blank, in proper form for transfer, with all appropriate stock transfer tax stamps affixed;

 

(v) The Company shall have received resignations effective immediately upon Closing of the directors and officers of GSP Nutrition set forth on Schedule 6.1(e);

 

(vi) Any and all options and warrants to purchase capital stock of GSP Nutrition shall have been cancelled, and the GSP Stockholders shall have delivered to the Company evidence (satisfactory to the Company) of cancellation of any such options and warrants;

 

(vii)   The Company shall have completed its business, accounting and legal due diligence review of the GSP Nutrition, its assets and liabilities, and the results thereof shall be reasonably satisfactory to the Company.

 

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(viii)   There shall not have been any occurrence, event, incident, action, failure to act, or transaction since the date of the Interim Financial Statements, which has had or is reasonably likely to cause a GSP Material Adverse Effect.

 

(ix) GSP Nutrition shall have delivered evidence reasonably satisfactory to the Company of its organization and proceedings and its existence in the jurisdiction in which it is formed, including evidence of such existence as of the Closing.

 

(b) Conditions to the GSP Shareholders’ Obligations. The obligations of the GSP Shareholders to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment (except to the extent waived in writing by the GSP Shareholders) at or prior to Closing of each of the following conditions:

 

(i) Each of the representations and warranties made by the Company in Section 5 of this Agreement shall be true and correct in all respects as of the Closing Date. The Company shall have performed in all material respects and complied in all material respects with all agreements and conditions contained in this Agreement that are required to be performed or complied with by it prior to or at the Closing;

 

(ii)   All authorizations, consents, orders, declarations or approvals of, or filings with, or terminations or expirations of waiting periods imposed by, any Governmental Entity with respect to the transactions contemplated by this Agreement shall have been obtained or made, as applicable, and shall be in full force and effect; and

 

(iii)   The Company shall have delivered to each GSP Shareholder stock certificates representing the number of shares of Company Common Stock set forth opposite such GSP Shareholder’s name on Schedule B hereto.

 

8. Miscellaneous.

 

(a) Survival; Limitations on Liability. The representations and warranties of the parties hereto contained in this Agreement shall survive the Closing for a period of twenty-four (24) months. The covenants and agreements of the parties hereto contained in this Agreement shall survive the Closing indefinitely.

 

No GSP Shareholder shall be responsible for, or have any liability with respect to, any breach by any other GSP Shareholder of the representations and warranties made by such other GSP Shareholder pursuant to Section 3 of this Agreement. Each Specific GSP Shareholder shall only be responsible for such Specific GSP Shareholder’s Percentage Interest of any losses or damages arising from a breach of any of the representations and warranties of Section 4 of this Agreement. The non-Specific GSP Shareholders shall not be responsible or liable for any breaches of any of the representations and warranties of Section 4 of this Agreement. The aggregate liability of a GSP Shareholder for breaches of the representations and warranties of Section 3 and 4 hereof shall be, (i) in the case of the non-GSP Fundamental Representations, twenty-five percent (25%) of the Purchase Price received by such GSP Shareholder in shares of Company Common Stock and (ii) in the case of the GSP Fundamental Representations (but subject to the first sentence of this paragraph and, in the case of the non-Specific GSP Shareholders, the third sentence of this paragraph), one hundred percent (100%) of the Purchase Price received by such GSP Shareholder in shares of Company Common Stock. Notwithstanding anything contained herein to the contrary, the aggregate liability of a GSP Shareholder under this Agreement shall not exceed the Purchase Price received by such GSP Shareholder in shares of Company Common Stock. If any damages or losses are determined to be due and owing by any GSP Shareholder for a breach of this Agreement, such GSP Shareholder shall have the right, in such GSP Shareholder’s sole discretion, to satisfy such damages or losses either (i) in cash or (ii) in shares of Company Common Stock received pursuant to this Agreement, which shares shall be valued at the IPO PPS.

 

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(b) Amendments. This Agreement may be amended, modified, or supplemented only pursuant to a written instrument making specific reference to this Agreement and signed by the Company and the GSP Shareholders holding a majority of the Outstanding GSP Shares.

 

(c) Termination. This Agreement shall terminate and be of no further force and effect if the Closing has not occurred on or before the sixtieth (60th) day following the date hereof.

 

(d) Assignment. Neither this Agreement nor any right or obligation hereunder shall be assigned, delegated, or otherwise transferred (whether voluntarily, by operation of law, by merger, or otherwise) by the Company, on the one hand, or the GSP Shareholders, on the other hand, without the prior written consent of the other parties. Any attempted assignment, delegation, or transfer in violation of this Section 8(d) shall be void and of no force or effect.

 

(e) Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, and permitted assigns.

 

(f)   Construction. The section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Unless the context otherwise requires, (i) all references to Sections contained in this Agreement are references to sections of this Agreement, (ii) words in the singular include the plural and vice versa, and (iii) words of any gender include each other gender. As used in this Agreement the following words or phrases have the following meanings: (i) “hereby”, “herein”, “hereof”, “hereto”, “hereunder”, and words of similar import refer to this Agreement as a whole and not to any particular provision hereof; and (ii) “or” means “and/or”.

 

(g) Counterparts; Electronic Signatures. This Agreement may be executed in multiple counterparts, each of which when so executed and delivered shall be an original, and all of which when taken together shall constitute one and the same instrument. Facsimile, .pdf and other electronic signatures to this Agreement shall have the same effect as original signatures.

 

(h) Entire Agreement. This Agreement (and the documents referenced herein) constitute the entire agreement of the parties hereto in respect of the subject matter hereof, and supersedes any and all prior agreements or understandings between the parties hereto in respect of such subject matter.

 

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(i) Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified, (ii) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) business day after deposit with an internationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on the signature pages hereto, or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 8(i).

 

(j) Severability. If any provision of this Agreement or the application of such provision to any Person or circumstance shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable under the Applicable Law of any jurisdiction, (i) the remainder of this Agreement or the application of such provisions to other Persons or circumstances or in other jurisdictions shall not be affected thereby, (ii) such invalid, illegal, or unenforceable provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such Applicable Law, and (iii) such invalid, illegal, or unenforceable provision shall not affect the validity or enforceability of any other provision of this Agreement.

 

(k) No Third-Party Beneficiaries. Nothing express or implied in this Agreement is intended or shall be construed to confer upon or give any Person other than the parties hereto and their respective heirs, successors, and permitted assigns any right, benefit, or remedy under or by reason of this Agreement.

 

(l) No Waiver. No waiver of any provision hereof, or consent required hereunder, or any consent or departure from this Agreement, shall be valid or binding unless expressly and affirmatively made in writing and duly executed by the party to be charged with such waiver. No waiver shall constitute or be construed as a continuing waiver or a waiver in respect of any subsequent default, either of similar or different nature, unless expressly so stated in such writing.

 

(m) Governing Law. This Agreement shall be enforced, governed, and construed in all respects in accordance with the laws of the State of Delaware applicable to contracts executed and performable in such State.

 

(n) Jurisdiction; Venue. Any dispute regarding the interpretation or validity of, or otherwise arising out of or relating to, this Agreement or the transactions contemplated hereby shall be subject to the jurisdiction of either the federal or state court sitting in the State of Delaware sitting in the County of New Castle. Each party hereto hereby submits to the personal and exclusive jurisdiction and venue of such courts (and of the appropriate appellate courts therefrom) in any such dispute and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such dispute in any such court or that any such dispute that is brought in any such court has been brought in an inconvenient forum.

 

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(o) Undisclosed Capital Stock of GSP Shareholders. Each GSP Shareholder acknowledges and agrees that, to the extent such GSP Shareholder owns any shares of capital stock or other equity interests (or any options, rights or warrants to purchase shares of capital stock or other equity interests) of GSP Nutrition that are not set forth on Schedule A hereto (“Undisclosed GSP Equity”), such GSP Shareholder is selling, transferring, conveying and assigning such Undisclosed GSP Equity to the Company on the Closing Date.

 

(p) Transfer Taxes. The Company shall be responsible for all transfer taxes associated with the transactions contemplated by this Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  COMPANY:
  SMART FOR LIFE, INC.
            
  By: /s/ Alfonso J. Cervantes         
    Name: Alfonso J. Cervantes    
    Title: Executive Chairman

 

  Address:          
   
   
     
  with a copy to (which shall not constitute notice):
   
  Bevilacqua PLLC
  1050 Connecticut Avenue, NW
  Suite 500
  Washington, D.C. 20036
  Attention: Louis A. Bevilacqua
  Email:

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP NUTRITION, INC.:
   
  By: /s/ Stuart Benson
    Name:  Stuart Benson
    Title: Co-Chairman

 

  Address:                            
     
     
     
  with a copy to (which shall not constitute notice):
   
  Greenberg Traurig, P.A.
  401 E. Las Olas Boulevard, Suite 2000
  Fort Lauderdale, FL 33301
  Attention: Mathew Hoffman
  Email: hoffmanma@gtlaw.com

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  SIGROUP VENTURES, LLC
                         
  By: /s/ Stuart Benson                 
  Name: Stuart Benson
  Title: Managing Member

 

  Address:  
     
   

 

  SGSP INC.
     
  By: /s/ Joshua Lamstein
  Name: Joshua Lamstein
  Title: Chairman

 

  Address:  
     
   

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  EXECUTIVE DIRECT, INC.
     
  By: /s/ Jason Provenzano
  Name: Jason Provenzano
  Title: President

 

  Address:        
     
   
     
  /s/ Stuart Benson
  Stuart Benson

 

  Address:  
     
     

  

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  NUTRAGLOBAL, LLC
     
  By: /s/ Stuart Benson                 
  Name: Stuart Benson
  Title: Managing Member

 

  Address:        
     
     
     

 

  HAYES FAMILY TRUST
     
  By: /s/ Donald L. Hayes            
  Name: Donald L. Hayes
  Title: Trustee

 

  Address:  
     
   

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  PALMERHOUSE FREESTYLE FUND 1 LLC
     
  By: /s/ Robert Greenspan              
  Name: Robert Greenspan
  Title: Manager

 

  Address:        
     
     

 

  NU VIEW TRUST COMPANY CUSTODIAN FBO MICHAEL GREENSPAN IRA
     
  By: /s/ Glen Mather     
  Name: Glen Mather
  Title: Authorized Signer

 

  Address:  
     
   


 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  HCFP/CAPITAL PARTNERS 36B-4 LLC
     
  By: /s/ Anthony Dubreville                 
  Name: Anthony Dubreville
  Title: Manager

 

  Address:  
     
   

 

  HCFP/DIRECT INVESTMENTS LLC
     
  By: /s/ Joshua Lamstein             
  Name: Joshua Lamstein
  Title: Manager

 

  Address:
   
   

 


 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  MAKERS NUTRITION
     
  By: /s/ Jason Provenzano
  Name: Jason Provenzano
  Title: President/CEO

 

  Address:  
     
   

 

  DUBREVILLE FAMILY TRUST, 7/1/97, ANTHONY M. DUBREVILLE, TRUSTEE
     
  By: /s/ Anthony Dubreville
  Name: Anthony Dubreville
  Title: Trustee

 

  Address:  
     
   



 

 



IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  /s/ Robert Bernstein
  Dr. Robert Bernstein
   
  Address:                                
     
     
     
  /s/ Seth D. Moskowitz
  Seth D. Moskowitz
     
  Address:  
     
     
     
  /s/ Jaren Toren
  Jared Toren
     
  Address:  
     
     


 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Contribution and Exchange Agreement to be duly and validly executed as of the date first set forth above.

 

  GSP SHAREHOLDERS:
   
  JOSHUA R. LAMSTEIN C/F RUBY LAMSTEIN – UTMA/NY
     
  By: /s/ Joshua Lamstein                 
  Name: Joshua Lamstein
  Title: Custodian

 

  Address:  
     
     

 

  JOSHUA R. LAMSTEIN C/F NICO LAMSTEIN – UTMA/NY
     
  By: /s/ Joshua Lamstein       
  Name: Joshua Lamstein
  Title: Custodian

 

  Address:  
     
     
     

  JOSHUA R. LAMSTEIN C/F GOLDIE LAMSTEIN – UTMA/NY
     
  By: /s/ Joshua Lamstein
  Name: Joshua Lamstein
  Title: Custodian

 

  Address:  
     
   

 

 

 

 

Schedule A

 

GSP Shareholder   Number of Shares
of GSP Nutrition 		 
HCFP/Capital Partners 36B-4 LLC     1,000,000  
Stuart Benson     775,376  
Executive Direct, Inc.     2,000,000  
SGSP Inc.     3,702,676  
Nutraglobal, LLC     250,000  
Robert Bernstein     200,000  
Dubreville Family Trust, 7/1/97, Anthony M. Dubreville, Trustee     100,000  
Hayes Family Trust     100,000  
Seth D. Moskowitz     48,895  
Jared Toren     50,000  
SIGROUP Ventures, LLC     4,000,000  
Palmerhouse Freestyle Fund 1 LLC     25,000  
Nuview Trust Company Custodian FBO Michael Greenberg IRA     25,000  
HCFP/Direct Investments LLC     15,000  
Joshua R. Lamstein C/F Ruby Lamstein – UTMA/NY     10,000  
Joshua R. Lamstein C/F Nico Lamstein – UTMA/NY     10,000  
Joshua R. Lamstein C/F Goldie Lamstein – UTMA/NY     10,000  
Makers Nutrition     200,000  

 

 

 

 

Schedule B

 

GSP Shareholder   Company
Common Stock 		 
HCFP/Capital Partners 36B-4 LLC     3,394  
Stuart Benson     2,632  
Executive Direct, Inc.     6,788  
SGSP Inc.     12,567  
Nutraglobal, LLC     848  
Robert Bernstein     679  
Dubreville Family Trust, 7/1/97, Anthony M. Dubreville, Trustee     339  
Hayes Family Trust     339  
Seth D. Moskowitz     166  
Jared Toren     170  
SIGROUP Ventures, LLC     13,576  
Palmerhouse Freestyle Fund 1 LLC     85  
Nuview Trust Company Custodian FBO Michael Greenberg IRA     85  
HCFP/Direct Investments LLC     51  
Joshua R. Lamstein C/F Ruby Lamstein – UTMA/NY     34  
Joshua R. Lamstein C/F Nico Lamstein – UTMA/NY     34  
Joshua R. Lamstein C/F Goldie Lamstein – UTMA/NY     34  
Makers Nutrition     679  

 

 

 

 

Exhibit 10.11

 

SECURITIES PURCHASE AGREEMENT

 

dated as of July 21, 2021

 

among

 

BONNE SANTÉ GROUP, INC.,

 

NEXUS OFFERS, INC.,

 

AND

 

JUSTIN FRANCISCO

 

AND

 

STEVEN RUBERT

 

 

 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS 1
       
  1.1 Certain Definitions. 1
       
ARTICLE II PURCHASE AND SALE OF THE SECURITIES 5
   
  2.1 Purchase and Sale of the Securities. 5
  2.2 Adjustments to Purchase Price. 5
  2.3 Closing. 7
  2.4 Transactions to be Effected at the Closing. 7
       
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER 8
       
  3.1 Authority and Enforceability. 8
  3.2 Noncontravention. 8
  3.3 The Securities. 8
  3.4 Brokers’ Fees. 9
  3.5 Investment Representations. 9
       
ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES 10
       
  4.1 Organization, Qualification and Corporate Power; Authority and Enforceability. 10
  4.2 Subsidiaries. 10
  4.3 Capitalization. 10
  4.4 Noncontravention. 11
  4.5 Financial Statements. 11
  4.6 Taxes. 12
  4.7 Compliance with Laws and Orders; Permits. 12
  4.9 Tangible Personal Assets. 12
  4.10 Real Property. 13
  4.11 Intellectual Property. 13
  4.12 Absence of Certain Changes or Events. 14
  4.13 Contracts. 15
  4.14 Litigation 16
  4.15 Employee Benefits. 16
  4.16 Labor and Employment Matters. 16
  4.17 Environmental. 16
  4.18 Insurance. 16
  4.19 Brokers’ Fees. 17
  4.20 Certain Business Relationships with the Companies. 17
  4.21 Equipment. 17
  4.22 Customers and Suppliers. 17
  4.23 Potential Conflicts of Interest. 17
  4.24 Bank Accounts 18
  4.25 Accounts Receivable 18
  4.26 Disclosure. 18

 

i

 

 

TABLE OF CONTENTS

 

ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER 18
       
  5.1 Organization. 18
  5.2 Authorization. 18
  5.3 Noncontravention. 19
  5.4 Litigation 19
  5.5 Brokers’ Fees 19
       
ARTICLE VI COVENANTS 20
       
  6.1 Consents. 20
  6.2 Operation of the Companies’ Business. 20
  6.3 Access. 21
  6.4 Notice of Developments. 21
  6.5 No Solicitation. 22
  6.6 Taking of Necessary Action; Further Action. 22
  6.7 Covenant not to Compete. 22
  6.8 Financial Information. 23
  6.9 Transfer of Cash and Cash Equivalents. 23
  6.10 Company Disclosure Schedule. 23
  6.11 Piggyback Registration Rights 23
  6.12 Tag Along Rights 24
       
ARTICLE VII CONDITIONS TO OBLIGATIONS TO CLOSE 24
       
  7.1 Conditions to Obligation of the Buyer. 24
  7.2 Conditions to Obligation of the Seller. 25
       
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER 27
       
  8.1 Termination of Agreement. 27
  8.2 Effect of Termination. 27
  8.3 Amendments. 27
  8.4 Waiver. 27
       
ARTICLE IX INDEMNIFICATION 28
       
  9.1 Survival. 28
  9.2 Indemnification by Seller. 28
  9.3 Indemnification by Buyer. 28
  9.4 Indemnification Procedure. 29
  9.5 Failure to Give Timely Notice. 29
  9.6 Limited on Indemnification Obligation. 29
  9.7 Payments. 30
  9.8 Recoupment under Buyer Notes. 30
       
ARTICLE X MISCELLANEOUS 30
       
  10.1 Press Releases and Public Announcement. 30
  10.2 No Third-Party Beneficiaries. 30
  10.3 Entire Agreement. 30
  10.4 Succession and Assignment. 30
  10.5 Construction. 31
  10.6 Notices. 31
  10.7 Governing Law; Mediation; Arbitration. 32
  10.8 Headings. 32
  10.9 Severability. 33
  10.10 Expenses. 33
  10.11 Incorporation of Exhibits and Schedules. 33
  10.12 Specific Performance. 33
  10.13 Counterparts. 33

 

ii

 

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT, dated as of July 21, 2021 (the “Agreement”), among Bonne Santé Group, Inc., a Delaware corporation (the “Buyer”), Nexus Offers, Inc. a Florida limited liability company (the “Company”), and Justin Francisco and Steven Rubert, as the shareholders of the Company (each, a “Seller” and together, the “Sellers”).

 

RECITALS

 

A. The Sellers are collectively the record and beneficial owners of 100% of the issued and outstanding shares of capital stock of the Company on a fully-diluted basis (such securities, the “Securities”).

 

B. The Sellers desire to sell all of the Securities to the Buyer, and the Buyer desires to purchase the Securities from the Sellers, upon the terms and subject to the conditions set forth in this Agreement (such sale and purchase of the Securities, the “Acquisition”).

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations and warranties, covenants and agreements contained herein, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1 Certain Definitions. When used in this Agreement, the following terms will have the meanings assigned to them in this Section 1.1:

 

“Action” means any claim, action, suit, inquiry, hearing, proceeding or other investigation.

 

“Affiliate” means, with respect to a Person, any other Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by or is under common Control with, such Person. For purposes of this definition, “Control” (including the terms “Controlled by” and “under common Control with”) means possession of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock, as trustee or executor, by Contract or otherwise.

 

“Benefit Plan” means any “employee benefit plan” as defined in ERISA Section 3(3), including any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan (as defined in ERISA Section 3(2)), (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan (as defined in ERISA Section 3(37)), (d) Employee Welfare Benefit Plan (as defined in ERISA Section 3(1)) or material fringe benefit plan or program, or (e) stock purchase, stock option, severance pay, employment, change-in-control, vacation pay, company award, salary continuation, sick leave, excess benefit, bonus or other incentive compensation, life insurance, or other employee benefit plan, contract, program, policy or other arrangement, whether or not subject to ERISA, under which any present or former employee of the Company has any present or future right to benefits sponsored or maintained by the Company or any ERISA Affiliate.

 

1

 

 

“Business Day” means a day other than a Saturday, Sunday or other day on which banks located in Miami, Florida are authorized or required by Law to close.

 

“Closing Working Capital” means the difference, as of the Closing Date, between (a) the sum of accounts receivable, inventory, capitalized work in process, prepaid expenses and other current assets of the Company, which shall be reflected on the Closing Date Balance Sheet, less (b) the accounts payable, customer deposits, sales taxes payable, and other current liabilities of the Company as reflected on the Closing Date Balance Sheet, in each case, determined in accordance with GAAP.

 

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

 

“Contract” means any written agreement, contract, commitment, arrangement or understanding.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” means any Person who is, or at any time was, a member of a “controlled group of corporations” within the meaning of Section 414(b) or (c) of the Code and, for the purpose of Section 302 of ERISA and/or Section 412, 4971, 4977, 4980D, 4980E and/or each “applicable section” under Section 414(f)(2) of the Code, within the meaning of Section 412(n)(6) of the Code that includes, or at any time included, the Company or any Affiliate thereof, or any predecessor of any of the foregoing.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“GAAP” means United States generally accepted accounting principles.

 

“Governmental Entity” means any entity or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to United States federal, state or local government or foreign, international, multinational or other government, including any department, commission, board, agency, bureau, official or other regulatory, administrative or judicial authority thereof.

 

“Independent Accounting Firm” means any regionally recognized independent registered public accounting firm which has not represented the Company or the Sellers or any of their Affiliates for the past five years as will be agreed by the Company and the Buyer in writing.

 

“IRS” means the Internal Revenue Service.

 

“Knowledge of the Sellers” or any similar phrase means the actual knowledge of the Sellers after due inquiry.

 

2

 

 

“Law” means any statute, law, ordinance, rule, regulation of any Governmental Entity.

 

“Liability” means all indebtedness, obligations and other liabilities and contingencies of a Person, whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due.

 

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, hypothecation or other encumbrance in respect of such property or asset.

 

“Material Adverse Effect” means any material adverse effect on the assets, properties, condition (financial or otherwise), operations of the Company and any of their Subsidiaries, taken as a whole provided, however, that none of the following shall be deemed (either alone or in combination) to constitute, and none of the following shall be taken into account in determining whether there has been or may be, a Material Adverse Effect: (i) the effect of any change that generally affects the United States or foreign economies or securities, financial, banking or credit markets (including changes in interest or exchange rates) or geopolitical conditions; (ii) the effect of any change that generally affects any industry in which the Company operates; (iii) the effect of any seasonal changes in the results of operations of the Company consistent with past practices; (iv) the effect of any changes in applicable Laws; (v) the effect of any change caused by natural disasters or acts of nature, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions.

 

“Minimum Working Capital Requirement” means the average monthly working capital for the twelve-month period ended July 31, 2021.

 

“Order” means any award, injunction, judgment, decree, order, ruling, subpoena or verdict or other decision issued, promulgated or entered by or with any Governmental Entity of competent jurisdiction.

 

“Permit” means any authorization, approval, consent, certificate, license, permit or franchise of or from any Governmental Entity of competent jurisdiction or pursuant to any Law.

 

“Person” means an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated association, a Governmental Entity or any agency, instrumentality or political subdivision of a Governmental Entity, or any other entity or body.

 

“Preliminary Working Capital” means the difference, as of the Closing Date, between (a) the sum of the accounts receivable, inventory, capitalized work in process, prepaid expenses and other current assets of the Company, which shall be reflected on the Preliminary Balance Sheet, less (b) the accounts payable, customer deposits, sales taxes payable, and other current liabilities of the Company as reflected on the Preliminary Balance Sheet, in each case, determined in accordance with GAAP.

 

“Representatives” means, with respect to any Person, the respective directors, officers, employees, counsel, accountants and other representatives of such Person.

 

3

 

 

“Subsidiary” means, with respect to any Person, any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other Subsidiary), owns, directly or indirectly, more than 50% of the stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of a non-corporate Person.

 

“Taxes” means all federal, state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, transfer, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever.

 

“Taxing Authority” means any Governmental Entity having or purporting to exercise jurisdiction with respect to any Tax.

 

“Tax Returns” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“Trailing Twelve Months Adjusted EBITDA” means the Company’s earnings before (i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense, (iv) equity based compensation expense, (v) owner’s compensation in excess of $300,000, (vi) non-essential travel and entertainment, (vii) extraordinary one-time items, and (viii) such other adjustment items as mutually agreed upon by the Buyer and the Sellers for the twelve-month period prior to July 31, 2021, consistent with the calculation of Trailing Twelve Months Adjusted EBITDA for the period ended December 31, 2020 as set forth on Exhibit A.

 

“Transaction Proposal” means any unsolicited written bona fide proposal made by a third party relating to (i) any direct or indirect acquisition or purchase of all or substantially all assets of the Company, (ii) any direct or indirect acquisition or purchase of a majority of the combined voting power of the Securities, (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company in which the other party thereto or its stockholders will own 51% or more of the combined voting power of the parent entity resulting from any such transaction, or (iv) any other transaction that is inconsistent with the intent and purpose of this Agreement.

 

“Transfer Taxes” means sales, use, transfer, recording, documentary, stamp, registration and stock transfer Taxes and any similar Taxes.

 

“$” means United States dollars.

 

4

 

 

For purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires: (i) the meaning assigned to each term defined herein will be equally applicable to both the singular and the plural forms of such term and vice versa, and words denoting any gender will include all genders as the context requires; (ii) where a word or phrase is defined herein, each of its other grammatical forms will have a corresponding meaning; (iii) the terms “hereof”, “herein”, “hereunder”, “hereby” and “herewith” and words of similar import will, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement; (iv) when a reference is made in this Agreement to an Article, Section, paragraph, Exhibit or Schedule without reference to a document, such reference is to an Article, Section, paragraph, Exhibit or Schedule to this Agreement; (v) a reference to a subsection without further reference to a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule will also apply to paragraphs and other subdivisions; (vi) the word “include”, “includes” or “including” when used in this Agreement will be deemed to include the words “without limitation”, unless otherwise specified; (vii) a reference to any party to this Agreement or any other agreement or document will include such party’s predecessors, successors and permitted assigns; (viii) a reference to any Law means such Law as amended, modified, codified, replaced or reenacted as of the date hereof, and all rules and regulations promulgated thereunder as of the date hereof; and (ix) all accounting terms used and not defined herein have the respective meanings given to them under GAAP.

 

ARTICLE II

PURCHASE AND SALE OF THE SECURITIES

 

2.1 Purchase and Sale of the Securities. Upon the terms and subject to the conditions set forth in this Agreement, the Buyer agrees to pay to the Sellers for the Securities in the aggregate at the Closing approximately Three Million, Eight Hundred Eighty Thousand Dollars ($3,880,000) (the “Purchase Price”), subject to adjustment as described in Section 2.2 below, by delivery of (i) cash in the amount of Two Million Dollars ($2,000,000) (the “Cash Portion”), payable by wire transfer or delivery of other immediately available funds to one or more accounts at banks identified by Sellers to Buyer in writing at least two (2) business days prior to the Closing Date, (ii) a convertible promissory note (“Buyer Note I”) in a form to be mutually agreed to between the Buyer and the Sellers in the aggregate principal amount of One Million Dollars ($1,000,000), and (iii) a non-convertible promissory note (“Buyer Note II,” and together with Buyer Note I the “Buyer Notes”) in the form to be mutually agreed to in the aggregate principal amount of Eight Hundred Eighty Thousand Dollars ($880,000). The Buyer Notes will each bear interest at the rate of 5% per annum and will be amortized on a 60-month straight line basis with a balloon payment on the 36th month. The Buyer Notes will be subordinated to the senior indebtedness of the Buyer and the Company and will have a subordinated security interest (after the senior secured indebtedness) covering all of the assets of the Company.

 

2.2  Adjustments to Purchase Price.

 

(a) Trailing Twelve-Month Adjusted EBITDA Adjustments.

 

(i) The Purchase Price is based upon a four times (4x) multiple of the Trailing Twelve-Month Adjusted EBITDA. The Buyer has engaged Liggett and Webb to prepare a quality of earnings report on the Company (the “Quality of Earnings Report”). The Purchase Price shall be adjusted upwards or downwards upon delivery of the Quality of Earnings Report to all parties based upon the difference between four times (4x) the Trailing Twelve-Month Adjusted EBITDA as shown in the Quality of Earnings Report and the Purchase Price. The adjusted Purchase Price shall be allocated among the Cash Portion and the Buyer Notes based on the percentage of the Purchase Price that each such component of consideration makes up as described above in Section 2.1.

 

5

 

 

(ii) In the event the Sellers do not agree with the Trailing Twelve-Month Adjusted EBITDA as set forth in the Quality of Earnings Report, the Sellers shall so inform the Buyer in writing within 20 days of the Sellers’ receipt thereof, such writing to set forth the objections of the Sellers in reasonable detail. If the Sellers and the Buyer cannot reach agreement as to any disputed matter relating to the Trailing Twelve-Month Adjusted EBITDA as set forth in the Quality of Earnings Report within 15 days after notification by the Sellers to the Buyer of a dispute, they shall forthwith refer the dispute to an Independent Accounting Firm mutually agreeable to the Sellers and the Buyer for resolution, with the understanding that such firm shall resolve all disputed items within 20 days after such disputed items are referred to it. If the Buyer and the Sellers are unable to agree on the choice of an Independent Accounting Firm, they shall select an Independent Accounting Firm by lot from up to three firms proposed by each of the Sellers and Buyer (after excluding their respective regular outside accounting firms). Each of the Sellers and the Buyer shall bear one-half of the costs of such accounting firm. The decision of the accounting firm with respect to all disputed matters relating to the Trailing Twelve-Month Adjusted EBITDA shall be deemed final and conclusive and shall be binding upon the Sellers and the Buyer. In addition, if the Sellers do not object to within the 20-day period referred to above, the Trailing Twelve-Month Adjusted EBITDA shall be deemed final and conclusive and binding upon the Sellers and the Buyer. Notwithstanding the foregoing, in the event that the Trailing Twelve-Month Adjusted EBITDA is determined by the Independent Accounting Firm to be equal to or less than $970,000 and Buyer is not willing to pay at least $3,880,000, then either party may terminate this Agreement immediately and neither party shall have any further obligation to the other party except as otherwise provided for in this Agreement.

 

(iii) The Sellers shall be entitled to have access to the books and records and other information relating to the Company that was used by Liggett & Webb to prepare the Quality of Earnings Report, including the work papers prepared in connection with the preparation of the Quality of Earnings Report and shall be entitled to discuss such books and records and work papers with the Buyer and those persons responsible for the preparation thereof.

 

(b) Working Capital Adjustment.

 

(i) At the Closing, the Sellers shall deliver to the Buyer an unaudited, combined estimated balance sheet of the Company (the “Preliminary Balance Sheet”) as of the Closing Date together with a certificate of the Sellers stating that the Preliminary Balance Sheet was prepared in accordance with GAAP so as to present fairly in all material respects the financial condition of Company on a combined basis as of such date.

 

(ii) Ninety days (90) after the Closing Date, the Buyer shall cause its auditor to prepare and deliver to the Sellers an unaudited, combined balance sheet of the Company as of the Closing Date (the “Closing Date Balance Sheet”) and all calculations, work papers and supporting documents (the “Supporting Documentation”) as of the Closing Date. The Closing Date Balance Sheet shall be prepared in accordance with GAAP in a manner consistent with the Preliminary Balance Sheet so as to present fairly in all material respects the financial condition of the Company.

 

6

 

 

(iii) If the Closing Working Capital exceeds the Minimum Working Capital, then the Buyer shall promptly (and, in any event, within fifteen (15) days) pay to the Sellers an amount in cash that is equal to the deficiency. If the Minimum Working Capital exceeds the Closing Working Capital, then the Sellers shall promptly (and, in any event, within fifteen (15) days) pay to the Buyer an amount in cash that is equal to the deficiency.

 

(c) If there is a dispute regarding differences between the Preliminary Balance Sheet and the Closing Date Balance Sheet or as to the calculation of working capital as shown thereon, then the parties shall employ the same dispute resolution procedures within the same time periods used to resolve disputes relating to Trailing Twelve-Month Adjusted EBITDA as set forth in Section 2.2(a)(ii).

 

(d) Adjustment for Outstanding Indebtedness. The Cash Portion shall be decreased by the amount of any outstanding indebtedness of the Company for borrowed money existing as of the Closing Date and the deducted amount shall be utilized to pay off such outstanding indebtedness.

 

2.3 Closing. The consummation of the Acquisition (the “Closing”) will take place by the reciprocal delivery of closing documents by electronic mail, regular mail, fax or any other means mutually agreed upon by the parties hereto on a date that is no later than two (2) Business Days immediately following the day on which the last of the conditions to closing contained in Article VII (other than any conditions that by their nature are to be satisfied at the Closing) is satisfied or waived in accordance with this Agreement or at such other location or on such other date as the Buyer and the Company may mutually determine (the date on which the Closing actually occurs is referred to as the “Closing Date”).

 

2.4 Transactions to be Effected at the Closing.

 

(a) At the Closing, the Buyer will (i) pay to the Sellers the Cash Portion of the Purchase Price, adjusted in accordance with subsection 2.2(a) and, by paying such sum to the Sellers by transfer of immediately available funds in accordance with instructions provided by the Sellers, and (ii) deliver to the Sellers all other documents, instruments or certificates required to be delivered by the Buyer at or prior to the Closing pursuant to this Agreement, including, without limitation, the Buyer Notes.

 

(b) At the Closing, the Sellers will deliver to the Buyer (i) an assignment of the Securities in form satisfactory to the Buyer showing the Buyer as the sole owner of the Securities, and (ii) all other documents, instruments or certificates required to be delivered by the Sellers at or prior to the Closing pursuant to this Agreement.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

Each of the Sellers and the Company represents and warrants to the Buyer that each statement contained in this Article III is true and correct as of the date hereof, except as set forth in the schedule to be delivered to the Buyer in accordance with Section 6.10 hereof (the “Company Disclosure Schedule”). The Company Disclosure Schedule has been arranged for purposes of convenience only, in sections corresponding to the Sections of this Article III and Article IV. Each section of the Company Disclosure Schedule will be deemed to incorporate by reference all information disclosed in any other section of the Company Disclosure Schedule.

 

3.1 Authority and Enforceability. Each of the Sellers has the requisite legal capacity to execute and deliver this Agreement, to perform his respective obligations hereunder and to consummate the Acquisition and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Sellers and, assuming the due authorization, execution and delivery by each other party hereto, constitutes a legal, valid and binding obligation of the Sellers, enforceable against the Sellers in accordance with its terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.

 

3.2 Noncontravention.

 

(a) Neither the execution and the delivery of this Agreement nor the consummation of the Acquisition or the other transactions contemplated by this Agreement will, with or without the giving of notice or the lapse of time or both, (i) to the knowledge of the Sellers and assuming compliance with the filing and notice requirements set forth in Section 3.2(b)(i), violate any Law applicable to the Sellers or (ii) violate any Contract to which either Seller is a party, except to the extent that any such violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The execution and delivery of this Agreement by the Sellers does not, and the performance of this Agreement by the Sellers will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) the filings set forth in Section 3.2(b) of the Company Disclosure Schedule or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

3.3 The Securities.

 

(a) The Sellers collectively hold of record and own beneficially all of the Securities, free and clear of all Liens, other than (a) Liens for current real or personal property Taxes that are not yet due and payable or that may hereafter be paid without material penalty or that are being contested in good faith, (b) statutory Liens of landlords and workers’, carriers’ and mechanics’ or other like Liens incurred in the ordinary course of business or that are being contested in good faith, (c) Liens and encroachments which do not materially interfere with the present or proposed use of the properties or assets they affect, (d) Liens that will be released prior to or as of the Closing, (e) Liens arising under this Agreement, (f) Liens created by or through the Buyer, and (g) Liens set forth in Section 3.3(a) of the Company Disclosure Schedule (the “Permitted Liens”).

 

(b) Except as set forth in this Agreement, neither Seller is a party to any Contract obligating such Seller to vote or dispose of any Securities of, or other equity or voting interests in, the Company.

 

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3.4 Brokers’ Fees. Except as set forth in Section 3.4 of the Company Disclosure Schedule, neither Seller has any Liability to pay any fees or commissions to any broker, finder or agent with respect to this Agreement, the Acquisition or the transactions contemplated by this Agreement.

 

3.5 Investment Representations. The Buyer Notes are being acquired by each of the Sellers for his respective accounts, for investment purposes and not with a view to the sale or distribution of all or any part of the Buyer Notes, nor with any present intention to sell or in any way distribute the same, as those terms are used in the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder. Each of the Sellers has sufficient knowledge and experience in financial matters so as to be capable of evaluating the merits and risks of purchasing the Buyer Notes. Each of the Sellers has reviewed copies of such documents and other information as such Seller has deemed necessary in order to make an informed investment decision with respect to its acquisition of the Buyer Notes. Each of the Sellers understands that the Buyer Notes may not be sold, transferred or otherwise disposed of without registration under the Securities Act or the availability of an exemption therefrom, and that in the absence of an effective registration statement covering the Buyer Notes or an available exemption from registration under the Securities Act, the Buyer Notes must be held indefinitely. Further, each of the Sellers understands and has the financial capability of assuming the economic risk of an investment in the Buyer Notes for an indefinite period of time. Each of the Sellers has been advised by the Buyer that the Sellers will not be able to dispose of the Buyer Notes, or any interest therein, without first complying with the relevant provisions of the Securities Act and any applicable state securities laws. Each of the Sellers understands that the provisions of Rule 144 promulgated under the Securities Act, permitting the routine sales of the securities of certain issuers subject to the terms and conditions thereof, are not currently, and may not hereafter be, available with respect to the Buyer Notes. Each of the Sellers acknowledges that the Buyer is under no obligation to register the Buyer Notes except as otherwise expressly set forth in this Agreement or to furnish any information or take any other action to assist the undersigned in complying with the terms and conditions of any exemption which might be available under the Securities Act or any state securities laws with respect to sales of the Buyer Notes in the future. Each of the Sellers is an “Accredited Investor” as defined in rule 501 (a) of Regulation D of the Act.

 

3.6 No Other Representations and Warranties. NO SELLER NOR ANY OTHER PERSON ON BEHALF OF ANY SELLER HAS MADE, OR SHALL BE DEEMED TO HAVE MADE, AND NO SELLER NOR ANY OF ITS AGENTS OR REPRESENTATIVES IS LIABLE FOR OR BOUND IN ANY MANNER BY, ANY EXPRESS OR IMPLIED REPRESENTATIONS, WARRANTIES, GUARANTIES, PROMISES OR STATEMENTS PERTAINING TO THE COMPANY, SELLERS OR THE SECURITIES, EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY

 

Each of the Sellers and the Company represents and warrants to the Buyer that each statement contained in this Article IV is true and correct as of the date hereof, except as set forth in the Company Disclosure Schedule. Any representation or warranty concerning the Company shall be deemed to be a representation concerning the Company and its Subsidiaries, if any, as a whole unless the context specifically requires otherwise.

 

4.1 Organization, Qualification and Corporate Power; Authority and Enforceability.

 

(a) The Company is a corporation, duly organized, validly existing and in good standing under the Laws of the State of Florida, and has all requisite corporate power and authority, directly or indirectly, to own, lease and operate its properties and assets and to carry on its business as it is now being conducted. The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties or assets owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The Company has the requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company, and no other action is necessary on the part of the Company to authorize this Agreement or to consummate the Acquisition or the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by each other party hereto, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity, including principals of commercial reasonableness , good faith and fair dealing, whether such enforceability is considered in a proceeding in equity or at Law.

 

4.2 Subsidiaries. The Company has no Subsidiaries.

 

4.3 Capitalization.

 

(a) The authorized and outstanding capital stock of the Company is as set forth in Section 4.3(a) of the Company Disclosure Schedule. No other capital stock of the Company is authorized, issued or outstanding.

 

(b) There are no outstanding options, warrants or other securities or subscription, preemptive or other rights convertible into or exchangeable or exercisable for any shares of capital stock or other equity or voting interests of the Company and there are no “phantom equity” rights, interest appreciation rights or other similar rights with respect to the Company. There are no Contracts of any kind to which the Company is a party or by which the Company is bound, obligating the Company to issue, deliver, grant or sell, or cause to be issued, delivered, granted or sold, additional equity interests of, or voting interests in, or options, warrants or other securities or subscription, preemptive or other rights convertible into, or exchangeable or exercisable for, equity interests of, or other voting interests in, the Company, or any “phantom equity” right, equity appreciation right or other similar right with respect to the Company, or obligating the Company to enter into any such Contract.

 

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(c) There are no securities or other instruments or obligations of the Company, the value of which is in any way based upon or derived from any capital or voting stock of the Company or having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which the Company’s stockholders may vote.

 

(d) There are no Contracts, contingent or otherwise, obligating the Company to repurchase, redeem or otherwise acquire any securities of, or other equity or voting interests in, the Company. There are no voting trusts, registration rights agreements or stockholder agreements to which the Company is a party with respect to the voting of the capital stock of the Company, as applicable, or with respect to the granting of registration rights for any of the capital stock of the Company. There are no rights plans affecting the Company.

 

(e) Except as set forth in Section 4.3(e) of the Company Disclosure Schedule, there are no bonds, debentures, notes or other indebtedness of the Company.

 

4.4 Noncontravention.

 

(a) Neither the execution and delivery of this Agreement nor the consummation of the Acquisition and the other transactions contemplated by this Agreement will, with or without the giving of notice or the lapse of time or both, (i) violate any provision of the articles of incorporation or bylaws (or comparable organization documents, as applicable) of the Company, (ii) to the Knowledge of the Sellers and assuming compliance with the filing and notice requirements set forth in Section 4.4(b) (i), violate any Law applicable to the Company on the date hereof or (iii) except as set forth in Section 4.4(a) of the Company Disclosure Schedule, violate any Contract to which the Company is a party, except with respect to those third party consents that the Sellers shall use reasonable efforts to obtain pursuant to Section 6.1 and in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) the filings set forth in Section 4.4(b) of the Company Disclosure Schedule or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.5 Financial Statements. Section 4.5 of the Company Disclosure Schedule contains true and complete copies of (i) the unaudited balance sheet of the Company for the two years ended December 31, 2020 and December 31, 2019, and for the six months ended June 30, 2021; and (ii) the related unaudited statements of income and cash flows for the two years ended December 31, 2020 and December 31, 2019, and for the six months ended June 30, 2021 (the “Financial Statements”). The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and, on that basis, fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of the indicated dates and for the indicated periods.

 

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4.6 Taxes.

 

(a) All material Tax Returns required to have been filed by the Company have been filed, and each such Tax Return reflects the liability for Taxes in all material respects. All Taxes shown on such Tax Returns as due have been paid or accrued.

 

(b) To the Knowledge of the Sellers, there is no audit pending against the Company in respect of any Taxes. There are no Liens on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax, other than Liens for Taxes not yet due and payable.

 

(c) The Company has withheld and paid or accrued for all material Taxes required to have been withheld and paid or accrued for in connection with amounts paid or owing to any third party.

 

(d) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

(e) The Company is not a party to any Tax allocation or sharing agreement.

 

4.7 Compliance with Laws and Orders; Permits.

 

(a) The Company is in compliance with all Laws and Orders to which the business of the Company is subject, except where such failure to comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The Company owns, holds, possesses or lawfully uses in the operation of its business all Permits that are necessary for it to conduct its business as now conducted, except where such failure to own, hold, possess or lawfully use such Permit would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.8 No Undisclosed Liabilities. The Company does not have any Liability, of a nature that would be required to be disclosed on a corporate balance sheet prepared in accordance with GAAP, except for (i) liabilities which have arisen since the date of the Financial Statements in the ordinary course of business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law); or (ii) liabilities that are adequately reserved against.

 

4.9 Tangible Personal Assets.

 

(a) The Company has good title to, or a valid interest in, all of their tangible personal assets, free and clear of all Liens, other than (i) Permitted Liens or (ii) Liens that, individually or in the aggregate, do not materially interfere with the ability of the Company thereof to conduct its business as currently conducted and do not adversely affect the value of, or the ability to sell, such personal properties and assets.

 

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(b) The Company’s tangible personal assets are in good operating condition, working order and repair, subject to ordinary wear and tear, free from defects (other than defects that do not interfere with the continued use thereof in the conduct of normal operations) and are suitable for the purposes for which they are currently being used.

 

4.10 Real Property.

 

(a) Owned Real Property. The Company does not own any real property.

 

(b) Leased Real Property. Section 4.10(b) of the Company Disclosure Schedule contains a list of all leases and subleases (collectively, the “Real Property Leases”) under which the Company is either lessor or lessee (the “Real Property”). The Sellers have heretofore made available to the Buyer true and complete copies of each Real Property Lease. To the Knowledge of the Sellers, (i) all Real Property Leases are valid and binding Contracts of the Company and are in full force and effect (except for those that have terminated or will terminate by their own terms), and (ii) neither the Company nor any other party thereto, is in violation or breach of or default (or with notice or lapse of time, or both, would be in violation or breach of or default) under the terms of any such Contract, in each case, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.11 Intellectual Property.

 

(a) “Intellectual Property” means (i) trade secrets, inventions, confidential and proprietary information, know-how, formulae and processes, (ii) patents (including all provisionals, reissues, divisions, continuations and extensions thereof) and patent applications, (iii) trademarks, trade names, trade dress, brand names, domain names, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications (whether registered, unregistered or existing at common law, including all goodwill attaching thereto), (iv) copyrights, including copyright registrations, copyright applications and unregistered common law copyrights; (v) and all licenses for the Intellectual Property listed in items (i) – (iv) above.

 

(b) Section 4.11(b) of the Company Disclosure Schedule sets forth a list that includes all material Intellectual Property owned by the Company (the “Company-Owned Intellectual Property”) that is registered or subject to an application for registration (including the jurisdictions where such Company-Owned Intellectual Property is registered or where applications have been filed, and all registration or application numbers, as appropriate).

 

(c) All necessary registration, maintenance and renewal fees have been paid and all necessary documents have been filed with the United States Patent and Trademark Office or foreign patent and trademark office in the relevant foreign jurisdiction for the purposes of maintaining the registered Company-Owned Intellectual Property.

 

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(d) Except as set forth on Section 4.11(d) of the Company Disclosure Schedule, (i) the Company is the exclusive owner of the Company-Owned Intellectual Property free and clear of all Liens (other than Permitted Liens); (ii) to the Knowledge of the Sellers no proceedings have been instituted, are pending or are threatened that challenge the rights of the Company in or the validity or enforceability of the Company-Owned Intellectual Property; (iii) to the Knowledge of the Sellers, neither the use of the Company-Owned Intellectual Property as currently used by the Company in the conduct of the Company’s business, nor the conduct of the business as presently conducted by the Company infringes, dilutes, misappropriates or otherwise violates in any material respect the Intellectual Property rights of any Person; and (iv) as of the date of this Agreement, the Company has made no claim of a violation, infringement, misuse or misappropriation by any Person, of its rights to, or in connection with, the Company-Owned Intellectual Property.

 

(e) Except as set forth in Section 4.11(e) of the Company Disclosure Schedule, the Company has not permitted or licensed any Person to use any Company-Owned Intellectual Property.

 

(f) Section 4.11(f) of the Company Disclosure Schedule sets forth a complete and accurate list of all licenses, other than “off the shelf” commercially available software programs, pursuant to which the Company licenses from a Person Intellectual Property that is material to and used in the conduct of the business by the Company.

 

(g) To the Knowledge of the Sellers, the Company is not in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any Contract pursuant to which any third party is authorized to use any Company-Owned Intellectual Property or pursuant to which the Company is licensed to use Intellectual Property owned by a third party, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.12 Absence of Certain Changes or Events. Since the date of the Financial Statements, no event has occurred that has had, individually or in the aggregate, a Material Adverse Effect. Without limiting the generality of the foregoing, since that date:

 

(a) the Company has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the ordinary course of business;

 

(b) the Company has not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the ordinary course of business;

 

(c) no party (including the Company) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $50,000 to which the Company is a party or by which it is bound;

 

(d) the Company has not imposed any Liens upon any of its assets, tangible or intangible;

 

(e) the Company has not made any capital expenditure (or series of related capital expenditures) either involving more than $50,000 or outside the ordinary course of business;

 

(f) the Company has not 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) either involving more than $50,000 or outside the ordinary course of business;

 

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(g) the Company has not transferred, assigned, or granted any license or sublicense of any rights under or with respect to any Intellectual Property;

 

(h) there has been no change made or authorized in the articles of incorporation, or bylaws of the Company;

 

(i) the Company has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock;

 

(j) the Company has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the ordinary course of business;

 

(k) the Company has not entered into any employment contract or modified the terms of any existing such contract or agreement;

 

(l) the Company has not granted any increase in the base compensation of any of its directors, officers, and employees outside the ordinary course of business;

 

(m) the Company has not committed to any of the foregoing.

 

4.13 Contracts.

 

(a) Except as set forth in Section 4.13(a) of the Company Disclosure Schedule, as of the date hereof, the Company is not a party to or bound by any: (i) Contract not contemplated by this Agreement that materially limits the ability of the Company to engage or compete in any manner of the business presently conducted by the Company; (ii) Contract that creates a partnership or joint venture or similar arrangement with respect to any material business of the Company; (iii) indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other evidence of indebtedness or agreement providing for indebtedness in excess of $50,000; (iv) Contract that relates to the acquisition or disposition of any material business (whether by merger, sale of stock or other equity interests, sale of assets or otherwise) other than this Agreement; and (v) Contract that involves performance of services or delivery of goods or materials by or to the Company in an amount or with a value in excess of $50,000 in any 12-month period (which period may extend past the Closing).

 

(b) The Sellers have heretofore made available to the Buyer true and complete copies of each of the Contracts set forth in Section 4.13(a) of the Company Disclosure Schedule. To the Knowledge of the Sellers, (i) all such Contracts are valid and binding, (ii) all such Contracts are in full force and effect (except for those that have terminated or will terminate by their own terms), and (iii) neither the Company nor any other party thereto, is in violation or breach of or default under (or with notice or lapse of time, or both, would be in violation or breach of or default under) the terms of any such Contract, in each case, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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4.14 Litigation. Except as set forth in Section 4.14 of the Company Disclosure Schedule, there is no Action pending or, to the Knowledge of the Sellers, threatened against the Company that (a) challenges or seeks to enjoin, alter or materially delay the Acquisition or (b) would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.15 Employee Benefits.

 

(a) Section 4.15(a) of the Company Disclosure Schedule includes a list of all Benefit Plans maintained or contributed to by the Company (the “Company Benefit Plans”). The Sellers have delivered or made available to the Buyer copies of (i) each Company Benefit Plan, (ii) the most recent summary plan description for each Company Benefit Plan for which such a summary plan description is required and (iii) the most recent favorable determination letters from the IRS with respect to each Company Benefit Plan intended to qualify under Section 401(a) of the Code.

 

(b) Except as set forth in Section 4.15(b) of the Company Disclosure Schedule, (i) none of the Company Benefit Plans is subject to Title IV of ERISA; (ii) each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code is subject to a favorable determination letter from the IRS and, to the Knowledge of the Sellers, no event has occurred and no condition exists that is reasonably likely to result in the revocation of any such determination; and (iii) each Company Benefit Plan is in compliance with all applicable provisions of ERISA and the Code, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.16 Labor and Employment Matters. Section 4.16 of the Company Disclosure Schedule sets forth a list of all written employment agreements that obligate the Company to pay an annual salary of $50,000 or more and to which the Company is a party. To the Knowledge of the Sellers, there are no pending labor disputes, work stoppages, requests for representation, pickets, work slow-downs due to labor disagreements or any actions or arbitrations that involve the labor or employment relations of the Company. The Company is not party to any collective bargaining agreement.

 

4.17 Environmental. Except (i) as set forth in Section 4.17 of the Company Disclosure Schedule or (ii) for any matter that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, to the Knowledge of the Sellers (a) the Company is in compliance with all applicable Laws relating to protection of the environment (“Environmental Laws”), (b) the Company possesses and is in compliance with all Permits required under any Environmental Law for the conduct of their operations and (c) there are no Actions pending against the Company alleging a violation of any Environmental Law.

 

4.18 Insurance. Section 4.18 of the Company Disclosure Schedule sets forth a list of each insurance policy that covers the Company or its businesses, properties, assets, directors, officers or employees (the “Policies”). Such Policies are in full force and effect in all material respects and the Company is not in violation or breach of or default under any of their obligations under any such Policy, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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4.19 Brokers’ Fees. Except as set forth in Section 4.19 of the Company Disclosure Schedule, which such fees shall be paid prior to or at Closing with the Sellers’ cash, the Sellers and the Company have no Liability to pay any fees or commissions to any broker, finder or agent with respect to this Agreement, the Acquisition or the transactions contemplated by this Agreement.

 

4.20 Certain Business Relationships with the Company. Except as set forth in Section 4.20 of the Company Disclosure Schedule, neither the Sellers, nor any Affiliate of the Sellers, have been involved in any business arrangement or relationship with the Company within the past 12 months, and neither the Sellers, nor any Affiliate of the Sellers, own any asset, tangible or intangible, which is used in the Business.

 

4.21 Equipment. Section 4.21 of the Company Disclosure Schedule sets forth a complete and accurate list of all plants, fixtures, machinery, installations, equipment, furniture, tools, spare parts, supplies, materials and other personal property (collectively, the “Equipment”) owned by the Company other than items having a net book or market value individually of less than five thousand dollars ($5,000) or expensed for tax purposes, as of the date of the Financial Statements. The Company has not acquired an item of Equipment for in excess of such amount since such date. The Equipment, and all personal property held by the Company, are utilized by the Company in the ordinary course of business.

 

4.22 Customers and Suppliers. Section 4.22 of the Company Disclosure Schedule sets forth a correct and complete list of the top 20 customers and top 20 suppliers of the Company during the fiscal year ended December 31, 2020 and indicates with respect to each the name, address and dollar volume of business with the Company (including the primary categories, based on purchases or sales, of products or services bought or sold). The Company is not required to provide any material bonding or other financial security arrangements in connection with its transactions with any customer or supplier required to be disclosed on Section 4.22 of the Company Disclosure Schedule except as set forth therein. Since the date of the Financial Statements, no customer or supplier required to be disclosed on Section 4.22 of the Company Disclosure Schedule has terminated its relationship with, or materially reduced its purchases from or sales to, the Company.

 

4.23 Potential Conflicts of Interest. Except as set forth in Section 4.23 of the Company Disclosure Schedule, no officer, director, manager, member, stockholder (or Affiliate thereof) or, to the Knowledge of the Sellers, employee of the Company (a) owns, directly or indirectly, any interest in (excepting not more than 1% stock or other equity securities for investment purposes in securities of publicly held and traded companies) or is an officer, director, manager, employee or consultant of any Person which is a competitor, lessor, lessee, customer or supplier of Company, unless such interest is owned on the date hereof and such Person is not within a ten (10) mile radius of any of the manufacturing operations currently being operated by the Company; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property which the Company is using or the use of which is necessary for their business; (b) has any cause of action or other claim whatsoever against, or owes any amount to, any of the Company, except for claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under any Company Benefit Plan and similar matters and agreements; or (c) is party to any agreement, contract or commitment with any of the Company or has received any loan, advance or investment from the Company that has not been repaid in full prior to the date hereof.

 

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4.24 Bank Accounts. Section 4.24 of the Company Disclosure Schedule sets forth a correct and complete list of: (i) each of the bank accounts of the Company, together with a true and complete list of the authorized signatories for such accounts; and (ii) the names of all Persons authorized to borrow money or sign notes on behalf of the Company.

 

4.25 Accounts Receivable. Except as set forth in Section 4.25 of the Company Disclosure Schedule, all accounts and notes receivable of the business of the Company arose in the ordinary and usual course of the business, represent valid obligations due, and except for installment loan contracts and customer side notes either have been collected in full or, to the Knowledge of the Sellers, will be collected in full not later than 60 days after the invoice or due date of such receivables.

 

4.26 Disclosure. The representations and warranties contained in this Article IV do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article IV not misleading.

 

4.27 No Other Representations and Warranties. NONE OF THE COMPANY, OR ANY OTHER PERSON ON BEHALF OF THE COMPANY HAS MADE, OR SHALL BE DEEMED TO HAVE MADE, AND NEITHER THE COMPANY NOR OR ANY OF ITS DIRECTORS, MANAGERS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES IS LIABLE FOR OR BOUND IN ANY MANNER BY, ANY EXPRESS OR IMPLIED REPRESENTATIONS, WARRANTIES, GUARANTIES, PROMISES OR STATEMENTS PERTAINING TO THE COMPANY, OR THE COMPANY EQUITY, EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT.

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BUYER

 

The Buyer represents and warrants to the Sellers that each statement contained in this Article V is true and correct as of the date hereof. Any representation or warranty concerning the Buyer shall be deemed to be a representation concerning the Buyer and its Subsidiaries, if any, as a whole unless the context specifically requires otherwise.

 

5.1 Organization. The Buyer is a corporation, duly organized, validly existing and in good standing under the laws of the state of Delaware.

 

5.2 Authorization. The Buyer has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by the Buyer of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary action, and no other action on the part of the Buyer is necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than compliance with the filing and notice requirements set forth in Section 5.3(b)(i)). This Agreement has been duly executed and delivered by the Buyer and, assuming the due authorization, execution and delivery by each of the other parties hereto, constitutes a legal, valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.

 

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5.3 Noncontravention.

 

(a) Neither the execution and the delivery of this Agreement, nor the consummation of the Acquisition and the other transactions contemplated by this Agreement, will, with or without the giving of notice or the lapse of time or both, (i) violate any provision of the certificate of incorporation or bylaws (or comparable organization documents, as applicable) of the Buyer, (ii) violate any Law applicable to the Buyer on the date hereof or (iii) violate any Contract to which the Buyer is a party, except in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to prevent or materially delay the consummation of the Acquisition and the other transactions contemplated by this Agreement.

 

(b) The execution and delivery of this Agreement by the Buyer does not, and the performance of this Agreement by the Buyer will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) the filings set forth in Section 3.2(b)(i) or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

5.4 Litigation. There are no Legal Proceedings pending or, to the knowledge of the Buyer threatened against the Buyer that, if adversely determined, are reasonably likely to prohibit or restrain the ability of the Buyer to enter into this Agreement or consummate the Transaction and the other transactions contemplated by this Agreement.

 

5.5 Brokers’ Fees. The Buyer has no Liability to pay any fees or commissions to any broker, finder or agent with respect to this Agreement, the Acquisition or the transactions contemplated by this Agreement that could result in any Liability being imposed on the Sellers or the Company.

 

5.6 Inspection; Non-Reliance. Buyer is an informed and sophisticated purchaser, and has engaged expert advisors, experienced in the evaluation and purchase of businesses such as its acquisition of the Securities as contemplated by this Agreement. Seller has given Buyer reasonable access to the employees, documents and facilities of the Company, and Buyer has undertaken such investigation and has been provided with and has evaluated such documents and information as it has deemed necessary to enable it to make an informed and intelligent decision with respect to the execution, delivery and performance of this Agreement.

 

BUYER ACKNOWLEDGES THAT (A) NONE OF THE COMPANY, ANY SELLER, OR ANY PERSON ON BEHALF OF THE COMPANY OR SELLERS IS MAKING ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY MADE BY SELLERS IN ARTICLE III OR BY THE COMPANY IN ARTICLE IV, AND (B) BUYER HAS NOT BEEN INDUCED BY, OR RELIED UPON, ANY REPRESENTATIONS, WARRANTIES, OR STATEMENTS (WRITTEN OR ORAL), WHETHER EXPRESS OR IMPLIED, MADE BY ANY PERSON THAT ARE NOT EXPRESSLY SET FORTH IN THIS AGREEMENT. BUYER AGREES TO ACCEPT THE SECURITIES ON THE CLOSING DATE BASED UPON ITS OWN INSPECTION, EXAMINATION AND DETERMINATION WITH RESPECT THERETO AS TO ALL MATTERS AND WITHOUT RELIANCE UPON ANY EXPRESSED OR IMPLIED REPRESENTATIONS OR WARRANTIES OF ANY NATURE MADE BY SELLER OR THE COMPANY OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICER, EMPLOYEES, STOCKHOLDERS, PARTNERS, MEMBERS, ADVISORS, OR OTHER REPRESENTATIVES, EXCEPT AS SPECIFICALLY AND EXPRESSLY SET FORTH IN THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER SPECIFICALLY ACKNOWLEDGES THAT NO REPRESENTATIONS OR WARRANTIES ARE MADE WITH RESPECT TO ANY PROJECTIONS, FORECASTS, ESTIMATES, BUDGETS OR PROSPECTIVE INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO BUYER, ITS AFFILIATES OR ANY OF THEIR REPRESENTATIVES, EXCEPT THOSE, IF ANY, EXPRESSLY MADE BY SELLERS OR THE COMPANY IN THIS AGREEMENT.

 

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ARTICLE VI

COVENANTS

 

6.1 Consents. The Sellers and the Company will use their commercially reasonable efforts to obtain any required third-party consents to the Acquisition and the other transactions contemplated by this Agreement in writing from each Person.

 

6.2 Operation of the Company’s Business. During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, the Company, except (i) as otherwise contemplated by this Agreement, (ii) as required by applicable Law or (iii) with the prior written consent of the Buyer (which consent will not be unreasonably withheld or delayed), will use commercially reasonable efforts to carry on their business in a manner consistent with past practice and not take any action or enter into any transaction that would result in the following:

 

(a) any change in the articles of incorporation or bylaws of the Company or any amendment of any material term of any outstanding security of the Company;

 

(b) any issuance or sale of any additional shares of, or rights of any kind to acquire any capital stock of any class of the Company (whether through the issuance or granting of options or otherwise);

 

(c) any incurrence, guarantee or assumption by the Company of any indebtedness for borrowed money other than in the ordinary course of business in amounts and on terms consistent with past practice;

 

(d) any change in any method of accounting, accounting principle or accounting practice by the Company which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

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(e) except in the ordinary course of business (i) any adoption or material amendment of any of the Company Benefit Plans, (ii) any entry into any collective bargaining agreement with any labor organization or union, (iii) any entry into an employment agreement or (iv) any increase in the rate of compensation to any employee in an amount that exceeds 10% of such employee’s current compensation; provided, that the Company may (A) take any such action for employees in the ordinary course of business or pursuant to any existing Contracts or Company Benefit Plans and (B) adopt or amend any of the Company Benefit Plans if the cost to such Person of providing benefits thereunder is not materially increased;

 

(f) except in the ordinary course of business, any cancellation, modification, termination or grant of waiver of any material Permits or Contracts to which the Company is a party, which cancellation, modification, termination or grant of waiver would, individually or in the aggregate, have a Material Adverse Effect;

 

(g) any change in the Tax elections made by the Company or in any accounting method used by the Company for Tax purposes, where such Tax election or change in accounting method may have a material effect upon the Tax Liability of the Company for any period or set of periods, or the settlement or compromise of any material income Tax Liability of the Company;

 

(h) except in the ordinary course of business, any acquisition or disposition of any business or any material property or asset (including, without limitation, any of the Company’s Intellectual Property) of the Company (whether by merger, consolidation or otherwise) by the Company;

 

(i) any grant of a Lien on any properties and assets of the Company that would have, individually or in the aggregate, a Material Adverse Effect; or

 

(j) any entry into any agreement or commitment to do any of the foregoing.

 

6.3 Access. The Company will permit the Buyer and its Representatives to have reasonable access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Company, to the premises, properties, personnel, books, records (including Tax records), Contracts and documents of or pertaining to the Company.

 

6.4 Notice of Developments. The Sellers and the Company will give prompt written notice to the Buyer of any event that would reasonably be expected to give rise to, individually or in the aggregate, a Material Adverse Effect or would reasonably be expected to cause a breach of any of their respective representations, warranties, covenants or other agreements contained herein. The Buyer will give prompt written notice to the Sellers and the Company of any event that could reasonably be expected to cause a breach of any of its representations, warranties, covenants or other agreements contained herein or could reasonably be expected to, individually or in the aggregate, prevent or materially delay the consummation of the Acquisition and the other transactions contemplated by this Agreement. The delivery of any notice pursuant to this Section 6.4 will not limit, expand or otherwise affect the remedies available hereunder (if any) to the party receiving such notice.

 

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6.5 No Solicitation.

 

(a) The Sellers and the Company will, and will cause each of their Representatives to, cease immediately any existing discussions regarding a Transaction Proposal.

 

(b) From and after the date of this Agreement, without the prior consent of the Buyer, neither the Sellers nor the Company will, nor will they authorize or permit any of their respective Representatives to, directly or indirectly through another Person to, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate any inquiries, proposals or offers from any Person that constitute, or would reasonably be expected to constitute, a Transaction Proposal, (ii) participate in any discussions or negotiations (including by way of furnishing information) regarding any Transaction Proposal or (iii) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing.

 

(c) In addition, the Sellers shall immediately communicate to the Buyer the terms of any Transaction Proposal received by the Sellers or the Company, or any of their Representatives.

 

6.6 Taking of Necessary Action; Further Action. Subject to the terms and conditions of this Agreement, each of the Sellers, the Company and the Buyer will take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Acquisition in accordance with this Agreement as promptly as practicable.

 

6.7 Covenant not to Compete. For a period of three years from and after the Closing (the “Noncompetition Period”), the Sellers shall not engage directly or indirectly in any business that is competitive with the current business of the Company (the “Business”) in any geographic area in which the Business is conducted as of the Closing Date; provided, however, that no owner of less than 1% of the outstanding stock of any publicly-traded corporation shall be deemed to engage solely by reason thereof in any of its businesses. During the Noncompetition Period, the Sellers shall not induce or attempt to induce any customer, or supplier of the Buyer or any affiliate of the Buyer to terminate its relationship with the Buyer or any Affiliate of the Buyer or to enter into any business relationship to provide or purchase the same or substantially the same services as are provided to or purchased from the Business which might harm the Buyer or any Affiliate of the Buyer. During the Noncompetition Period, the Sellers shall not, on behalf of any entity other than the Buyer or an Affiliate of the Buyer, hire or retain, or attempt to hire or retain, in any capacity any Person who is, or was at any time during the preceding twelve (12) months, an employee or officer of the Company. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 6.7 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.

 

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6.8 Financial Information. The Sellers shall cooperate with the Buyer and the Buyer’s independent certified public accounting firm in order to enable the Buyer to create audited financial statements prepared in accordance with the GAAP for the two full fiscal years preceding the Closing Date, by making available the Seller’s records as they are maintained in the ordinary course of business and answering reasonable questions.

 

6.9 Transfer of Cash and Cash Equivalents. On or prior to the Closing, the Company and Sellers will transfer, or cause to be distributed all cash and cash equivalents of the Company to, among other things, pay any fees owed by Company to brokers or advisors (including termination fees under any advisory agreement) and any indebtedness for borrowed money.

 

6.10 Company Disclosure Schedule. The Parties acknowledge and agree that (i) the Sellers and the Company have not yet delivered a definitive Company Disclosure Schedule to this Agreement to the Buyer, and (ii) the Buyer has not been provided with copies of, nor had an opportunity to review, the items to be referred to on the Company Disclosure Schedule. The Sellers shall deliver (and shall cause the Company to deliver) to the Buyer all of the schedules, including a definitive Company Disclosure Schedule to the Agreement, and documents referred to thereon, in final form as soon as reasonably practicable after the date hereof.  The Buyer shall have 20 days following delivery of such Company Disclosure Schedule and such documents in which to terminate this Agreement if the Buyer objects to any information contained in such Company Disclosure Schedule or the contents of any such document and Buyer and Sellers cannot agree on mutually satisfactory modifications thereto or to this Agreement.

 

6.11 Piggyback Registration Rights. If the Buyer files a registration statement with the Commission covering the sale of shares of its Common Stock (other than a registration statement on Form S-4 or S-8, or on another form, or in another context, in which such “piggyback” registration would be inappropriate such as the Buyer’s initial public offering of its securities), then, for a period commencing on the date of this Agreement and terminating on the second (2nd) anniversary of the date hereof, the Buyer shall give written notice of such proposed filing to the Sellers as soon as practicable but in no event less than ten (10) business days before the anticipated filing date, which notice shall describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and offer to the Sellers in such notice the opportunity to register the sale of such number of shares common stock underlying the Buyer Notes (the “Underlying Shares”) as the Sellers may request in writing within five (5) business days after receipt of such notice (a “Piggyback Registration”). The Buyer shall cause such Underlying Shares to be included in such registration and shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Underlying Shares requested to be included in a Piggyback Registration on the same terms and conditions as any similar securities of the Buyer and to permit the sale or other disposition of such Underlying Shares in accordance with the intended method(s) of distribution thereof. The Sellers agree that if the Sellers propose to include the Underlying Shares or any portion of them in Piggyback Registration that involves an underwriter or underwriters, the Sellers shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggyback Registration. This provision shall expire once the Underlying Shares may be freely sold by the Sellers under Rule 144 promulgated under the Securities Act without restriction as to the volume of Underlying Shares that may be sold.

 

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6.12 Tag Along Right. The Buyer shall not permit the Buyer’s Executive Chairman (Alfonso J. Cervantes) or its President (Darren Minton) (each, a “Tag Along Seller”) to sell any shares of common stock, other capital stock or other securities of the Buyer held by them to a third party (other than to an Affiliate or family member) without the consent of the Sellers unless the Sellers are able to sell the Sellers’ Underlying Shares to such third party on a pro rata basis. For purposes of this provision, “pro rata basis” means the number of total Underlying Shares then held by the Sellers multiplied by a fraction where the numerator is the number of shares of Common Stock of the Buyer on a fully-diluted basis that is owned by the Tag Along Seller who is then selling securities and the denominator is the total number of shares of Common Stock of the Buyer that are outstanding on a fully-diluted basis. The Buyer shall treat as void any attempt by the Tag Along Seller to make a transfer of securities of the Buyer in violation of this provision and shall not register any such transfer on the books and records of the Buyer. This provision shall expire immediately following the closing of the Buyer’s initial public offering of securities, including a public offering of securities under Regulation A of the Securities Act.

 

ARTICLE VII

CONDITIONS TO OBLIGATIONS TO CLOSE

 

7.1 Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate the Acquisition is subject to the satisfaction or waiver by the Buyer of the following conditions:

 

(a) The representations and warranties of the Sellers set forth in this Agreement will be true and correct in all respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of another date, in which case such representations and warranties will be true and correct as of such other date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) does not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Buyer will have received a certificate signed by the Sellers to such effect.

 

(b) Each of the Sellers and the Company will have performed all of the covenants required to be performed by it under this Agreement at or prior to the Closing, except where the failure to perform does not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or materially adversely affect the ability of each of the Sellers and the Company to consummate the Acquisition or perform its other obligations hereunder. The Buyer will have received a certificate signed by the Sellers to such effect.

 

(c) The Buyer shall have completed its business, accounting and legal due diligence review of the Company and the Business, its assets and liabilities and the results thereof shall be reasonably satisfactory to the Buyer.

 

(d) There shall not have been any occurrence, event, incident, action, failure to act, or transaction since the date of the Financial Statements that has had or is reasonably likely to cause a Material Adverse Effect.

 

(e) All applicable waiting periods (and any extensions thereof) will have expired or otherwise been terminated, and the parties hereto will have received all other authorizations, consents and approvals of all Governmental Entities in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

(f)   No temporary, preliminary or permanent restraining Order preventing the consummation of the Acquisition will be in effect.

 

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(g) Each party, as appropriate, shall have obtained any required permits, licenses, approvals or notifications of any Governmental Entities, or other third parties for which the Sellers will assume responsibility for properly completing any and all necessary forms required when applying for and securing any necessary transfers.

 

(h) The Sellers shall have obtained releases of any liens, charges or encumbrances against any of the assets of the Company, at the Sellers’ expense.

 

(i) The Company shall have delivered evidence reasonably satisfactory to the Buyer of the Company’s corporate organization and proceedings and its existence in the jurisdiction in which it is incorporated, including evidence of such existence as of the Closing.

 

(j) The Buyer and each of the Sellers shall have entered into an employment agreement containing a one-year non-competition provision in form and substance mutually agreed upon by the Buyer and the Sellers.

 

(k) Justin Francisco and Steven Rubert of the Company shall have entered into change of control agreements containing non-competition provisions that are in form and substance reasonably satisfactory to the Buyer.

 

(l) The Buyer shall have obtained on terms and conditions satisfactory to it all of the financing it needs in order to consummate the transactions contemplated hereby and fund the working capital requirements of the Company after the Closing.

 

(m)   The Buyer shall have received an opinion of counsel to the Company in form and substance satisfactory to the Buyer.

 

(n) To the extent that the leased Real Property is owned by the Sellers, the Sellers shall have executed new leases for such Real Property that are mutually satisfactory to the parties. To the extent that the leased Real Property is not owned by the Sellers, then the Buyer may require amendments to the existing leases of the Company as a condition to the Closing.

 

(o) All actions to be taken by the Sellers in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Buyer.

 

7.2 Conditions to Obligation of the Sellers. The obligation of the Sellers to consummate the Acquisition is subject to the satisfaction or waiver by the Sellers of the following conditions:

 

(a) The representations and warranties of the Buyer set forth in this Agreement will be true and correct in all respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of another date, in which case such representations and warranties will be true and correct as of such other date), except where the failure of such representations and warranties to be so true and correct does not adversely affect the ability of the Buyer to consummate the Acquisition and the other transactions contemplated by this Agreement. The Sellers will have received a certificate signed on behalf of the Buyer by a duly authorized officer of the Buyer to such effect.

 

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(b) The Buyer will have performed in all material respects all of the covenants required to be performed by it under this Agreement at or prior to the Closing except such failures to perform as do not materially adversely affect the ability of the Buyer to consummate the Acquisition and the other transactions contemplated by this Agreement. The Sellers will have received a certificate signed on behalf of the Buyer by a duly authorized officer of the Buyer to such effect.

 

(c) All applicable waiting periods (and any extensions thereof) will have expired or otherwise been terminated and the parties hereto will have received all other required authorizations, consents and approvals of all Governmental Entities in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

(d) No temporary, preliminary or permanent restraining Order preventing the consummation of the Acquisition will be in effect.

 

(e) Each party, as appropriate, shall have obtained any required permits, licenses, approvals or notifications of any Governmental Entities, or other third parties for which the Buyer will assume responsibility for properly completing any and all necessary forms required when applying for and securing any necessary transfers.

 

(f)   The Buyer and each of the Sellers shall have entered into an employment agreement containing a one-year non-competition provision in form and substance mutually agreed upon by the Buyer and the Sellers.

 

(g) All actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Sellers.

 

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ARTICLE VIII

TERMINATION; AMENDMENT; WAIVER

 

8.1 Termination of Agreement. This Agreement may be terminated as follows:

 

(a) by mutual written consent of the Buyer and the Sellers at any time prior to the Closing;

 

(b) by either the Buyer or the Sellers if any Governmental Entity will have issued an Order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement;

 

(c) by either the Buyer or the Sellers if the Closing does not occur on or before the date that that is ninety (90) days after the later of the date of delivery to the parties of the Quality of Earnings Report or the date that the Sellers delivers to the Buyer the final Company Disclosure Schedule in accordance with Section 6.10 hereof; provided that the right to terminate this Agreement under this Section (c) will not be available to any party whose breach of any provision of this Agreement results in the failure of the Closing to occur by such time;

 

(d) by the Buyer if either of the Sellers or the Company has breached their respective representations and warranties or any covenant or other agreement to be performed by it in a manner such that the Closing conditions set forth in Section 7.1(a) or 7.1(b) would not be satisfied; or

 

(e) by the Sellers if the Buyer has breached its representations and warranties or any covenant or other agreement to be performed by it in a manner such that the Closing conditions set forth in Section 7.2(a) or 7.2(b) would not be satisfied.

 

8.2 Effect of Termination. In the event of termination of this Agreement by either Sellers or the Buyer as provided in Section 8.1, this Agreement will forthwith become void and have no effect, without any Liability (other than with respect to any suit for breach of this Agreement) on the part of the Buyer, the Company or the Sellers (or any stockholder, agent, consultant or Representative of any such party); provided, that the provisions of Sections 10.1, 10.6, 10.7, and this Section 8.2 will survive any termination hereof pursuant to Section 8.1.

 

8.3 Amendments. This Agreement may not be amended except by an instrument in writing signed on behalf of the Buyer, the Company and the Sellers.

 

8.4 Waiver. At any time prior to the Closing, the Buyer may (a) extend the time for the performance of any of the covenants, obligations or other acts of the Sellers and the Company or (b) waive any inaccuracy of any representations or warranties or compliance with any of the agreements, covenants or conditions of the Sellers or any conditions to its own obligations. Any agreement on the part of the Buyer to any such extension or waiver will be valid only if such waiver is set forth in an instrument in writing signed on its behalf by its duly authorized officer. At any time prior to the Closing, the Sellers and the Company, may (a) extend the time for the performance of any of the covenants, obligations or other acts of the Buyer or (b) waive any inaccuracy of any representations or warranties or compliance with any of the agreements, covenants or conditions of the Buyer or any conditions to their own obligations. Any agreement on the part of the Sellers and the Company to any such extension or waiver will be valid only if such waiver is set forth in an instrument in writing signed by the Sellers and the Company. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise will not constitute a waiver of such rights. The waiver of any such right with respect to particular facts and other circumstances will not be deemed a waiver with respect to any other facts and circumstances, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time.

 

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ARTICLE IX

INDEMNIFICATION

 

9.1 Survival. The representations and warranties made herein and in any certificate delivered in connection herewith shall survive for a period of eighteen (18 ) months following the Closing Date, at which time they shall expire; provided, however, that the representations and warranties set forth in Sections  3.1 (Authority and Enforceability), 3.3 (The Securities), 3.4 (Brokers Fees), 4.1 (Organization, Qualification and Corporate Power; Authority and Enforceability), 4.3 (Capitalization), 4.6 (Taxes), 4.19 (Brokers Fees), 5.1 (Organization); 5.2 Authorization) and 5.4 (Broker Fees) of this Agreement (the “Fundamental Representations”) shall survive until the expiration of the applicable statute of limitations. If written notice of a claim has been given prior to the expiration of the applicable representations and warranties, then notwithstanding any statement herein to the contrary, the relevant representations and warranties shall survive as to such claim, until such claim is finally resolved. Unless a specified period is set forth in this Agreement (in which event such specified period will control), all agreements and covenants contained in this Agreement will survive the Closing and remain in effect indefinitely.

 

9.2 Indemnification by Sellers. From and after the Closing, the Sellers agree to indemnify, defend and save Buyer and its Affiliates, stockholders, officers, directors, employees, agents and representatives (each, a “Buyer Indemnified Party” and collectively, the “Buyer Indemnified Parties”) harmless from any and all losses, liabilities, damages, fines, and out-of-pocket costs and expenses (including reasonable attorneys’ fees) against or affecting such Person; provided, that “Losses” shall not include punitive damages, speculative damages or damages that are not the reasonably foreseeable consequence of the breach giving rise to such Losses except, in each case, to the extent such damages are required to be paid to a third party pursuant to a Third-Party Claim. (individually and collectively, the “Losses”) suffered, sustained or incurred by any Buyer Indemnified Party arising out of or otherwise by virtue of: (a) any breach of any of the representations or warranties of the Sellers or the Company contained in Article III or IV of this Agreement; or (b) the failure of Sellers to perform any of their covenants or obligations contained in this Agreement.

 

9.3 Indemnification by Buyer. From and after the Closing, the Buyer agrees to indemnify, defend and save the Sellers and to the extent applicable, the Sellers’ Affiliates, employees, agents and representatives (each, a “Seller Indemnified Party” and collectively the “Seller Indemnified Parties”) harmless from and against any and all Losses sustained or incurred by any Seller Indemnified Party arising out of or otherwise by virtue of: (a) any breach of any of the representations and warranties of Buyer contained in Article V of this Agreement or (b) the failure of Buyer to perform any of its covenants or obligations contained in this Agreement.

 

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9.4 Indemnification Procedure.

 

(a) If a Buyer Indemnified Party or a Seller Indemnified Party seeks indemnification under this Article IX, such party (the “Indemnified Party”) shall give written notice to the other party (the “Indemnifying Party”) of the facts and circumstances giving rise to the claim. In that regard, if any Action, Liability or obligation shall be brought or asserted by any third party which, if adversely determined, would entitle the Indemnified Party to indemnity pursuant to this Article IX (a “Third-Party Claim”), the Indemnified Party shall promptly notify the Indemnifying Party of such Third-Party Claim in writing, specifying the basis of such claim and the facts pertaining thereto, and the Indemnifying Party, if the Indemnifying Party so elects, shall assume and control the defense thereof (and shall consult with the Indemnified Party with respect thereto), including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all necessary expenses. If the Indemnifying Party elects to assume control of the defense of a Third-Party Claim, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnified Party unless the Indemnifying Party has failed to assume the defense and employ counsel; in which case the fees and expenses of the Indemnified Party’s counsel shall be paid by the Indemnifying Party. All claims other than Third-Party Claims (a “Direct Claim”) may be asserted by the Indemnified Party giving notice to the Indemnifying Party. Absent an emergency or other extenuating circumstance, the Indemnified Party shall give written notice to the Indemnifying Party of such Direct Claim prior to taking any material actions to remedy such Direct Claim.

 

(b) In no event shall the Indemnified Party pay or enter into any settlement of any claim or consent to any judgment with respect to any Third-Party Claim without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

 

9.5 Failure to Give Timely Notice. A failure by an Indemnified Party to provide notice as provided in Section 9.4 will not affect the rights or obligations of any Person except and only to the extent that, as a result of such failure, any Person entitled to receive such notice was damaged as a result of such failure to give timely notice. Nothing contained in this Section 9.4 shall be deemed to extend the period for which Sellers’ representations and warranties will survive Closing as set forth in Section 9.1 above.

 

9.6 Limited on Indemnification Obligation. Notwithstanding anything in this Agreement to the contrary, the liability of the Sellers to the Buyer Indemnified Parties with respect to claims for indemnification pursuant to Section 9.2(a) (but not with respect to the Fundamental Representations for which recovery shall not be so limited) is subject to the following limitations:

 

(a) The Sellers shall not, in the aggregate, be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) (other than with respect to Fundamental Representations for which recovery shall be limited to the amount of the Purchase Price actually received by the Sellers in cash or from the receipt of payments under the Buyer Notes) to the extent that the amounts otherwise indemnifiable for such breaches exceeds an aggregate maximum equal twenty –five percent (25%) of the Purchase Price actually received by the Sellers in cash or from the receipt of payments under the Buyer Notes.

 

(b) The Sellers shall not be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) (other than with respect to Fundamental Representations) until and unless the aggregate amounts indemnifiable for such breaches exceeds $200,000. (the “Deductible”). In the event the Buyer Indemnified Parties’ claim for Losses, in the aggregate, exceed the Deductible, the Buyer Indemnified Parties shall only be entitled to recover those Losses in excess of the Deductible.

 

(c) Neither Party shall be liable to the other Party for Losses arising under Section 9.2 or 9.3, as applicable, unless the claim therefor is asserted in writing on or prior to the expiration of the applicable representations and warranties.

 

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9.7 Payments. Payments of all amounts owing by an Indemnifying Party under this Article IX shall be made promptly upon the determination in accordance with this Article IX that an indemnification obligation is owing by the Indemnifying Party to the Indemnified Party.

 

9.8 Recoupment under Buyer Notes.

 

(a) If the Sellers are obligated to indemnify the Buyer or any other Buyer Indemnified Party for any indemnification claim in accordance with this Article IX, Buyer shall have the right to set-off the amount of such claim against its obligations against the Buyer Notes.

 

(b) If the Buyer intends to set-off any amount hereunder, the Buyer shall provide not less than thirty (30) days’ prior written notice to the Sellers of its intention to do so, together with a reasonably detailed explanation of the basis therefor (a “Set-Off Notice”). If, within twenty (20) days of its receipt of a Set-Off Notice, the Sellers provide the Buyer with written notice of Sellers’ dispute with Buyer’s right to make such set-off, Buyer and Sellers (and their respective representatives and advisors) shall meet (which may be accomplished telephonically) in good faith within ten (10) days to attempt to resolve their dispute. If such dispute remains unresolved despite Buyer’s good faith attempt to meet with the Sellers and resolve such dispute, Buyer may set-off under this Section 9.8 only (a) with respect to those indemnification claims that have been Finally Determined (as defined below), (b) as described in the first sentence of Section 9.8(c) or with the prior written consent of the Sellers.

 

(c) In the event of a dispute with respect to any indemnification claim against Sellers made in good faith pursuant to this Article IX, and the liability for and amount of Losses therefore, Buyer may place any payments due to the Sellers under the Buyer Notes in escrow to be held in its attorney’s escrow account, up to the disputed amount until the matter is resolved.

 

ARTICLE X

MISCELLANEOUS

 

10.1 Press Releases and Public Announcement. Neither the Buyer on the one hand, nor the Sellers or the Company on the other, will issue any press release or make any public announcement relating to this Agreement, the Acquisition or the other transactions contemplated by this Agreement without the prior written approval of the other party; provided, however, that the Buyer may make regulatory filings referring to this Agreement or attaching a copy hereof as may be required by applicable law.

 

10.2 No Third-Party Beneficiaries. This Agreement will not confer any rights or remedies upon any Person other than the parties hereto and their respective successors and permitted assigns.

 

10.3 Entire Agreement. This Agreement (including the Exhibits and the Schedules hereto) constitutes the entire agreement among the parties hereto and supersedes any prior understandings, agreements or representations by or among the parties hereto, written or oral, to the extent they related in any way to the subject matter hereof.

 

10.4 Succession and Assignment. This Agreement will be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party hereto may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval, in the case of assignment by the Buyer, by the Sellers, and, in the case of assignment by the Sellers or the Company, the Buyer.

 

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10.5 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement, and, in the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

 

10.6 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission or mailed (by registered or certified mail, postage prepaid, return receipt requested) or delivered by reputable overnight courier, fee prepaid, to the parties hereto at the addresses of the parties as specified below:

 

  If to the Buyer: BONNE SANTÉ GROUP, INC
     
     
    Attention:  
    Email:  

 

  with a copy to: BEVILACQUA PLLC  
    1050 Connecticut Avenue, NW  
    Suite 500  
    Washington, D.C. 200036  
  Attn: Louis A. Bevilacqua  
  Email:  
  Fax:  

 

  If to the Sellers: Steven J. Rubert  
     
     
    Email:  
       
  Justin Francisco    
       
     
     
    Email:  

 

  with a copy to: Schultis Law Group PLLC  
    130 Pondfield Road  
    Suite 8  
    Bronxville, NY, 10708  
  Attn: Ashleigh Mothershead  
    Email:  

 

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Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties notice in the manner set forth herein.

 

10.7 Governing Law; Mediation; Arbitration.

 

(a) This Agreement shall be governed by and construed under the laws of the State of Florida without regard to the choice of law principles thereof.

 

(b) The Parties agree to attempt to resolve any dispute, claim or controversy arising out of or relating to this Agreement by mediation, which shall be conducted under the then current mediation procedures of JAMS or any other procedure upon which the Parties may agree. The Parties further agree that their respective good faith participation in mediation is a condition precedent to pursuing any other available legal or equitable remedy, including litigation, arbitration or other dispute resolution procedures. Either party may commence the mediation process by providing to the other party written notice, setting forth the subject of the dispute, claim or controversy and the relief requested. Within ten (10) days after the receipt of the foregoing notice, the other party shall deliver a written response to the initiating party’s notice. The initial mediation session shall be held within thirty (30) days after the initial notice. The Parties agree to share equally the costs and expenses of the mediation (which shall not include the expenses incurred by each party for its own legal representation in connection with the mediation). The Parties further acknowledge and agree that mediation proceedings are settlement negotiations, and that, to the extent allowed by applicable law, all offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties or their agents shall be confidential and inadmissible in any arbitration or other legal proceeding involving the parties; provided, however, that evidence which is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. The provisions of this section may be enforced by any court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including reasonable attorneys’ fees, to be paid by the party against whom enforcement is ordered.

 

(c) All disputes, controversies or claims between the Parties hereto arising out of or in connection with this Agreement (including its existence, validity or termination) that cannot be amicably resolved or resolved through mediation shall be finally resolved and settled by arbitration administered by the JAMS in accordance with its commercial arbitration rules. The arbitration tribunal shall be composed of one (1) arbitrator. The arbitration will take place in Miami, Florida, and shall be conducted in the English language. The arbitration award shall be final and binding on the parties, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each party hereto irrevocably submits to the exclusive jurisdiction of the federal and state courts located in the Miami, Florida for such purpose and for the purpose of exercising any equitable remedies available to the Parties hereunder, and each party hereby waives any objection such person may have based on improper venue or inconvenient forum in connection with any such action or proceeding in any such court.

 

10.8 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Agreement.

 

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10.9 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms of such illegal, invalid or unenforceable provision as may be possible.

 

10.10 Expenses. Except as otherwise provided in this Agreement, whether or not the Acquisition is consummated, all expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such expenses. As used in this Agreement, “expenses” means the out-of-pocket fees and expenses of the financial advisor, counsel and accountants incurred in connection with this Agreement and the transactions contemplated hereby.

 

10.11 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

 

10.12 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties will be entitled to specific performance of the terms hereof in addition to any other remedy at Law or equity.

 

10.13 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

[Signature page follows]

 

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

 

  BUYER:
     
  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
     
  COMPANY:
     
  NEXUS OFFERS, INC.
     
  By: /s/ Justin Francisco
  Name: Justin Francisco
  Title: Owner
     
  SELLERS:
     
  JUSTIN FRANCISCO
     
  /s/ Justin Francisco
     
  STEVEN RUBERT
     
  /s/ Steven Rubert

 

 

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Exhibit 10.12

 

AMENDMENT NO. 1

TO THE

SECURITIES PURCHASE AGREEMENT

 

This AMENDMENT NO. 1 TO THE SECURITIES PURCHASE AGREEMENT, dated November 8, 2021 (the “Amendment”), is entered into by and among Smart for Life, Inc. (formerly Bonne Santé Group, Inc.), a Delaware corporation (the “Buyer”), Nexus Offers, Inc. a Florida corporation (the “Company”), and Justin Francisco and Steven Rubert, as the shareholders of the Company (each, a “Seller” and together, the “Sellers”).

 

RECITALS

 

A. The Buyer, the Company and the Sellers have previously entered in that certain Securities Purchase Agreement, dated July 21, 2021 (the “Securities Purchase Agreement”).

 

B. The parties hereto desire to amend the Securities Purchase Agreement as set forth herein.

 

C. Pursuant to Section 8.3 of the Securities Purchase Agreement, the Securities Purchase Agreement may be amended only by an instrument in writing signed on behalf of the Buyer, the Company and the Sellers.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations and warranties, covenants and agreements contained herein, the parties hereto agree as follows:

 

1. Definitions. All capitalized terms used herein without definition shall have the meanings ascribed to them in the Asset Purchase Agreement.

 

2. Amendments.

 

A.  Section 2.1 of the Securities Purchase Agreement shall be amended and restated to read as follows:

 

“Purchase and Sale of the Securities. Upon the terms and subject to the conditions set forth in this Agreement, the Buyer agrees to pay to the Sellers for the Securities in the aggregate at the Closing approximately Six Million Dollars ($6,000,000) (the “Purchase Price”), subject to adjustment as described in Section 2.2 below, by delivery of (i) cash in the amount of Two Million Two Hundred Thousand Dollars ($2,200,000) (the “Cash Portion”), payable by wire transfer or delivery of other immediately available funds to one or more accounts at banks identified by Sellers to Buyer in writing at least two (2) business days prior to the Closing Date, (ii) a convertible promissory note (“Buyer Note I”) in a form to be mutually agreed to between the Buyer and the Sellers in the aggregate principal amount of One Million Nine Hundred Thousand Dollars ($1,900,000), and (iii) a non-convertible promissory note (“Buyer Note II,” and together with Buyer Note I the “Buyer Notes”) in the form to be mutually agreed to in the aggregate principal amount of One Million Nine Hundred Thousand Dollars ($1,900,000). The Buyer Notes will each bear interest at the rate of 5% per annum and will be amortized on a 60-month straight line basis with a balloon payment on the 36th month. The Buyer Notes will be subordinated to the senior indebtedness of the Buyer and the Company and will have a subordinated security interest (after the senior secured indebtedness) covering all of the assets of the Company.

 

 

 

 

B.  Section 2.2 of the Securities Purchase Agreement shall be amended and restated to read as follows:

 

“Adjustments to Purchase Price.

 

(a) Working Capital Adjustment.

 

(i)   At the Closing, the Sellers shall deliver to the Buyer an unaudited, combined estimated balance sheet of the Company (the “Preliminary Balance Sheet”) as of the Closing Date together with a certificate of the Sellers stating that the Preliminary Balance Sheet was prepared in accordance with GAAP so as to present fairly in all material respects the financial condition of Company on a combined basis as of such date.

 

(ii)   Ninety days (90) after the Closing Date, the Buyer shall cause its auditor to prepare and deliver to the Sellers an unaudited, combined balance sheet of the Company as of the Closing Date (the “Closing Date Balance Sheet”) and all calculations, work papers and supporting documents (the “Supporting Documentation”) as of the Closing Date. The Closing Date Balance Sheet shall be prepared in accordance with GAAP in a manner consistent with the Preliminary Balance Sheet so as to present fairly in all material respects the financial condition of the Company.

 

(iii)   If the Closing Working Capital exceeds the Minimum Working Capital, then the Buyer shall promptly (and, in any event, within fifteen (15) days) pay to the Sellers an amount in cash that is equal to the deficiency. If the Minimum Working Capital exceeds the Closing Working Capital, then the Sellers shall promptly (and, in any event, within fifteen (15) days) pay to the Buyer an amount in cash that is equal to the deficiency.

 

(iv)  In the event the Sellers do not agree with the Closing Working Capital as reflected on the Closing Date Balance Sheet, the Sellers shall so inform the Buyer in writing within 20 days of the Sellers’ receipt thereof, such writing to set forth the objections of the Sellers in reasonable detail. If the Sellers and the Buyer cannot reach agreement as to any disputed matter relating to the Closing Working Capital within 15 days after notification by the Sellers to the Buyer of a dispute, they shall forthwith refer the dispute to an Independent Accounting Firm mutually agreeable to the Sellers and the Buyer for resolution, with the understanding that such firm shall resolve all disputed items within 20 days after such disputed items are referred to it. If the Buyer and the Sellers are unable to agree on the choice of an Independent Accounting Firm, they shall select an Independent Accounting Firm by lot from up to three firms proposed by each of the Sellers and Buyer (after excluding their respective regular outside accounting firms). Each of the Sellers and the Buyer shall bear one-half of the costs of such accounting firm. The decision of the accounting firm with respect to all disputed matters relating to the Closing Working Capital shall be deemed final and conclusive and shall be binding upon the Sellers and the Buyer. In addition, if the Sellers do not object to the Closing Working Capital within the 20-day period referred to above, the Closing Working Capital shall be deemed final and conclusive and binding upon the Sellers and the Buyer.

 

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(b) Adjustment for Outstanding Indebtedness. The Cash Portion shall be decreased by the amount of any outstanding indebtedness of the Company for borrowed money existing as of the Closing Date and the deducted amount shall be utilized to pay off such outstanding indebtedness.

 

C.  Section 2.4(a) of the Securities Purchase Agreement shall be amended and restated to read as follows:

 

“(a) At the Closing, the Buyer will (i) pay to the Sellers the Cash Portion of the Purchase Price, less $100,000 (the “Holdback Amount”) in accordance with Section 2.5, and as adjusted in accordance with subsection 2.2(b) and, by paying such sum to the Sellers by transfer of immediately available funds in accordance with instructions provided by the Sellers, and (ii) deliver to the Sellers all other documents, instruments or certificates required to be delivered by the Buyer at or prior to the Closing pursuant to this Agreement, including, without limitation, the Buyer Notes.”

 

D. Section 2.5 shall be added to the Securities Purchase Agreement as follows:

 

“Section 2.5 Post-Closing Matters. The parties hereto acknowledge that the closing conditions set forth in Section 7.1(h) have not been satisfied by the Sellers as of the date hereof; however, the Buyer has agreed to proceed with the Closing, subject to the terms of this Section 2.5. Sellers hereby covenant to use their commercially reasonable efforts to deliver to the Buyer, or cause to be delivered, as soon as reasonably practical following the Closing, evidence that UCC No. 202002021110 filed against Nexus Offers, Inc. in favor of U.S. Small Business Administration has been terminated. Promptly following delivery of such evidence of termination, the Buyer will pay to the Sellers the Holdback Amount by transfer of immediately available funds in accordance with instructions provided by the Sellers.”

 

E. Section 6.7 of the Securities Purchase Agreement shall be amended and restated to read as follows:

 

“6.7 Covenant not to Compete. For a period of three years from and after the Closing (the “Noncompetition Period”), the Sellers shall not engage directly or indirectly in any business that is competitive with (i) the current business of the Company; or (ii) the business of the Buyer (in each case, the “Business”), in any geographic area in which the Business is conducted as of the Closing Date; provided, however, that no owner of less than 1% of the outstanding stock of any publicly-traded corporation shall be deemed to engage solely by reason thereof in any of its businesses. During the Noncompetition Period, the Sellers shall not induce or attempt to induce any customer, or supplier of the Buyer or any affiliate of the Buyer to terminate its relationship with the Buyer or any Affiliate of the Buyer or to enter into any business relationship to provide or purchase the same or substantially the same services as are provided to or purchased from the Business which might harm the Buyer or any Affiliate of the Buyer. During the Noncompetition Period, the Sellers shall not, on behalf of any entity other than the Buyer or an Affiliate of the Buyer, hire or retain, or attempt to hire or retain, in any capacity any Person who is, or was at any time during the preceding twelve (12) months, an employee or officer of the Company. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 0 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.”

 

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F.  Section 7.1(k) of the Securities Purchase Agreement shall be amended and restated to read as follows:

 

“(k) [RESERVED]”

 

3. Effect of Amendment. Except as amended as set forth above, the Securities Purchase Agreement shall continue in full force and effect. In the event of a conflict between the provisions of this Amendment and the Securities Purchase Agreement, this Amendment shall prevail and govern.

 

4. Counterparts. This Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

5. Governing Law. This Amendment shall be governed by and construed under the laws of the State of Florida without regard to the choice of law principles thereof.

 

[Signature page follows]

 

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

 

  BUYER:
     
  SMART FOR LIFE, INC.
     
  By: /s/ Darren Minton
  Name: Darren Minton
  Title: President
     
  COMPANY:
     
  NEXUS OFFERS, INC.
     
  By: /s/ Justin Francisco
  Name: Justin Francisco
  Title:  President
     
  SELLERS:
     
  JUSTIN FRANCISCO
     
  /s/ Justin Francisco
     
  STEVEN RUBERT
     
  /s/ Steven Rubert

 

 

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Exhibit 10.13

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

Smart for Life, Inc.

 

5% SECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE

 

$1,900,000   November 8, 2021

 

FOR VALUE RECEIVED, Smart for Life, Inc. (formerly Bonne Santé Group, Inc.), a Delaware corporation (the “Company”), promises to Justin Francisco and Steven Rubert (together, “Holder”) the principal sum of One Million Nine Hundred Thousand Dollars ($1,900,000) (the “Principal”) together with accrued and unpaid interest thereon, each due and payable on the date and in the manner set forth below.

 

This secured subordinated convertible promissory note (the “Note”) is issued pursuant to the terms of that certain Securities Purchase Agreement, dated July 21, 2021 (as may be amended from time to time, the “Purchase Agreement”), among the Company, the Holder, and Nexus Offers, Inc. Capitalized terms used herein without definition shall have the meanings given to such terms in the Purchase Agreement.

 

The following is a statement of the rights of the Holder of this Note and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment. The Principal along with any accrued, but unpaid interest shall be paid in one lump sum on the third anniversary date of this Note (the “Maturity Date”), subject to the terms of Section 4 below.

 

2. Interest. Interest (the “Interest”) shall accrue on the unpaid Principal from the date hereof until such Principal is repaid in full at the rate of five percent (5%) per annum. The Principal along with any accrued, but unpaid Interest shall be paid in one lump sum on the Maturity Date, subject to the terms of Section 4 below.

 

3. Redemption. The Company will have the right to redeem all or any portion of the Note at any time prior to the Maturity Date without premium or penalty of any kind. The redemption price will be payable in cash and is equal to the then outstanding principal amount of this Note plus accrued but unpaid interest thereon.

 

 

 

 

4. Conversion; Repayment Premium Upon Sale of the Company.

 

(a) In the event that the Company issues and sells shares of its common stock to investors (the “Investors”) on or before the Maturity Date or earlier acceleration of this Note in an initial public offering under the Securities Act of 1933, as amended (the “Securities Act”), including an initial public offering under Regulation A of the Securities Act and concurrent listing on a national securities exchange (an “Initial Public Offering”), then, the outstanding Principal balance of this Note shall be automatically converted in whole into such common stock at a conversion price equal to the price per share paid by any Investor in the Initial Public Offering, and otherwise on the same terms and conditions as given to the Investors (the “Conversion Shares”). Upon such automatic conversion, any unpaid accrued Interest on this Note shall be converted into common stock on the same terms as the Principal of the Note.

 

(b) To the extent the Company does not maintain an effective registration statement for the Underlying Shares, if the Company proposes to register any of the Common Stock (other than pursuant to a Registration on Form S-4 or S-8 or any successor form), then, for a period commencing on the date of the Purchase Agreement and terminating on the 2nd anniversary thereof, it will give written notice to the Holder of its intention to effect such registration (the “Incidental Registration”), as soon as practicable but in no event less than ten (10) business days before the anticipated filing date. Within five (5) business days of receiving such written notice of an Incidental Registration, the Holder may make a written request (the “Piggy-Back Request”) that the Company include in the proposed Incidental Registration all, or a portion, of the Underlying Shares reserved for the Holder, in connection with a conversion of this Note. In addition, the Company shall cause such Underlying Shares to be included in such Incidental Registration and shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit such Underlying Shares which the Company has been requested to register pursuant to any timely Piggy-Back Request to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Underlying Shares so to be registered. Additionally, the Company shall include on the next registration statement the Company files with SEC (or on the subsequent registration statement if such registration statement is withdrawn) the Underlying Shares. This provision shall expire once the Conversion Shares may be freely sold by the Holder under Rule 144 promulgated under the Securities Act, without restriction as to the volume of Conversion Shares that may be sold.

 

(c) In the event that (i) an Initial Public Offering is not consummated prior to the Maturity Date, or (ii), there is a sale of all or substantially all of the Company’s assets before the Maturity Date, then, at the election of the Holder made at least five days prior to the Maturity Date, effective upon the Maturity Date, the outstanding Principal balance and any unpaid accrued Interest under this Note shall be due and payable.

 

(d) If, after aggregation, the conversion of this Note would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the price per share paid by Investors in the Initial Public Offering for one share of common stock by such fraction.

 

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5. Events of Default. In the event that any of the following (each, an “Event of Default”) shall occur:

 

(a) Non-Payment. The Company shall default in the payment of the Principal of, or accrued Interest on, this Note as and when the same shall become due and payable, whether by acceleration or otherwise; or

 

(b) Default in Covenants. The Company shall default in any material manner in the observance or performance of any covenants or agreements set forth in the Purchase Agreement; or

 

(c) Breach of Representations and Warranties. The Company materially breaches any representation or warranty contained in the Purchase Agreement; or

 

(d) Illegality of Note. Any court of competent jurisdiction issues an order declaring the Note or any provision thereunder to be illegal;

 

(e) Cross Default. There occurs with respect to any Senior Indebtedness: (i) a default with respect to any payment obligation thereunder that then entitles the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity, or (ii) any other default thereunder that entitles, and has caused, the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity; or

 

(f) Bankruptcy. The Company shall: (i) admit in writing its inability to pay its debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property; or (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; then, and so long as such Event of Default is continuing for a period of two (2) business days in the case of non-payment under Section 5(a) or for a period of thirty (30) calendar days in the case of events under Sections 5(b) through 5(d) or for a period of five (5) calendar days in the case of an event under Section 5(e) (and the event which would constitute such Event of Default, if curable, has not been cured), by written notice to the Company from the Holder, all obligations of the Company under this Note shall be immediately due and payable without presentment, demand, protest or any other action nor obligation of the Holder of any kind, all of which are hereby expressly waived, and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If an Event of Default specified in Section 5(f) above occurs, the principal of, and accrued interest on, the Note shall automatically, and without any declaration or other action on the part of any Holder, become immediately due and payable and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If the Purchase Agreement is assigned by the Company pursuant to the terms thereof, for purposes of this Section 5, “Company” shall be deemed to include such assignee.

 

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6. Covenants. The Company hereby agrees that, so long as the Note remains outstanding and unpaid, or any other amount is owing to the Holder hereunder:

 

(a) The Company will not, without providing at least 30 days’ prior written notice to the Holder, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, location of its chief executive office or its principal place of business or its organizational identification number. The Company will, prior to any change described in the preceding sentence, take all actions requested by the Holder to maintain the perfection and priority of the Holder’s security interest in the Collateral.

 

(b) The Company shall, at its own cost and expense, defend title to the Collateral and the lien and security interest of the Holder therein against the claim of any person claiming against or through the Company and shall maintain and preserve such perfected security interest for so long as this Note shall remain in effect.

 

(c) The Company will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein except with the prior written consent of the Holder.

 

(d) The Company will keep the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon. The Company will permit the Holder, or its designee, to inspect the Collateral at any reasonable time, wherever located.

 

7. Subordination.

 

(a) All claims of the Holder to principal, interest and any other amounts at any time owed under this Note (collectively, “Junior Indebtedness”) is hereby expressly subordinated in right of payment, as herein set forth, to the prior payment in full of all Senior Indebtedness (as defined below). No payment under Junior Indebtedness shall be made by the Company, nor shall the Holder exercise any remedies under the Junior Indebtedness (including taking any legal action (whether judicial or otherwise) to collect the Junior Indebtedness), if, at the time of such payment, exercise or immediately after giving effect thereto, (i) there shall exist any material “Default” or “Event of Default” under any agreements governing any of the Senior Indebtedness or (ii) the maturity of any of the Senior Indebtedness has been accelerated and (A) such acceleration has not been waived or (B) such Senior Indebtedness has not been paid in full; provided, however, that (x) in the event that the holder of any Senior Indebtedness accelerates such Senior Indebtedness, then the Holder may accelerate the indebtedness evidenced by this Note, and (y) if the Company is permitted under the terms of the Senior Indebtedness to pay an amount due and owing under this Note and fails to make such payment, then so long as the terms of the Senior Indebtedness do not prohibit such action, the Holder may exercise its rights to be paid such amount, but only such amount (and Holder shall not be permitted to accelerate hereunder).

 

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(b) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money, before any payment is made under Junior Indebtedness; and upon any such dissolution or winding up or liquidation or reorganization, any distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holder as holder of the Junior Indebtedness would be entitled except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holder if received by Holder, directly to the holder of the Senior Indebtedness, or its representatives, to the extent necessary to pay all such Senior Indebtedness in full, in money, after giving effect to any concurrent prepayment or distribution to or for the benefit of the holders of such Senior Indebtedness, before any payment or distribution is made to the Holder with respect to the Junior Indebtedness.

 

(c) If the holders of the Senior Indebtedness in good faith believe Holder may fail to timely file a proof of claim in any such proceeding, the holder(s) of the Senior Indebtedness may do so for Holder.

 

(d) In the event that any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing where the holder has actual knowledge of a Senior Indebtedness payment default shall be received by the Holder before all the Senior Indebtedness is paid in full, or provisions made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of the Senior Indebtedness or their representative or representatives, as their respective interests may appear, for application to the payment of all the Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full, in money, in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

 

(e) The provisions hereof are solely for the purpose of defining the relative rights of the holders of the Senior Indebtedness on the one hand and the Holder as holder of the Junior Indebtedness on the other hand, and nothing herein shall impair, as between the Company and the Holder, the obligations of the Company under the Junior Indebtedness, which are unconditional and absolute. With this in mind, notwithstanding the other provisions of this Section 7, if and so long as all documents governing the Senior Indebtedness permit one of the actions restricted by this Section 7, the restriction shall be waived and the restricted action permitted hereunder.

 

(f) No right of any present or future holder of any Senior Indebtedness to enforce the subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any act or failure to act, in good faith, by any such holder of the Senior Indebtedness, or any noncompliance by the Company with the terms, provisions and covenants hereof, regardless of any knowledge thereof any holder of the Senior Indebtedness may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the holders of the Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Note or the obligations hereunder of the Holder to the holders of the Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or create, renew or alter, the Senior Indebtedness, or otherwise amend or supplement in any manner the Senior Indebtedness or any instrument evidencing the same or any agreement under which the Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any person liable or contingently liable in any manner for the payment or collection of the Senior Indebtedness; and/or (iv) exercise or refrain from exercising any rights against the Company or any other person.

 

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(g) Each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of this Note, shall be entitled to rely on the subordination provisions set forth in this Note.

 

(h) Notwithstanding the provisions of this Section 7, the Holder shall not be charged with knowledge of the existence of facts which would prohibit the making of any payments on the Junior Indebtedness unless and until the holder(s) of the Senior Indebtedness or their representatives send written notice to Holder of same.

 

(i) Subject to the payment in full of all the Senior Indebtedness, Holder as holder of the Junior Indebtedness shall be subrogated to the rights of the holders of the Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the Senior Indebtedness shall be paid in full.

 

(j) The Holder shall confirm (in writing) the above subordination provisions if requested by any holder of the Senior Indebtedness, and shall execute and deliver such additional subordination agreements, consistent with the foregoing as any holder of Senior Indebtedness may require.

 

(k) For purposes hereof, “Senior Indebtedness” means, with respect to the Company, all senior secured indebtedness of the Company, whether outstanding on the date of the execution of this Note or thereafter created, to banks, insurance companies, other financial institutions, private equity funds, hedge funds or other similar funds.

 

8. Security Agreement.

 

(a) Grant of Security Interest. To secure the prompt performance and repayment of each and all of the obligations of the Company hereunder to the Holder and its assigns, the Company hereby pledges, grants, assigns and transfers to the Holder and its assigns a continuing lien on and security interest in and to all of the following property of the Company, whether now owned or later acquired (collectively the “Collateral”):

 

(i) All accounts, accounts receivable, contract rights, general intangibles related to or arising from any account, debit balances, note, documents, chattel paper, instruments, acceptances, drafts or other forms of obligations and receivables of the Company arising from the sale or lease of inventory or rendition of services by the Company, or on behalf of the Company, in the ordinary course of its business or otherwise (all of the foregoing being herein collectively called “Accounts”), whether or not the same are listed on any schedules, assignments or reports furnished to the Holder from time to time, whether such Accounts are now existing or are created at any time hereafter, and all proceeds therefrom including without limitation, proceeds of insurance thereon and all guaranties, securities, and liens which the Company may hold for the payment of any Accounts, including without limitation, all rights of stoppage in transit, replevin and reclamation and all other rights and remedies of unpaid vendor or lienor, and any liens held by the Company as a mechanic, contractor, subcontractor, processor, materialman, machinist, manufacturer, artisan, or otherwise.

 

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(ii) All documents, instruments, documents of title, policies and certificates of insurance, guaranties, securities, chattel paper (both tangible and electronic), deposits, proceeds of insurance, cash, liens or other property relating to Accounts and owned by the Company or in which the Company has an interest, which are now or may hereafter be in the possession of the Company or as to which the Company may now or hereafter control possession by documents of title or otherwise.

 

(iii) All books, records, customer lists, supplier lists, ledgers, evidences of shipping invoices, purchase orders, sales orders, computer records, lists, software, programs, and all other such evidences of the Company’s business records related to the Accounts, including all cabinets, drawers, etc. that may hold same, all whether now existing or hereafter arising or acquired.

 

(iv) All of the Company’s tangible property of whatever nature or description, whether real or personal, now or hereafter used, owned, held or leased, including without limitation all goods, furniture, fixtures, vehicles, equipment, inventory and supplies.

 

(v) All of the Company’s payment intangibles, instruments, letters of credit, letter-of-credit rights, money, deposit accounts, investment property, commodity contracts, and commodity accounts.

 

(vi) All of the Company’s intangible property of whatever nature or description, including without limitation, all intellectual property, general intangibles, software, trade names, trademarks, service marks, computer programs (including source code and object code), patents and copyrights now owned or hereafter acquired.

 

(vii) All renewals, substitutions, replacements, additions, accessions, proceeds, and products of any and all the foregoing.

 

The Company’s grant of such security interests to the Holder shall secure the payment and performance of the indebtedness, obligations and liabilities of the Company to the Holder of every kind and description, direct and indirect, absolute and contingent, due or to become due, now existing or hereafter arising, that relate to this Note and the rights and remedies created hereunder, and all legal and other professional fees incurred in connection with any of the foregoing. The security interest granted to the Holder hereunder shall be prior to all other interests in the Collateral. Terms used in the preceding collateral description shall have the respective meanings accorded such terms in the Uniform Commercial Code as enacted in the state of Delaware as of the date of this Agreement.

 

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(b) The Company hereby agrees that the Holder shall have all the rights and remedies of a secured party under the Uniform Commercial Code as in effect from time to time in the State of Delaware. The Company agrees that at any time, and from time to time, at the request of the Holder, the Company shall execute and deliver (or cause to be executed and delivered) any and all such further instruments and/or documents (including without limitation, UCC-1 financing statements) as the Holder may consider reasonably necessary or desirable in order to effectuate, complete, perfect or preserve and maintain the lien created hereby. Upon any failure by the Company to do so, the Holder may make, execute, record, file, re-record or refile any and all such instruments and documents for and in the name of the Company; the Company hereby irrevocably appoints the Holder as the agent and attorney-in-fact of the Company to do so; and the Company shall reimburse the Holder, on demand, for all costs and expenses incurred by the Holder in connection therewith, such amount being added to the indebtedness arising under the Note.

 

(c) The security interest created hereunder shall terminate upon the irrevocable payment in full by the Company to the Holder of any and all indebtedness, obligations and liabilities arising from, or in any way related to, the Note.

 

(d) Events of Default; Acceleration of Maturity. If an Event of Default (as defined below) shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any governmental authority), then, in addition to the remedies provided for elsewhere in this Note or as a matter of law and without limitation thereof, at the option of the Holder exercised by written notice to the Company, the Holder may (A) foreclose the liens and security interests created under this Note or under any other agreement relating to the Collateral, by any available judicial process, (B) enter any premises where any of the Collateral may be located for the purpose of taking possession or removing the same, and (C) sell, assign, lease or otherwise dispose of the Collateral or any part thereof, either at public or private sale or at any broker’s board, in lots or in bulk, for cash, on credit or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to the Holder, all at the sole option of the Holder and as the Holder, in its sole discretion, may deem advisable and to the extent permitted by law, the Holder may bid or become a purchaser at any such sale, and the Holder shall have the right, at its option, to apply or be credited with the amount of all or any part of the obligations owing by the Company to the Holder under this Note, against the purchase price bid by the Holder at any such sale. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral (including, without limitation a sale where the Holder is the purchaser) shall be applied first to the expenses (including reasonable attorneys’ and other professional fees) of retaking, holding, storing, processing and preparing the Collateral for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all such obligations, application as to particular obligations or against principal or any interest to be in the sole discretion of the Holder. The Holder shall give the Company at least five (5) Business Days prior written notice of the time and place of any public sale of Collateral.

 

(e) Suits for Enforcement. In case any one or more of the Events of Default shall have occurred and be continuing, the Holder may proceed to protect and enforce rights of the Holder either by suit in equity or by action at law, or both, whether for the specific performance of any covenant or agreement in this Note or in aid of the exercise of any power granted in this Note, including without limitation, possession or foreclosure on the Collateral securing the Note, or the Holder may proceed to enforce the payment of the Note or to enforce any other legal or equitable right of the Holder.

 

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(f) Remedies Cumulative. No remedy herein conferred upon the Holder is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

 

(g) Remedies Not Waived. No course of dealing between the Company and the Holder and no delay in exercising any rights hereunder shall operate as a waiver of any rights of the Holder.

 

9. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to its satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity (which shall not include the posting of any bond) as may be reasonably required by the Company to hold the Company harmless.

 

10. Waiver of Demand, Presentment, etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. The Company agrees that, in the event of an Event of Default, to reimburse the Holder for all reasonable costs and expenses (including reasonable legal fees of one counsel) incurred in connection with the enforcement and collection of this Note.

 

11. Payment. All payments with respect to this Note shall be made in lawful money of the United States of America, at the address of the Holder as of the date hereof or as designated in writing by the Holder from time to time. The receipt by the Holder of immediately available funds shall constitute a payment of Principal and Interest hereunder and shall satisfy and discharge the liability for Principal and Interest on this Note to the extent of the sum represented by such payment.

 

12. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the successors and permitted assigns of the parties hereto. To complete an assignment or transfer this Note, the Holder shall deliver a completed and executed Form of Assignment attached hereto as Exhibit A and surrender and deliver this Note, duly endorsed, to the Company’s office or such other address which the Company shall designate, upon receipt of which a new Note, in substantially the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Note that the Holder has in respect of this Note. Interest and principal are payable only to the registered Holder of this Note set forth on the books and records of the Company.

 

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13. Amendment; Waiver; Modification. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

 

14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if given in accordance with the provisions of the Purchase Agreement.

 

15. Governing Law and Arbitration. This Note shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Florida. Any dispute shall be resolved by arbitration conducted pursuant to Section 10.7 of the Purchase Agreement. The provisions of this Section 15 shall survive the entry of any judgment, and will not merge, or be deemed to have merged, into any judgment.

 

16. Headings. The descriptive headings contained in this Note are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Note.

 

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

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of the day and year first above written.

 

  Smart for Life, Inc.
   
  By: /s/ Darren Minton
  Name:  Darren Minton
  Title: President

 

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Exhibit A

 

Form of Assignment

 

TO: Smart for Life, Inc.

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________ (name), __________________________________________ (address), US$____________ of 5% Secured Subordinated Convertible Promissory Note (“Note”) of Smart for Life, Inc. (the “Company”), including any and all accrued and unpaid interest owing thereon, registered in the name of the undersigned on the records of the Company represented by the within certificate, and irrevocably appoints ___________________ the attorney of the undersigned to transfer the said securities on the books or register with full power of substitution.

 

DATED this ________ day of, __________________, 20 ____.

 

_______________________________
(Signature of Registered Note Holder)

 

________________________________
(Print name of Registered Note Holder)

 

   

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the face of the Note.

 

2. If the transfer of Note is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 

 

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Exhibit 10.14

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

Smart for Life, Inc.

 

5% SECURED SUBORDINATED NON-CONVERTIBLE PROMISSORY NOTE

 

US $1,900,000 November 8, 2021

 

FOR VALUE RECEIVED, Smart for Life, Inc. (formerly Bonne Santé Group, Inc.), a Delaware corporation (the “Company”), promises to pay to Justin Francisco and Steven Rubert (together “Holder”), the principal sum of One Million Nine Hundred Thousand Dollars ($1,900,000) (the “Principal”) together with accrued and unpaid interest thereon, each due and payable on the date and in the manner set forth below.

 

This secured subordinated non-convertible convertible promissory note (the “Note”) is issued pursuant to the terms of that certain Securities Purchase Agreement, dated July 21, 2021 (as may be amended from time to time, the “Purchase Agreement”), among the Company, the Holder and Nexus Offers, Inc. Capitalized terms used herein without definition shall have the meanings given to such terms in the Purchase Agreement.

 

The following is a statement of the rights of the Holder of this Note and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment. The outstanding principal amount of this Note and all accrued interest shall be amortized on a five-year straight-line basis and payable quarterly with a balloon payment on the 36th month in accordance with the amortization schedule set forth on Exhibit A to this Note (the “Amortization Schedule”), provided that no such payment shall be made prior to the first anniversary of the date hereof, with all of the unpaid Principal and accrued, but unpaid interest thereon, being fully paid on the third (3rd) anniversary of the date of this Note (the “Maturity Date”). All payments of interest and principal shall be in lawful money of the United States of America.

 

 

 

 

2. Interest. Interest (the “Interest”) shall accrue on the unpaid Principal from the date hereof until such Principal is repaid in full at the rate of five percent (5%) per annum. Interest shall be paid in accordance with the Amortization Schedule, provided that no such payment shall be made prior to the first anniversary of the date hereof, with all unpaid Interest being paid on the Maturity Date or the date of the redemption of this Note. All computations of the Interest rate hereunder shall be made on the basis of a 360-day year of twelve 30-day months. In the event that any Interest rate provided for herein shall be determined to be unlawful, such Interest rate shall be computed at the highest rate permitted by applicable law. Any payment by the Company of any Interest amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the Principal of this Note without prepayment premium or penalty.

 

3. Redemption. The Company will have the right to redeem all or any portion of the Note at any time prior to the Maturity Date without premium or penalty of any kind. The redemption price will be payable in cash and is equal to the then outstanding principal amount of this Note plus accrued but unpaid interest thereon.

 

4. Events of Default. In the event that any of the following (each, an “Event of Default”) shall occur:

 

(a) Non-Payment. The Company shall default in the payment of the Principal of, or accrued Interest on, this Note as and when the same shall become due and payable, whether by acceleration or otherwise; or

 

(b) Default in Covenants. The Company shall default in any material manner in the observance or performance of any covenants or agreements set forth in the Purchase Agreement; or

 

(c) Breach of Representations and Warranties. The Company materially breaches any representation or warranty contained in the Purchase Agreement; or

 

(d) Illegality of Note. Any court of competent jurisdiction issues an order declaring the Note or any provision thereunder to be illegal;

 

(e) Cross Default. There occurs with respect to any Senior Indebtedness: (i) a default with respect to any payment obligation thereunder that then entitles the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity, or (ii) any other default thereunder that entitles, and has caused, the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity; or

 

(f) Bankruptcy. The Company shall: (i) admit in writing its inability to pay its debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property; or (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; then, and so long as such Event of Default is continuing for a period of two (2) business days in the case of non-payment under Section 4(a) or for a period of thirty (30) calendar days in the case of events under Sections 4(b) through 4(d) or for a period of five (5) calendar days in the case of an event under Section 4(e) (and the event which would constitute such Event of Default, if curable, has not been cured), by written notice to the Company from the Holder, all obligations of the Company under this Note shall be immediately due and payable without presentment, demand, protest or any other action nor obligation of the Holder of any kind, all of which are hereby expressly waived, and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If an Event of Default specified in Section 4(f) above occurs, the principal of, and accrued interest on, the Note shall automatically, and without any declaration or other action on the part of any Holder, become immediately due and payable and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If the Purchase Agreement is assigned by the Company pursuant to the terms thereof, for purposes of this Section 4, “Company” shall be deemed to include such assignee.

 

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5. Covenants. The Company hereby agrees that, so long as the Note remains outstanding and unpaid, or any other amount is owing to the Holder hereunder:

 

(a) The Company will not, without providing at least 30 days’ prior written notice to the Holder, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, location of its chief executive office or its principal place of business or its organizational identification number. The Company will, prior to any change described in the preceding sentence, take all actions requested by the Holder to maintain the perfection and priority of the Holder’s security interest in the Collateral.

 

(b) The Company shall, at its own cost and expense, defend title to the Collateral and the lien and security interest of the Holder therein against the claim of any person claiming against or through the Company and shall maintain and preserve such perfected security interest for so long as this Note shall remain in effect.

 

(c) The Company will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein except with the prior written consent of the Holder.

 

(d) The Company will keep the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon. The Company will permit the Holder, or its designee, to inspect the Collateral at any reasonable time, wherever located.

 

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6. Subordination.

 

(a) All claims of the Holder to principal, interest and any other amounts at any time owed under this Note (collectively, “Junior Indebtedness”) is hereby expressly subordinated in right of payment, as herein set forth, to the prior payment in full of all Senior Indebtedness (as defined below). No payment under Junior Indebtedness shall be made by the Company, nor shall the Holder exercise any remedies under the Junior Indebtedness (including taking any legal action (whether judicial or otherwise) to collect the Junior Indebtedness), if, at the time of such payment, exercise or immediately after giving effect thereto, (i) there shall exist any material “Default” or “Event of Default” under any agreements governing any of the Senior Indebtedness or (ii) the maturity of any of the Senior Indebtedness has been accelerated and (A) such acceleration has not been waived or (B) such Senior Indebtedness has not been paid in full; provided, however, that (x) in the event that the holder of any Senior Indebtedness accelerates such Senior Indebtedness, then the Holder may accelerate the indebtedness evidenced by this Note, and (y) if the Company is permitted under the terms of the Senior Indebtedness to pay an amount due and owing under this Note and fails to make such payment, then so long as the terms of the Senior Indebtedness do not prohibit such action, the Holder may exercise its rights to be paid such amount, but only such amount (and Holder shall not be permitted to accelerate hereunder).

 

(b) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money, before any payment is made under Junior Indebtedness; and upon any such dissolution or winding up or liquidation or reorganization, any distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holder as holder of the Junior Indebtedness would be entitled except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holder if received by Holder, directly to the holder of the Senior Indebtedness, or its representatives, to the extent necessary to pay all such Senior Indebtedness in full, in money, after giving effect to any concurrent prepayment or distribution to or for the benefit of the holders of such Senior Indebtedness, before any payment or distribution is made to the Holder with respect to the Junior Indebtedness.

 

(c) If the holders of the Senior Indebtedness in good faith believe Holder may fail to timely file a proof of claim in any such proceeding, the holder(s) of the Senior Indebtedness may do so for Holder.

 

(d) In the event that any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing where the holder has actual knowledge of a Senior Indebtedness payment default shall be received by the Holder before all the Senior Indebtedness is paid in full, or provisions made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of the Senior Indebtedness or their representative or representatives, as their respective interests may appear, for application to the payment of all the Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full, in money, in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

 

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(e) The provisions hereof are solely for the purpose of defining the relative rights of the holders of the Senior Indebtedness on the one hand and the Holder as holder of the Junior Indebtedness on the other hand, and nothing herein shall impair, as between the Company and the Holder, the obligations of the Company under the Junior Indebtedness, which are unconditional and absolute. With this in mind, notwithstanding the other provisions of this Section 6, if and so long as all documents governing the Senior Indebtedness permit one of the actions restricted by this Section 6, the restriction shall be waived and the restricted action permitted hereunder.

 

(f) No right of any present or future holder of any Senior Indebtedness to enforce the subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any act or failure to act, in good faith, by any such holder of the Senior Indebtedness, or any noncompliance by the Company with the terms, provisions and covenants hereof, regardless of any knowledge thereof any holder of the Senior Indebtedness may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the holders of the Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Note or the obligations hereunder of the Holder to the holders of the Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or create, renew or alter, the Senior Indebtedness, or otherwise amend or supplement in any manner the Senior Indebtedness or any instrument evidencing the same or any agreement under which the Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any person liable or contingently liable in any manner for the payment or collection of the Senior Indebtedness; and/or (iv) exercise or refrain from exercising any rights against the Company or any other person.

 

(g) Each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of this Note, shall be entitled to rely on the subordination provisions set forth in this Note.

 

(h) Notwithstanding the provisions of this Section 6, the Holder shall not be charged with knowledge of the existence of facts which would prohibit the making of any payments on the Junior Indebtedness unless and until the holder(s) of the Senior Indebtedness or their representatives send written notice to Holder of same.

 

(i) Subject to the payment in full of all the Senior Indebtedness, Holder as holder of the Junior Indebtedness shall be subrogated to the rights of the holders of the Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the Senior Indebtedness shall be paid in full.

 

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(j) The Holder shall confirm (in writing) the above subordination provisions if requested by any holder of the Senior Indebtedness, and shall execute and deliver such additional subordination agreements, consistent with the foregoing as any holder of Senior Indebtedness may require.

 

(k) For purposes hereof, “Senior Indebtedness” means, with respect to the Company, all senior secured indebtedness of the Company, whether outstanding on the date of the execution of this Note or thereafter created, to banks, insurance companies, other financial institutions, private equity funds, hedge funds or other similar funds.

 

7. Security Agreement.

 

(a) Grant of Security Interest. To secure the prompt performance and repayment of each and all of the obligations of the Company hereunder to the Holder and its assigns, the Company hereby pledges, grants, assigns and transfers to the Holder and its assigns a continuing lien on and security interest in and to all of the following property of the Company, whether now owned or later acquired (collectively the “Collateral”):

 

(i) All accounts, accounts receivable, contract rights, general intangibles related to or arising from any account, debit balances, note, documents, chattel paper, instruments, acceptances, drafts or other forms of obligations and receivables of the Company arising from the sale or lease of inventory or rendition of services by the Company, or on behalf of the Company, in the ordinary course of its business or otherwise (all of the foregoing being herein collectively called “Accounts”), whether or not the same are listed on any schedules, assignments or reports furnished to the Holder from time to time, whether such Accounts are now existing or are created at any time hereafter, and all proceeds therefrom including without limitation, proceeds of insurance thereon and all guaranties, securities, and liens which the Company may hold for the payment of any Accounts, including without limitation, all rights of stoppage in transit, replevin and reclamation and all other rights and remedies of unpaid vendor or lienor, and any liens held by the Company as a mechanic, contractor, subcontractor, processor, materialman, machinist, manufacturer, artisan, or otherwise.

 

(ii) All documents, instruments, documents of title, policies and certificates of insurance, guaranties, securities, chattel paper (both tangible and electronic), deposits, proceeds of insurance, cash, liens or other property relating to Accounts and owned by the Company or in which the Company has an interest, which are now or may hereafter be in the possession of the Company or as to which the Company may now or hereafter control possession by documents of title or otherwise.

 

(iii) All books, records, customer lists, supplier lists, ledgers, evidences of shipping invoices, purchase orders, sales orders, computer records, lists, software, programs, and all other such evidences of the Company’s business records related to the Accounts, including all cabinets, drawers, etc. that may hold same, all whether now existing or hereafter arising or acquired.

 

(iv) All of the Company’s tangible property of whatever nature or description, whether real or personal, now or hereafter used, owned, held or leased, including without limitation all goods, furniture, fixtures, vehicles, equipment, inventory and supplies.

 

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(v) All of the Company’s payment intangibles, instruments, letters of credit, letter-of-credit rights, money, deposit accounts, investment property, commodity contracts, and commodity accounts.

 

(vi) All of the Company’s intangible property of whatever nature or description, including without limitation, all intellectual property, general intangibles, software, trade names, trademarks, service marks, computer programs (including source code and object code), patents and copyrights now owned or hereafter acquired.

 

(vii) All renewals, substitutions, replacements, additions, accessions, proceeds, and products of any and all the foregoing.

 

The Company’s grant of such security interests to the Holder shall secure the payment and performance of the indebtedness, obligations and liabilities of the Company to the Holder of every kind and description, direct and indirect, absolute and contingent, due or to become due, now existing or hereafter arising, that relate to this Note and the rights and remedies created hereunder, and all legal and other professional fees incurred in connection with any of the foregoing. The security interest granted to the Holder hereunder shall be prior to all other interests in the Collateral. Terms used in the preceding collateral description shall have the respective meanings accorded such terms in the Uniform Commercial Code as enacted in the state of Delaware as of the date of this Agreement.

 

(b) The Company hereby agrees that the Holder shall have all the rights and remedies of a secured party under the Uniform Commercial Code as in effect from time to time in the State of Delaware. The Company agrees that at any time, and from time to time, at the request of the Holder, the Company shall execute and deliver (or cause to be executed and delivered) any and all such further instruments and/or documents (including without limitation, UCC-1 financing statements) as the Holder may consider reasonably necessary or desirable in order to effectuate, complete, perfect or preserve and maintain the lien created hereby. Upon any failure by the Company to do so, the Holder may make, execute, record, file, re-record or refile any and all such instruments and documents for and in the name of the Company; the Company hereby irrevocably appoints the Holder as the agent and attorney-in-fact of the Company to do so; and the Company shall reimburse the Holder, on demand, for all costs and expenses incurred by the Holder in connection therewith, such amount being added to the indebtedness arising under the Note.

 

(c) The security interest created hereunder shall terminate upon the irrevocable payment in full by the Company to the Holder of any and all indebtedness, obligations and liabilities arising from, or in any way related to, the Note.

 

(d) Events of Default; Acceleration of Maturity. If an Event of Default (as defined below) shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any governmental authority), then, in addition to the remedies provided for elsewhere in this Note or as a matter of law and without limitation thereof, at the option of the Holder exercised by written notice to the Company, the Holder may (A) foreclose the liens and security interests created under this Note or under any other agreement relating to the Collateral, by any available judicial process, (B) enter any premises where any of the Collateral may be located for the purpose of taking possession or removing the same, and (C) sell, assign, lease or otherwise dispose of the Collateral or any part thereof, either at public or private sale or at any broker’s board, in lots or in bulk, for cash, on credit or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to the Holder, all at the sole option of the Holder and as the Holder, in its sole discretion, may deem advisable and to the extent permitted by law, the Holder may bid or become a purchaser at any such sale, and the Holder shall have the right, at its option, to apply or be credited with the amount of all or any part of the obligations owing by the Company to the Holder under this Note, against the purchase price bid by the Holder at any such sale. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral (including, without limitation a sale where the Holder is the purchaser) shall be applied first to the expenses (including reasonable attorneys’ and other professional fees) of retaking, holding, storing, processing and preparing the Collateral for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all such obligations, application as to particular obligations or against principal or any interest to be in the sole discretion of the Holder. The Holder shall give the Company at least five (5) Business Days prior written notice of the time and place of any public sale of Collateral.

 

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(e) Suits for Enforcement. In case any one or more of the Events of Default shall have occurred and be continuing, the Holder may proceed to protect and enforce rights of the Holder either by suit in equity or by action at law, or both, whether for the specific performance of any covenant or agreement in this Note or in aid of the exercise of any power granted in this Note, including without limitation, possession or foreclosure on the Collateral securing the Note, or the Holder may proceed to enforce the payment of the Note or to enforce any other legal or equitable right of the Holder.

 

(f) Remedies Cumulative. No remedy herein conferred upon the Holder is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

 

(g) Remedies Not Waived. No course of dealing between the Company and the Holder and no delay in exercising any rights hereunder shall operate as a waiver of any rights of the Holder.

8. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to its satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity (which shall not include the posting of any bond) as may be reasonably required by the Company to hold the Company harmless.

 

9. Waiver of Demand, Presentment, etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. The Company agrees that, in the event of an Event of Default, to reimburse the Holder for all reasonable costs and expenses (including reasonable legal fees of one counsel) incurred in connection with the enforcement and collection of this Note.

 

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10. Payment. All payments with respect to this Note shall be made in lawful money of the United States of America, at the address of the Holder as of the date hereof or as designated in writing by the Holder from time to time. The receipt by the Holder of immediately available funds shall constitute a payment of Principal and Interest hereunder and shall satisfy and discharge the liability for Principal and Interest on this Note to the extent of the sum represented by such payment.

 

11. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the successors and permitted assigns of the parties hereto. To complete an assignment or transfer this Note, the Holder shall deliver a completed and executed Form of Assignment attached hereto as Exhibit B and surrender and deliver this Note, duly endorsed, to the Company’s office or such other address which the Company shall designate, upon receipt of which a new Note, in substantially the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Note that the Holder has in respect of this Note. Interest and principal are payable only to the registered Holder of this Note set forth on the books and records of the Company.

 

12. Amendment; Waiver; Modification. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

 

13. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if given in accordance with the provisions of the Purchase Agreement.

 

14. Governing Law and Arbitration. This Note shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Florida. Any dispute shall be resolved by arbitration conducted pursuant to Section 10.7 of the Purchase Agreement. The provisions of this Section 14 shall survive the entry of any judgment, and will not merge, or be deemed to have merged, into any judgment.

 

15. Headings. The descriptive headings contained in this Note are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Note.

 

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

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of the date first above written.

 

  Smart for Life, Inc.
     
  By: /s/ Darren Minton
  Name: Darren Minton
  Title: President

 

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EXHIBIT A

 

Amortization Schedule

 

Quarterly payments begin on the one year anniversary of the Closing and quarterly 1 thereafter.

 

Quarter   Payment     Principal
Paid 		    Interest
Paid 		    Remaining
Balance 		 
1   $ —     $ —     $ —     $ 1,972,144.34  
2     —       —       —       2,047,028.04  
3     —       —       —       2,124,755.14  
4     —       —       —       2,025,433.58  
5     135,602.60       107,341.18       28,261.43       2,153,572.85  
6     135,602.60       108,005.74       27,256.16       2,207,748.66  
7     135,602.60       108,695.54       26,907.06       2,043,869.03  
8     135,602.60       109,411.54       26,191.06       1,985,873.58  
9     135,602.60       110,154.72       25,447.88       1,925,675.99  
10     135,602.60       110,926.12       24,676.48       1,863,192.66  
11     135,602.60       111,726.81       23,875.82       1,798,336.00  
12     1,821,380.70       1,798,336.00       23,044.70       —  

 

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EXHIBIT B

 

Form of Assignment

 

TO:      Smart for Life, Inc.

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________ (name), __________________________________________ (address), US$____________ of 5% Subordinated Secured Non-Convertible Promissory Note (“Note”) of Smart for Life, Inc. (the “Company”), including any and all accrued and unpaid interest owing thereon, registered in the name of the undersigned on the records of the Company represented by the within certificate, and irrevocably appoints ___________________ the attorney of the undersigned to transfer the said securities on the books or register with full power of substitution.

 

DATED this ________ day of, __________________, 20 ____.

 

 
(Signature of Registered Note Holder)  
   
   
(Print name of Registered Note Holder)  

 

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the face of the Note.

 

2. If the transfer of Note is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 

 

 

 

 

Exhibit 10.15

 

 

 

 

 

 

SECURITIES PURCHASE AGREEMENT

 

dated as of February 11, 2020

 

among

 

BONNE SANTÉ GROUP, INC.,

 

DOCTORS SCIENTIFIC ORGANICA L.L.C.,

 

OYSTER MANAGEMENT SERVICES LTD,

 

LAWEE ENTERPRISES L.L.C.,

 

U.S. MEDICAL CARE HOLDINGS, L.L.C.

 

AND

 

DR. SASSON E. MOULAVI

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS 1
   
1.1 Certain Definitions. 1
     
ARTICLE II PURCHASE AND SALE OF THE SECURITIES 5
   
2.1 Purchase and Sale of the Securities. 5
2.2 Adjustments to Purchase Price. 6
2.3 Closing. 7
2.4 Transactions to be Effected at the Closing. 7
     
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER 8
   
3.1 Authority and Enforceability. 8
3.2 Noncontravention. 8
3.3 The Securities. 8
3.4 Brokers’ Fees. 9
3.5 Investment Representations. 9
     
ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES 10
   
4.1 Organization, Qualification and Corporate Power; Authority and Enforceability. 10
4.2 Subsidiaries. 10
4.3 Capitalization. 10
4.4 Noncontravention. 11
4.5 Financial Statements. 11
4.6 Taxes. 12
4.7 Compliance with Laws and Orders; Permits. 12
4.9 Tangible Personal Assets. 12
4.10 Real Property. 13
4.11 Intellectual Property. 13
4.12 Absence of Certain Changes or Events. 14
4.13 Contracts. 15
4.14 Litigation 16
4.15 Employee Benefits. 16
4.16 Labor and Employment Matters. 16
4.17 Environmental. 16
4.18 Insurance. 17
4.19 Brokers’ Fees. 17
4.20 Certain Business Relationships with the Companies. 17
4.21 Equipment. 17
4.22 Customers and Suppliers. 17
4.23 Potential Conflicts of Interest. 17
4.24 Bank Accounts 18
4.25 Accounts Receivable 18
4.26 Disclosure. 18
     
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER 18
   
5.1 Organization. 18
5.2 Authorization. 18
5.3 Noncontravention. 19
5.4 Litigation 19
5.5 Brokers’ Fees 19

 

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ARTICLE VI COVENANTS 19
   
6.1 Consents. 19
6.2 Operation of the Companies’ Business. 19
6.3 Access. 20
6.4 Notice of Developments. 21
6.5 No Solicitation. 21
6.6 Taking of Necessary Action; Further Action. 21
6.7 Covenant not to Compete. 21
6.8 Financial Information. 22
6.9 Transfer of Cash and Cash Equivalents. 22
6.10 Company Disclosure Schedule. 22
6.11 Piggyback Registration Rights 22
6.12 Tag Along Rights 23
     
ARTICLE VII CONDITIONS TO OBLIGATIONS TO CLOSE 23
   
7.1 Conditions to Obligation of the Buyer. 23
7.2 Conditions to Obligation of the Seller. 25
     
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER 26
   
8.1 Termination of Agreement. 26
8.2 Effect of Termination. 26
8.3 Amendments. 26
8.4 Waiver. 26
     
ARTICLE IX INDEMNIFICATION 27
   
9.1 Survival. 27
9.2 Indemnification by Seller. 27
9.3 Indemnification by Buyer. 27
9.4 Indemnification Procedure. 28
9.5 Failure to Give Timely Notice. 28
9.6 Limited on Indemnification Obligation. 28
9.7 Payments. 29
9.8 Recoupment under Buyer Notes. 29
     
ARTICLE X MISCELLANEOUS 30
   
10.1 Press Releases and Public Announcement. 30
10.2 No Third-Party Beneficiaries. 30
10.3 Entire Agreement. 30
10.4 Succession and Assignment. 30
10.5 Construction. 30
10.6 Notices. 30
10.7 Governing Law; Mediation; Arbitration. 31
10.8 Headings. 32
10.9 Severability. 32
10.10 Expenses. 32
10.11 Incorporation of Exhibits and Schedules. 32
10.12 Specific Performance. 32
10.13 Counterparts. 32

 

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SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT, dated as of February 11, 2020 (the “Agreement”), among Bonne Santé Group, Inc., a Delaware corporation (the “Buyer”), Doctors Scientific Organica L.L.C., a Florida limited liability company (“DSO”), Oyster Management Services Ltd, a Florida limited partnership (“Oyster”), Lawee Enterprises L.L.C., a Florida limited liability company (“Lawee”), and U.S. Medical Care Holdings, L.L.C., a Florida limited liability company (“US Medical” and, together with DSO, Oyster and Lawee, the “Companies”), and Dr. Sasson E. Moulavi, an individual (“Seller”).

 

RECITALS

 

A. The Seller is the beneficial owner of 100% of the issued and outstanding (i) membership interests of DSO, (ii) partnership interests of Oyster, (iii) membership interests of Lawee, and (iv) membership interests of U.S. Medical, constituting all of the issued and outstanding voting and other securities of the Companies a fully-diluted basis (such securities, the “Securities”).

 

B. Seller desires to sell all of the Securities to the Buyer, and the Buyer desires to purchase the Securities from the Seller, upon the terms and subject to the conditions set forth in this Agreement (such sale and purchase of the Securities, the “Acquisition”).

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations and warranties, covenants and agreements contained herein, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

1.1 Certain Definitions. When used in this Agreement, the following terms will have the meanings assigned to them in this Section 1.1:

 

“Action” means any claim, action, suit, inquiry, hearing, proceeding or other investigation.

 

“Adjusted EBITDA” means, on a combined basis, the Companies’ earnings before (i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense, (iv) equity based compensation expense, (v) owner’s compensation of $120,000, (vi) non-essential travel and entertainment, (vii) extraordinary one-time items, which may include personal cars and related expenses, monies paid to Epiderma, LLC, a non-affiliated laser Companies which has no operations, merchandise which was shipped to Seller’s medical clinic at no charge and adjusted in the cost of goods on the income statement as allowances, Hurricane Irma related expenses and Canadian tariff’s paid for shipments to Costco, which are no longer in effect; and (viii) such other adjustment items as mutually agreed upon by the Buyer and the Seller for the twelve-month period ended December 31, 2019.

 

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“Affiliate” means, with respect to a Person, any other Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by or is under common Control with, such Person. For purposes of this definition, “Control” (including the terms “Controlled by” and “under common Control with”) means possession of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock, as trustee or executor, by Contract or otherwise.

 

“Benefit Plan” means any “employee benefit plan” as defined in ERISA Section 3(3), including any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan (as defined in ERISA Section 3(2)), (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan (as defined in ERISA Section 3(37)), (d) Employee Welfare Benefit Plan (as defined in ERISA Section 3(1)) or material fringe benefit plan or program, or (e) stock purchase, stock option, severance pay, employment, change-in-control, vacation pay, company award, salary continuation, sick leave, excess benefit, bonus or other incentive compensation, life insurance, or other employee benefit plan, contract, program, policy or other arrangement, whether or not subject to ERISA, under which any present or former employee of the Companies has any present or future right to benefits sponsored or maintained by the Companies or any ERISA Affiliate.

 

“Business Day” means a day other than a Saturday, Sunday or other day on which banks located in Miami, Florida are authorized or required by Law to close.

 

“Closing Working Capital” means the difference, as of the Closing Date, between (a) the sum of accounts receivable, inventory, capitalized work in process, prepaid expenses and other current assets of the Companies, which shall be reflected on the Closing Date Balance Sheet, less (b) the accounts payable, customer deposits, sales taxes payable, and other current liabilities of the Companies as reflected on the Closing Date Balance Sheet, in each case, determined in accordance with GAAP.

 

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

 

“Contract” means any written agreement, contract, commitment, arrangement or understanding.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” means any Person who is, or at any time was, a member of a “controlled group of corporations” within the meaning of Section 414(b) or (c) of the Code and, for the purpose of Section 302 of ERISA and/or Section 412, 4971, 4977, 4980D, 4980E and/or each “applicable section” under Section 414(f)(2) of the Code, within the meaning of Section 412(n)(6) of the Code that includes, or at any time included, the Companies or any Affiliate thereof, or any predecessor of any of the foregoing.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

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“GAAP” means United States generally accepted accounting principles.

 

“Governmental Entity” means any entity or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to United States federal, state or local government or foreign, international, multinational or other government, including any department, commission, board, agency, bureau, official or other regulatory, administrative or judicial authority thereof.

 

“Independent Accounting Firm” means any regionally recognized independent registered public accounting firm which has not represented the Companies or the Seller or any of their Affiliates for the past five years as will be agreed by the Companies and the Buyer in writing.

 

“IRS” means the Internal Revenue Service.

 

“Knowledge of the Seller” or any similar phrase means the actual knowledge of the Seller after due inquiry.

 

“Law” means any statute, law, ordinance, rule, regulation of any Governmental Entity.

 

“Liability” means all indebtedness, obligations and other liabilities and contingencies of a Person, whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due.

 

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, hypothecation or other encumbrance in respect of such property or asset.

 

“Material Adverse Effect” means any material adverse effect on the assets, properties, condition (financial or otherwise), operations of the Companies and any of their Subsidiaries, taken as a whole provided, however, that none of the following shall be deemed (either alone or in combination) to constitute, and none of the following shall be taken into account in determining whether there has been or may be, a Material Adverse Effect: (i) the effect of any change that generally affects the United States or foreign economies or securities, financial, banking or credit markets (including changes in interest or exchange rates) or geopolitical conditions; (ii) the effect of any change that generally affects any industry in which the Companies operates; (iii) the effect of any seasonal changes in the results of operations of the Companies consistent with past practices; (iv) the effect of any changes in applicable Laws; (v) the effect of any change caused by natural disasters or acts of nature, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions.

 

“Minimum Working Capital Requirement” means the average monthly working capital for the twelve-month period ended December 31, 2019.

 

“Order” means any award, injunction, judgment, decree, order, ruling, subpoena or verdict or other decision issued, promulgated or entered by or with any Governmental Entity of competent jurisdiction.

 

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“Permit” means any authorization, approval, consent, certificate, license, permit or franchise of or from any Governmental Entity of competent jurisdiction or pursuant to any Law.

 

“Person” means an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated association, a Governmental Entity or any agency, instrumentality or political subdivision of a Governmental Entity, or any other entity or body.

 

“Preliminary Working Capital” means the difference, as of the Closing Date, between (a) the sum of the accounts receivable, inventory, capitalized work in process, prepaid expenses and other current assets of the Companies, which shall be reflected on the Preliminary Balance Sheet, less (b) the accounts payable, customer deposits, sales taxes payable, and other current liabilities of the Companies as reflected on the Preliminary Balance Sheet, in each case, determined in accordance with GAAP.

 

“Representatives” means, with respect to any Person, the respective directors, officers, employees, counsel, accountants and other representatives of such Person.

 

“Subsidiary” means, with respect to any Person, any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other Subsidiary), owns, directly or indirectly, more than 50% of the stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of a non-corporate Person.

 

“Taxes” means all federal, state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, transfer, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever.

 

“Taxing Authority” means any Governmental Entity having or purporting to exercise jurisdiction with respect to any Tax.

 

“Tax Returns” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“Transaction Proposal” means any unsolicited written bona fide proposal made by a third party relating to (i) any direct or indirect acquisition or purchase of all or substantially all assets of the Companies, (ii) any direct or indirect acquisition or purchase of a majority of the combined voting power of the Securities, (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Companies in which the other party thereto or its stockholders will own 51% or more of the combined voting power of the parent entity resulting from any such transaction, or (iv) any other transaction that is inconsistent with the intent and purpose of this Agreement.

 

“Transfer Taxes” means sales, use, transfer, recording, documentary, stamp, registration and stock transfer Taxes and any similar Taxes.

 

“$” means United States dollars.

 

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For purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires: (i) the meaning assigned to each term defined herein will be equally applicable to both the singular and the plural forms of such term and vice versa, and words denoting any gender will include all genders as the context requires; (ii) where a word or phrase is defined herein, each of its other grammatical forms will have a corresponding meaning; (iii) the terms “hereof”, “herein”, “hereunder”, “hereby” and “herewith” and words of similar import will, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement; (iv) when a reference is made in this Agreement to an Article, Section, paragraph, Exhibit or Schedule without reference to a document, such reference is to an Article, Section, paragraph, Exhibit or Schedule to this Agreement; (v) a reference to a subsection without further reference to a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule will also apply to paragraphs and other subdivisions; (vi) the word “include”, “includes” or “including” when used in this Agreement will be deemed to include the words “without limitation”, unless otherwise specified; (vii) a reference to any party to this Agreement or any other agreement or document will include such party’s predecessors, successors and permitted assigns; (viii) a reference to any Law means such Law as amended, modified, codified, replaced or reenacted as of the date hereof, and all rules and regulations promulgated thereunder as of the date hereof; and (ix) all accounting terms used and not defined herein have the respective meanings given to them under GAAP.

 

ARTICLE II
PURCHASE AND SALE OF THE SECURITIES

 

2.1 Purchase and Sale of the Securities. Upon the terms and subject to the conditions set forth in this Agreement, the Buyer agrees to pay to the Seller for the Securities in the aggregate at the Closing approximately Fifteen Million, Six Hundred Thousand Dollars ($15,600,000) (the “Purchase Price”), subject to adjustment as described in Section 2.2 below, by delivery of (i) cash in the amount of Seven Million, Eight Hundred Thousand Dollars ($7,800,000) (the “Cash Portion”) constituting fifty percent (50%) of the Purchase Price, payable by wire transfer or delivery of other immediately available funds to one or more accounts at banks identified by Seller to Buyer in writing at least two (2) business days prior to the Closing Date, (ii) a convertible promissory note (“Buyer Note I”) in a form to be mutually agreed to between the Buyer and the Seller in the aggregate principal amount of Three Million Nine Hundred Thousand Dollars ($3,900,000), constituting twenty five percent (25%) of the Purchase Price, and (iii) a non-convertible promissory note (“Buyer Note II,” and together with Buyer Note I the “Buyer Notes”) in the form to be mutually agreed to in the aggregate principal amount of Three Million, Nine Hundred Thousand Dollars ($3,900,000), constituting twenty-five percent (25%) of the Purchase Price. The Buyer Notes will each bear interest at the rate of 6% per annum and will be amortized on a 60-month straight line basis with a balloon payment on the 36th month. The Buyer Notes will be subordinated to the senior indebtedness of the Buyer and the Companies and will have a subordinated security interest (after the senior secured indebtedness) covering all of the assets of the Companies.

 

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2.2 Adjustments to Purchase Price.

 

(a) Adjusted EBITDA Adjustments.

 

(i) The Purchase Price is based upon a six times multiple of estimated Adjusted EBITDA for the calendar year 2019 (“2019 Adjusted EBITDA”). The Buyer has engaged Liggett and Webb to prepare a quality of earnings report on the Companies (the “Quality of Earnings Report”). The Purchase Price shall be adjusted upwards or downwards upon delivery of the Quality of Earnings Report to all parties based upon the difference between six times the 2019 Adjusted EBITDA as shown in the Quality of Earnings Report and the Purchase Price. The adjusted Purchase Price and shall be allocated among the Cash Portion and the Buyer Notes based on the percentage of the Purchase Price that each such component of consideration makes up as described above in Section 2.1.

 

(ii) In the event the Seller does not agree with the 2019 Adjusted EBITDA as set forth in the Quality of Earnings Report, the Seller shall so inform the Buyer in writing within 20 days of the Seller’s receipt thereof, such writing to set forth the objections of the Seller in reasonable detail. If the Seller and the Buyer cannot reach agreement as to any disputed matter relating to the 2019 Adjusted EBITDA as set forth in the Quality of Earnings Report within 15 days after notification by the Seller to the Buyer of a dispute, they shall forthwith refer the dispute to an Independent Accounting Firm mutually agreeable to the Seller and the Buyer for resolution, with the understanding that such firm shall resolve all disputed items within 20 days after such disputed items are referred to it. If the Buyer and the Seller are unable to agree on the choice of an Independent Accounting Firm, they shall select an Independent Accounting Firm by lot from up to three firms proposed by each of the Seller and Buyer (after excluding their respective regular outside accounting firms). Each of the Seller and the Buyer shall bear one-half of the costs of such accounting firm. The decision of the accounting firm with respect to all disputed matters relating to the 2019 Adjusted EBITDA shall be deemed final and conclusive and shall be binding upon the Seller and the Buyer. In addition, if the Seller does not object to within the 20-day period referred to above, the 2019 Adjusted EBITDA shall be deemed final and conclusive and binding upon the Seller and the Buyer. Notwithstanding the foregoing, in the event that the 2019 Adjusted EBITDA is determined by the Independent Accounting Firm to be equal to or less than $2,000,000 and Buyer is not willing to pay at least $12,000,000, then either party may terminate this Agreement immediately and neither party shall have any further obligation to the other party except as otherwise provided for in this Agreement.

 

(iii) The Seller shall be entitled to have access to the books and records and other information relating to the Companies that was used by Liggett & Webb to prepare the Quality of Earnings Report, including the work papers prepared in connection with the preparation of the Quality of Earnings Report and shall be entitled to discuss such books and records and work papers with the Buyer and those persons responsible for the preparation thereof.

 

(b) Working Capital Adjustment.

 

(i) At the Closing, the Seller shall deliver to the Buyer an unaudited, combined estimated balance sheet of the Companies (the “Preliminary Balance Sheet”) as of the Closing Date together with a certificate of the Seller stating that the Preliminary Balance Sheet was prepared in accordance with GAAP so as to present fairly in all material respects the financial condition of Companies on a combined basis as of such date.

 

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(ii) Ninety days (90) after the Closing Date, the Buyer shall cause its auditor to prepare and deliver to the Seller an unaudited, combined balance sheet of the Companies as of the Closing Date (the “Closing Date Balance Sheet”) and all calculations, work papers and supporting documents (the “Supporting Documentation”) as of the Closing Date. The Closing Date Balance Sheet shall be prepared in accordance with GAAP in a manner consistent with the Preliminary Balance Sheet so as to present fairly in all material respects the financial condition of the Companies.

 

(iii) If the Closing Working Capital exceeds the Minimum Working Capital, then the Buyer shall promptly (and, in any event, within fifteen (15) days) pay to the Seller an amount in cash that is equal to the deficiency. If the Minimum Working Capital exceeds the Closing Working Capital, then the Seller shall promptly (and, in any event, within fifteen (15) days) pay to the Buyer an amount in cash that is equal to the deficiency

 

(c) If there is a dispute regarding differences between the Preliminary Balance Sheet and the Closing Date Balance Sheet or as to the calculation of working capital as shown thereon, then the parties shall employ the same dispute resolution procedures within the same time periods used to resolve disputes relating to Adjusted EBITDA as set forth in Section 2.2(a)(ii).

 

(d) Adjustment for Outstanding Indebtedness. The Cash Portion shall be decreased by the amount of any outstanding indebtedness of the Companies for borrowed money existing as of the Closing Date and the deducted amount shall be utilized to pay off such outstanding indebtedness.

 

2.3 Closing. The consummation of the Acquisition (the “Closing”) will take place by the reciprocal delivery of closing documents by electronic mail, regular mail, fax or any other means mutually agreed upon by the parties hereto on a date that is no later than two (2) Business Days immediately following the day on which the last of the conditions to closing contained in Article VII (other than any conditions that by their nature are to be satisfied at the Closing) is satisfied or waived in accordance with this Agreement or at such other location or on such other date as the Buyer and the Companies may mutually determine (the date on which the Closing actually occurs is referred to as the “Closing Date”).

 

2.4 Transactions to be Effected at the Closing.

 

(a) At the Closing, the Buyer will (i) pay the Cash Portion of the Purchase Price to the Seller, adjusted in accordance with subsection 2.2(a) and, by paying such sum to the Seller by transfer of immediately available funds in accordance with instructions provided by the Seller, and (ii) deliver to the Seller all other documents, instruments or certificates required to be delivered by the Buyer at or prior to the Closing pursuant to this Agreement, including, without limitation, the Buyer Notes.

 

(b) At the Closing, the Seller will deliver to the Buyer (i) an assignment of the Securities in form satisfactory to the Buyer showing the Buyer as the sole owner of the Securities, and (ii) all other documents, instruments or certificates required to be delivered by the Seller at or prior to the Closing pursuant to this Agreement.

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

The Seller and each of the Companies represents and warrants to the Buyer that each statement contained in this Article III is true and correct as of the date hereof, except as set forth in the schedule accompanying this Agreement (the “Company Disclosure Schedule”). The Company Disclosure Schedule has been arranged for purposes of convenience only, in sections corresponding to the Sections of this Article III and Article IV. Each section of the Company Disclosure Schedule will be deemed to incorporate by reference all information disclosed in any other section of the Company Disclosure Schedule.

 

3.1 Authority and Enforceability. The Seller has the requisite legal capacity to execute and deliver this Agreement, to perform his respective obligations hereunder and to consummate the Acquisition and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller and, assuming the due authorization, execution and delivery by each other party hereto, constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.

 

3.2 Noncontravention.

 

(a) Neither the execution and the delivery of this Agreement nor the consummation of the Acquisition or the other transactions contemplated by this Agreement will, with or without the giving of notice or the lapse of time or both, (i) to the knowledge of the Seller and assuming compliance with the filing and notice requirements set forth in Section 3.2(b)(i), violate any Law applicable to the Seller or (ii) violate any Contract to which the Seller is a party, except to the extent that any such violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The execution and delivery of this Agreement by the Seller does not, and the performance of this Agreement by the Seller will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) the filings set forth in Section 3.2(b) of the Company Disclosure Schedule or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

3.3 The Securities.

 

(a) The Seller holds of record and owns beneficially all of the Securities, free and clear of all Liens, other than (a) Liens for current real or personal property Taxes that are not yet due and payable or that may hereafter be paid without material penalty or that are being contested in good faith, (b) statutory Liens of landlords and workers’, carriers’ and mechanics’ or other like Liens incurred in the ordinary course of business or that are being contested in good faith, (c) Liens and encroachments which do not materially interfere with the present or proposed use of the properties or assets they affect, (d) Liens that will be released prior to or as of the Closing, (e) Liens arising under this Agreement, (f) Liens created by or through the Buyer, and (g) Liens set forth in Section 3.3(a) of the Company Disclosure Schedule (the “Permitted Liens”).

 

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(b) Except as set forth in this Agreement, the Seller is not party to any Contract obligating the Seller to vote or dispose of any Securities of, or other equity or voting interests in, the Companies.

 

3.4 Brokers’ Fees. Except as set forth in Section 3.4 of the Company Disclosure Schedule, the Seller does not have any Liability to pay any fees or commissions to any broker, finder or agent with respect to this Agreement, the Acquisition or the transactions contemplated by this Agreement.

 

3.5 Investment Representations. The Buyer Notes are being acquired by the Seller for his respective accounts, for investment purposes and not with a view to the sale or distribution of all or any part of the Buyer Notes, nor with any present intention to sell or in any way distribute the same, as those terms are used in the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder. The Seller has sufficient knowledge and experience in financial matters so as to be capable of evaluating the merits and risks of purchasing the Buyer Notes. The Seller has reviewed copies of such documents and other information as the Seller has deemed necessary in order to make an informed investment decision with respect to its acquisition of the Buyer Notes. The Seller understands that the Buyer Notes may not be sold, transferred or otherwise disposed of without registration under the Securities Act or the availability of an exemption therefrom, and that in the absence of an effective registration statement covering the Buyer Notes or an available exemption from registration under the Securities Act, the Buyer Notes must be held indefinitely. Further, the Seller understands and has the financial capability of assuming the economic risk of an investment in the Buyer Notes for an indefinite period of time. The Seller has been advised by the Buyer that the Seller will not be able to dispose of the Buyer Notes, or any interest therein, without first complying with the relevant provisions of the Securities Act and any applicable state securities laws. The Seller understands that the provisions of Rule 144 promulgated under the Securities Act, permitting the routine sales of the securities of certain issuers subject to the terms and conditions thereof, are not currently, and may not hereafter be, available with respect to the Buyer Notes. The Seller acknowledges that the Buyer is under no obligation to register the Buyer Notes except as otherwise expressly set forth in this Agreement or to furnish any information or take any other action to assist the undersigned in complying with the terms and conditions of any exemption which might be available under the Securities Act or any state securities laws with respect to sales of the Buyer Notes in the future. The Seller is an “Accredited Investor” as defined in rule 501 (a) of Regulation D of the Act.

 

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES

 

The Seller and each of the Companies represents and warrants to the Buyer that each statement contained in this Article IV is true and correct as of the date hereof, except as set forth in the Company Disclosure Schedule. Any representation or warranty concerning the Companies shall be deemed to be a representation concerning the Companies and their Subsidiaries, if any, as a whole unless the context specifically requires otherwise.

 

4.1 Organization, Qualification and Corporate Power; Authority and Enforceability.

 

(a) Each of the Companies is a limited liability company or limited partnership, as applicable, duly organized, validly existing and in good standing under the Laws of the State of Florida, and has all requisite limited liability company or limited partnership power and authority, directly or indirectly, to own, lease and operate its properties and assets and to carry on its business as it is now being conducted. Each of the Companies is duly qualified or licensed as a foreign limited liability company or limited partnership to do business, and is in good standing, in each jurisdiction where the character of its properties or assets owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) Each of the Companies has the requisite limited liability company or limited partnership power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by each of the Companies of this Agreement and the consummation by each of the Companies of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Companies, and no other action is necessary on the part of the Companies to authorize this Agreement or to consummate the Acquisition or the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Companies and, assuming the due authorization, execution and delivery by each other party hereto, constitutes a legal, valid and binding obligation of the Companies, enforceable against the Companies in accordance with its terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity, including principals of commercial reasonableness , good faith and fair dealing, whether such enforceability is considered in a proceeding in equity or at Law.

 

4.2 Subsidiaries. None of the Companies has any Subsidiaries.

 

4.3 Capitalization.

 

(a) The Securities are the only securities of the Companies that are authorized, issued and outstanding. No other membership interests, limited partnership interests or other securities giving a person the right to a membership interest, limited partnership interest or other ownership interest in any of the Companies are authorized, issued or outstanding.

 

(b) There are no outstanding options, warrants or other securities or subscription, preemptive or other rights convertible into or exchangeable or exercisable for any membership interests or voting interests of the Companies and there are no “phantom equity” rights, interest appreciation rights or other similar rights with respect to the Companies. There are no Contracts of any kind to which the Companies are a party or by which the Companies are bound, obligating the Companies to issue, deliver, grant or sell, or cause to be issued, delivered, granted or sold, additional equity interests of, or voting interests in, or options, warrants or other securities or subscription, preemptive or other rights convertible into, or exchangeable or exercisable for, equity interests of, or other voting interests in, the Companies, or any “phantom equity” right, equity appreciation right or other similar right with respect to the Companies, or obligating the Companies to enter into any such Contract.

 

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(c) There are no securities or other instruments or obligations of the Companies, the value of which is in any way based upon or derived from any membership interest, partnership interest or other voting interest of the Companies or having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which the Companies’ members or partners may vote.

 

(d) There are no Contracts, contingent or otherwise, obligating the Companies to repurchase, redeem or otherwise acquire any securities of, or other voting interests in, the Companies. There are no voting trusts, registration rights agreements or member agreements to which the Companies are a party with respect to the voting of the membership interests or partnership interests of the Companies, as applicable, or with respect to the granting of registration rights for any of the membership interests or partnership interests of the Companies, as applicable. There are no rights plans affecting the Companies.

 

(e) Except as set forth in Section 4.3(e) of the Company Disclosure Schedule, there are no bonds, debentures, notes or other indebtedness of the Companies.

 

4.4 Noncontravention.

 

(a) Neither the execution and delivery of this Agreement nor the consummation of the Acquisition and the other transactions contemplated by this Agreement will, with or without the giving of notice or the lapse of time or both, (i) violate any provision of the articles of formation or operating agreement (or comparable organization documents, as applicable) of the Companies, (ii) to the Knowledge of the Seller and assuming compliance with the filing and notice requirements set forth in Section 4.4(b)(i), violate any Law applicable to the Companies on the date hereof or (iii) except as set forth in Section 4.4(a) of the Company Disclosure Schedule, violate any Contract to which the Companies are a party, except with respect to those third party consents that the Seller shall use reasonable efforts to obtain pursuant to Section 6.1 and in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The execution and delivery of this Agreement by the Companies does not, and the performance of this Agreement by the Companies will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) the filings set forth in Section 4.4(b) of the Company Disclosure Schedule or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.5 Financial Statements. Section 4.5 of the Company Disclosure Schedule contains true and complete copies of (i) the unaudited, combined balance sheet of the Companies for the two years ended December 31, 2019 and December 31, 2018; and (ii) the related unaudited statements of income, members’ or partners’ equity and cash flows for the two years ended December 31, 2019 and December 31, 2018 (the “Financial Statements”). The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and, on that basis, fairly present, in all material respects, the financial condition, results of operations and cash flows of the Companies as of the indicated dates and for the indicated periods.

 

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4.6 Taxes.

 

(a) All material Tax Returns required to have been filed by the Companies have been filed, and each such Tax Return reflects the liability for Taxes in all material respects. All Taxes shown on such Tax Returns as due have been paid or accrued.

 

(b) To the Knowledge of the Seller, there is no audit pending against the Companies in respect of any Taxes. There are no Liens on any of the assets of the Companies that arose in connection with any failure (or alleged failure) to pay any Tax, other than Liens for Taxes not yet due and payable.

 

(c) The Companies have withheld and paid or accrued for all material Taxes required to have been withheld and paid or accrued for in connection with amounts paid or owing to any third party.

 

(d) The Companies have not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

(e) The Companies are not a party to any Tax allocation or sharing agreement.

 

4.7 Compliance with Laws and Orders; Permits.

 

(a) The Companies are in compliance with all Laws and Orders to which the business of the Companies are subject, except where such failure to comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The Companies own, hold, possess or lawfully use in the operation of their business all Permits that are necessary for them to conduct their business as now conducted, except where such failure to own, hold, possess or lawfully use such Permit would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.8 No Undisclosed Liabilities. The Companies do not have any Liability, of a nature that would be required to be disclosed on a corporate balance sheet prepared in accordance with GAAP, except for (i) liabilities which have arisen since the date of the Financial Statements in the ordinary course of business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law); or (ii) liabilities that are adequately reserved against.

 

4.9 Tangible Personal Assets.

 

(a) The Companies have good title to, or a valid interest in, all of their tangible personal assets, free and clear of all Liens, other than (i) Permitted Liens or (ii) Liens that, individually or in the aggregate, do not materially interfere with the ability of the Companies thereof to conduct their business as currently conducted and do not adversely affect the value of, or the ability to sell, such personal properties and assets.

 

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(b) The Companies’ tangible personal assets are in good operating condition, working order and repair, subject to ordinary wear and tear, free from defects (other than defects that do not interfere with the continued use thereof in the conduct of normal operations) and are suitable for the purposes for which they are currently being used.

 

4.10  Real Property.

 

(a) Owned Real Property. The Companies do not own any real property.

 

(b) Leased Real Property. Section 4.10(b) of the Company Disclosure Schedule contains a list of all leases and subleases (collectively, the “Real Property Leases”) under which the Companies are either lessor or lessee (the “Real Property”). The Seller have heretofore made available to the Buyer true and complete copies of each Real Property Lease. To the Knowledge of the Seller, (i) all Real Property Leases are valid and binding Contracts of the Companies and are in full force and effect (except for those that have terminated or will terminate by their own terms), and (ii) neither the Companies or any other party thereto, is in violation or breach of or default (or with notice or lapse of time, or both, would be in violation or breach of or default) under the terms of any such Contract, in each case, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.11  Intellectual Property.

 

(a) “Intellectual Property” means (i) trade secrets, inventions, confidential and proprietary information, know-how, formulae and processes, (ii) patents (including all provisionals, reissues, divisions, continuations and extensions thereof) and patent applications, (iii) trademarks, trade names, trade dress, brand names, domain names, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications (whether registered, unregistered or existing at common law, including all goodwill attaching thereto), (iv) copyrights, including copyright registrations, copyright applications and unregistered common law copyrights; (v) and all licenses for the Intellectual Property listed in items (i) – (iv) above.

 

(b) Section 4.11(b) of the Company Disclosure Schedule sets forth a list that includes all material Intellectual Property owned by the Companies (the “Company-Owned Intellectual Property”) that is registered or subject to an application for registration (including the jurisdictions where such Company-Owned Intellectual Property is registered or where applications have been filed, and all registration or application numbers, as appropriate).

 

(c) All necessary registration, maintenance and renewal fees have been paid and all necessary documents have been filed with the United States Patent and Trademark Office or foreign patent and trademark office in the relevant foreign jurisdiction for the purposes of maintaining the registered Company-Owned Intellectual Property.

 

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(d) Except as set forth on Section 4.11(d) of the Company Disclosure Schedule, (i) the Companies are the exclusive owner of the Company-Owned Intellectual Property free and clear of all Liens (other than Permitted Liens); (ii) to the Knowledge of the Seller no proceedings have been instituted, are pending or are threatened that challenge the rights of the Companies in or the validity or enforceability of the Company-Owned Intellectual Property; (iii) to the Knowledge of the Seller, neither the use of the Company-Owned Intellectual Property as currently used by the Companies in the conduct of the Companies’ business, nor the conduct of the business as presently conducted by the Companies infringes, dilutes, misappropriates or otherwise violates in any material respect the Intellectual Property rights of any Person; and (iv) as of the date of this Agreement, the Companies have made no claim of a violation, infringement, misuse or misappropriation by any Person, of their rights to, or in connection with, the Company-Owned Intellectual Property.

 

(e) Except as set forth in Section 4.11(e) of the Company Disclosure Schedule, the Companies have not permitted or licensed any Person to use any Company-Owned Intellectual Property.

 

(f)  Section 4.11(f) of the Company Disclosure Schedule sets forth a complete and accurate list of all licenses, other than “off the shelf” commercially available software programs, pursuant to which the Companies license from a Person Intellectual Property that is material to and used in the conduct of the business by the Companies.

 

(g) To the Knowledge of the Seller, the Companies are not in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any Contract pursuant to which any third party is authorized to use any Company-Owned Intellectual Property or pursuant to which the Companies are licensed to use Intellectual Property owned by a third party, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.12 Absence of Certain Changes or Events. Since the date of the Financial Statements, no event has occurred that has had, individually or in the aggregate, a Material Adverse Effect. Without limiting the generality of the foregoing, since that date:

 

(a) the Companies have not sold, leased, transferred, or assigned any of their assets, tangible or intangible, other than for a fair consideration in the ordinary course of business;

 

(b) the Companies have not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the ordinary course of business;

 

(c) no party (including the Companies) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $50,000 to which the Companies are a party or by which any of them is bound;

 

(d) the Companies have not imposed any Liens upon any of their assets, tangible or intangible;

 

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(e) the Companies have not made any capital expenditure (or series of related capital expenditures) either involving more than $50,000 or outside the ordinary course of business;

 

(f) the Companies have not 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) either involving more than $50,000 or outside the ordinary course of business;

 

(g) the Companies have not transferred, assigned, or granted any license or sublicense of any rights under or with respect to any Intellectual Property;

 

(h) there has been no change made or authorized in the articles of formation, operating agreement or partnership agreement of any of the Companies;

 

(i) the Companies have not issued, sold, or otherwise disposed of any of their membership interests, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of their membership interests;

 

(j) the Companies have not made any loan to, or entered into any other transaction with, any of their directors, officers, and employees outside the ordinary course of business;

 

(k) the Companies have not entered into any employment contract or modified the terms of any existing such contract or agreement;

 

(l) the Companies have not granted any increase in the base compensation of any of their directors, officers, and employees outside the ordinary course of business;

 

(m) the Companies have not committed to any of the foregoing.

 

4.13  Contracts.

 

(a) Except as set forth in Section 4.13(a) of the Company Disclosure Schedule, as of the date hereof, the Companies are not a party to or bound by any: (i) Contract not contemplated by this Agreement that materially limits the ability of the Companies to engage or compete in any manner of the business presently conducted by the Companies; (ii) Contract that creates a partnership or joint venture or similar arrangement with respect to any material business of the Companies; (iii) indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other evidence of indebtedness or agreement providing for indebtedness in excess of $50,000; (iv) Contract that relates to the acquisition or disposition of any material business (whether by merger, sale of stock or other equity interests, sale of assets or otherwise) other than this Agreement; and (v) Contract that involves performance of services or delivery of goods or materials by or to the Companies in an amount or with a value in excess of $50,000 in any 12-month period (which period may extend past the Closing).

 

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(b) The Seller have heretofore made available to the Buyer true and complete copies of each of the Contracts set forth in Section 4.13(a) of the Company Disclosure Schedule. To the Knowledge of the Seller, (i) all such Contracts are valid and binding, (ii) all such Contracts are in full force and effect (except for those that have terminated or will terminate by their own terms), and (iii) neither the Companies nor any other party thereto, is in violation or breach of or default under (or with notice or lapse of time, or both, would be in violation or breach of or default under) the terms of any such Contract, in each case, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.14  Litigation. Except as set forth in Section 1.1 of the Company Disclosure Schedule, there is no Action pending or, to the Knowledge of the Seller, threatened against the Companies that (a) challenges or seeks to enjoin, alter or materially delay the Acquisition or (b) would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.15 Employee Benefits.

 

(a) Section 4.15(a) of the Company Disclosure Schedule includes a list of all Benefit Plans maintained or contributed to by the Companies (the “Company Benefit Plans”). The Seller have delivered or made available to the Buyer copies of (i) each Company Benefit Plan, (ii) the most recent summary plan description for each Company Benefit Plan for which such a summary plan description is required and (iii) the most recent favorable determination letters from the IRS with respect to each Company Benefit Plan intended to qualify under Section 401(a) of the Code.

 

(b) Except as set forth in Section 4.15(b) of the Company Disclosure Schedule, (i) none of the Company Benefit Plans is subject to Title IV of ERISA; (ii) each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code is subject to a favorable determination letter from the IRS and, to the Knowledge of the Seller, no event has occurred and no condition exists that is reasonably likely to result in the revocation of any such determination; and (iii) each Company Benefit Plan is in compliance with all applicable provisions of ERISA and the Code, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.16 Labor and Employment Matters. Section 4.16 of the Company Disclosure Schedule sets forth a list of all written employment agreements that obligate the Companies to pay an annual salary of $50,000 or more and to which the Companies are a party. To the Knowledge of the Seller, there are no pending labor disputes, work stoppages, requests for representation, pickets, work slow-downs due to labor disagreements or any actions or arbitrations that involve the labor or employment relations of the Companies. The Companies are not party to any collective bargaining agreement.

 

4.17 Environmental. Except (i) as set forth in Section 4.17 of the Company Disclosure Schedule or (ii) for any matter that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, to the Knowledge of the Seller (a) the Companies are in compliance with all applicable Laws relating to protection of the environment (“Environmental Laws”), (b) the Companies possess and is in compliance with all Permits required under any Environmental Law for the conduct of their operations and (c) there are no Actions pending against the Companies alleging a violation of any Environmental Law.

 

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4.18 Insurance. Section 4.18 of the Company Disclosure Schedule sets forth a list of each insurance policy that covers the Companies or their businesses, properties, assets, directors, officers or employees (the “Policies”). Such Policies are in full force and effect in all material respects and the Companies are not in violation or breach of or default under any of their obligations under any such Policy, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.19 Brokers’ Fees. Except as set forth in Section 4.19 of the Company Disclosure Schedule, which such fees shall be paid prior to or at Closing with the Seller’s cash, the Seller and the Company have no Liability to pay any fees or commissions to any broker, finder or agent with respect to this Agreement, the Acquisition or the transactions contemplated by this Agreement.

 

4.20 Certain Business Relationships with the Companies. Except as set forth in Section 4.20 of the Company Disclosure Schedule, neither the Seller, nor any Affiliate of the Seller, has been involved in any business arrangement or relationship with the Companies within the past 12 months, and neither the Seller, nor any Affiliate of the Seller, owns any asset, tangible or intangible, which is used in the Business.

 

4.21 Equipment. Section 4.21 of the Company Disclosure Schedule sets forth a complete and accurate list of all plants, fixtures, machinery, installations, equipment, furniture, tools, spare parts, supplies, materials and other personal property (collectively, the “Equipment”) owned by the Companies other than items having a net book or market value individually of less than five thousand dollars ($5,000) or expensed for tax purposes, as of the date of the Financial Statements. The Companies have not acquired an item of Equipment for in excess of such amount since such date. The Equipment, and all personal property held by the Companies, are utilized by the Company in the ordinary course of business.

 

4.22 Customers and Suppliers. Section 4.22 of the Company Disclosure Schedule sets forth a correct and complete list of the top 20 customers and top 20 suppliers of the Companies during the fiscal year ended December 31, 2019 and indicates with respect to each the name, address and dollar volume of business with the Companies (including the primary categories, based on purchases or sales, of products or services bought or sold). The Companies are not required to provide any material bonding or other financial security arrangements in connection with their transactions with any customer or supplier required to be disclosed on Section 4.22 of the Company Disclosure Schedule except as set forth therein. Since the date of the Financial Statements, no customer or supplier required to be disclosed on Section 4.22 of the Company Disclosure Schedule has terminated its relationship with, or materially reduced its purchases from or sales to, the Companies.

 

4.23 Potential Conflicts of Interest. Except as set forth in Section 4.23 of the Company Disclosure Schedule, no officer, director, manager, member, stockholder (or Affiliate thereof) or, to the Knowledge of the Seller, employee of the Companies (a) owns, directly or indirectly, any interest in (excepting not more than 1% stock or other equity securities for investment purposes in securities of publicly held and traded companies) or is an officer, director, manager, employee or consultant of any Person which is a competitor, lessor, lessee, customer or supplier of Companies, unless such interest is owned on the date hereof and such Person is not within a ten (10) mile radius of any of the manufacturing operations currently being operated by the Companies; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property which the Companies are using or the use of which is necessary for their business; (b) has any cause of action or other claim whatsoever against, or owes any amount to, any of the Companies, except for claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under any Company Benefit Plan and similar matters and agreements; or (c) is party to any agreement, contract or commitment with any of the Companies or has received any loan, advance or investment from the Companies that has not been repaid in full prior to the date hereof.

 

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4.24 Bank Accounts. Section 4.24 of the Company Disclosure Schedule sets forth a correct and complete list of: (i) each of the bank accounts of the Companies, together with a true and complete list of the authorized signatories for such accounts; and (ii) the names of all Persons authorized to borrow money or sign notes on behalf of the Companies.

 

4.25 Accounts Receivable. Except as set forth in Section 4.25 of the Company Disclosure Schedule, all accounts and notes receivable of the business of the Companies arose in the ordinary and usual course of the business, represent valid obligations due, and except for installment loan contracts and customer side notes either have been collected in full or, to the Knowledge of the Seller, are expected to be collected in full not later than 90 days after the invoice or due date of such receivables.

 

4.26 Disclosure. The representations and warranties contained in this Article IV do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article IV not misleading.

 

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER

 

The Buyer represents and warrants to the Seller that each statement contained in this Article V is true and correct as of the date hereof. Any representation or warranty concerning the Buyer shall be deemed to be a representation concerning the Buyer and its Subsidiaries, if any, as a whole unless the context specifically requires otherwise.

 

5.1 Organization. The Buyer is a corporation, duly organized, validly existing and in good standing under the laws of the state of Delaware.

 

5.2 Authorization. The Buyer has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by the Buyer of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary action, and no other action on the part of the Buyer is necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than compliance with the filing and notice requirements set forth in Section 5.3(b)(i)). This Agreement has been duly executed and delivered by the Buyer and, assuming the due authorization, execution and delivery by each of the other parties hereto, constitutes a legal, valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.

 

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5.3 Noncontravention.

 

(a) Neither the execution and the delivery of this Agreement, nor the consummation of the Acquisition and the other transactions contemplated by this Agreement, will, with or without the giving of notice or the lapse of time or both, (i) violate any provision of the certificate of incorporation or bylaws (or comparable organization documents, as applicable) of the Buyer, (ii) violate any Law applicable to the Buyer on the date hereof or (iii) violate any Contract to which the Buyer is a party, except in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to prevent or materially delay the consummation of the Acquisition and the other transactions contemplated by this Agreement.

 

(b) The execution and delivery of this Agreement by the Buyer does not, and the performance of this Agreement by the Buyer will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) the filings set forth in Section 3.2(b)(i) or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

5.4 Litigation. There are no Legal Proceedings pending or, to the knowledge of the Buyer threatened against the Buyer that, if adversely determined, are reasonably likely to prohibit or restrain the ability of the Buyer to enter into this Agreement or consummate the Transaction and the other transactions contemplated by this Agreement.

 

5.5 Brokers’ Fees. The Buyer has no Liability to pay any fees or commissions to any broker, finder or agent with respect to this Agreement, the Acquisition or the transactions contemplated by this Agreement that could result in any Liability being imposed on the Seller or the Companies.

 

ARTICLE VI
COVENANTS

 

6.1 Consents. The Seller and the Companies will use their commercially reasonable efforts to obtain any required third-party consents to the Acquisition and the other transactions contemplated by this Agreement in writing from each Person.

 

6.2 Operation of the Companies’ Business. During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, the Companies, except (i) as otherwise contemplated by this Agreement, (ii) as required by applicable Law or (iii) with the prior written consent of the Buyer (which consent will not be unreasonably withheld or delayed), will use commercially reasonable efforts to carry on their business in a manner consistent with past practice and not take any action or enter into any transaction that would result in the following:

 

(a) any change in the articles of formation, operating agreement or partnership agreement of the Companies or any amendment of any material term of any outstanding security of the Companies;

 

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(b) any issuance or sale of any additional membership interests or partnership interests of, or rights of any kind to acquire any membership interests or partnership interests of the Companies (whether through the issuance or granting of options or otherwise);

 

(c) pay any distribution, redeem any membership interests or otherwise make any distribution of cash or other assets of the Companies other than in the ordinary course of business in amounts and on terms consistent with past practice;

 

(d) any incurrence, guarantee or assumption by the Companies of any indebtedness for borrowed money other than in the ordinary course of business in amounts and on terms consistent with past practice;

 

(e) any change in any method of accounting, accounting principle or accounting practice by the Companies which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

(f) except in the ordinary course of business (i) any adoption or material amendment of any of the Companies Benefit Plans, (ii) any entry into any collective bargaining agreement with any labor organization or union, (iii) any entry into an employment agreement or (iv) any increase in the rate of compensation to any employee in an amount that exceeds 10% of such employee’s current compensation; provided, that the Companies may (A) take any such action for employees in the ordinary course of business or pursuant to any existing Contracts or Company Benefit Plans and (B) adopt or amend any of the Companies Benefit Plans if the cost to such Person of providing benefits thereunder is not materially increased;

 

(g) except in the ordinary course of business, any cancellation, modification, termination or grant of waiver of any material Permits or Contracts to which the Companies are a party, which cancellation, modification, termination or grant of waiver would, individually or in the aggregate, have a Material Adverse Effect;

 

(h) any change in the Tax elections made by the Companies or in any accounting method used by the Companies for Tax purposes, where such Tax election or change in accounting method may have a material effect upon the Tax Liability of the Companies for any period or set of periods, or the settlement or compromise of any material income Tax Liability of the Companies;

 

(i) except in the ordinary course of business, any acquisition or disposition of any business or any material property or asset (including, without limitation, any of the Companies’ Intellectual Property) of the Companies (whether by merger, consolidation or otherwise) by the Companies;

 

(j)  any grant of a Lien on any properties and assets of the Companies that would have, individually or in the aggregate, a Material Adverse Effect; or

 

(k) any entry into any agreement or commitment to do any of the foregoing.

 

6.3 Access. The Companies will permit the Buyer and its Representatives to have reasonable access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Companies, to the premises, properties, personnel, books, records (including Tax records), Contracts and documents of or pertaining to the Companies.

 

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6.4 Notice of Developments. The Seller and the Companies will give prompt written notice to the Buyer of any event that would reasonably be expected to give rise to, individually or in the aggregate, a Material Adverse Effect or would reasonably be expected to cause a breach of any of their respective representations, warranties, covenants or other agreements contained herein. The Buyer will give prompt written notice to the Seller and the Companies of any event that could reasonably be expected to cause a breach of any of its representations, warranties, covenants or other agreements contained herein or could reasonably be expected to, individually or in the aggregate, prevent or materially delay the consummation of the Acquisition and the other transactions contemplated by this Agreement. The delivery of any notice pursuant to this Section 6.4 will not limit, expand or otherwise affect the remedies available hereunder (if any) to the party receiving such notice.

 

6.5 No Solicitation.

 

(a) The Seller and the Companies will, and will cause each of their Representatives to, cease immediately any existing discussions regarding a Transaction Proposal.

 

(b) From and after the date of this Agreement, without the prior consent of the Buyer, neither the Seller nor the Companies will, nor will they authorize or permit any of their respective Representatives to, directly or indirectly through another Person to, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate any inquiries, proposals or offers from any Person that constitute, or would reasonably be expected to constitute, a Transaction Proposal, (ii) participate in any discussions or negotiations (including by way of furnishing information) regarding any Transaction Proposal or (iii) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing.

 

(c) In addition, the Seller shall immediately communicate to the Buyer the terms of any Transaction Proposal received by the Seller or the Companies, or any of their Representatives.

 

6.6 Taking of Necessary Action; Further Action. Subject to the terms and conditions of this Agreement, each of the Seller, the Companies and the Buyer will take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Acquisition in accordance with this Agreement as promptly as practicable.

 

6.7 Covenant not to Compete. For a period of three years from and after the Closing (the “Noncompetition Period”), the Seller shall not engage directly or indirectly in any business that is competitive with the current business of the Companies (the “Business”) in any geographic area in which the Business is conducted as of the Closing Date; provided, however, that no owner of less than 1% of the outstanding stock of any publicly-traded corporation shall be deemed to engage solely by reason thereof in any of its businesses. During the Noncompetition Period, the Seller shall not induce or attempt to induce any customer, or supplier of the Buyer or any affiliate of the Buyer to terminate its relationship with the Buyer or any Affiliate of the Buyer or to enter into any business relationship to provide or purchase the same or substantially the same services as are provided to or purchased from the Business which might harm the Buyer or any Affiliate of the Buyer. During the Noncompetition Period, the Seller shall not, on behalf of any entity other than the Buyer or an Affiliate of the Buyer, hire or retain, or attempt to hire or retain, in any capacity any Person who is, or was at any time during the preceding twelve (12) months, an employee or officer of the Buyer or an Affiliate of the Buyer. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 6.7 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. The restrictive covenants set forth in Sections 6.5 and 6.7 shall become null and void and of no further effect in the event that the Buyer defaults under the Buyer Notes after the receipt of written notice and the expiration of a thirty (30) day cure period.

 

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6.8 Financial Information. The Seller shall cooperate with the Buyer and the Buyer’s independent certified public accounting firm in order to enable the Buyer to create audited financial statements prepared in accordance with the GAAP for the two full fiscal years preceding the Closing Date, by making available the Seller’s records as they are maintained in the ordinary course of business and answering reasonable questions.

 

6.9 Transfer of Cash and Cash Equivalents. On or prior to the Closing, the Companies and Seller will transfer, or cause to be distributed all cash and cash equivalents of the Companies to, among other things, pay any fees owed by Companies to brokers or advisors (including termination fees under any advisory agreement) and any indebtedness for borrowed money.

 

6.10 Company Disclosure Schedule. The Parties acknowledge and agree that (i) the Seller and the Companies have not yet delivered a definitive Company Disclosure Schedule to this Agreement to the Buyer, and (ii) the Buyer has not been provided with copies of, nor had an opportunity to review, the items to be referred to on the Company Disclosure Schedule. The Seller shall deliver (and shall cause the Companies to deliver) to the Buyer all of the schedules, including a definitive Company Disclosure Schedule to the Agreement, and documents referred to thereon, in final form as soon as reasonably practicable after the date hereof.  The Buyer shall have 20 days following delivery of such Company Disclosure Schedule and such documents in which to terminate this Agreement if the Buyer objects to any information contained in such Company Disclosure Schedule or the contents of any such document and Buyer and Sellers cannot agree on mutually satisfactory modifications thereto or to this Agreement.

 

6.11 Piggyback Registration Rights. If the Buyer files a registration statement with the Commission covering the sale of shares of its Common Stock (other than a registration statement on Form S-4 or S-8, or on another form, or in another context, in which such “piggyback” registration would be inappropriate such as the Buyer’s initial public offering of its securities), then, for a period commencing on the date of this Agreement and terminating on the second (2nd) anniversary of the date hereof, the Buyer shall give written notice of such proposed filing to the Seller as soon as practicable but in no event less than ten (10) business days before the anticipated filing date, which notice shall describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and offer to the Seller in such notice the opportunity to register the sale of such number of shares common stock underlying the Buyer Notes (the “Underlying Shares”) as the Seller may request in writing within five (5) business days after receipt of such notice (a “Piggyback Registration”). The Buyer shall cause such Underlying Shares to be included in such registration and shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Underlying Shares requested to be included in a Piggyback Registration on the same terms and conditions as any similar securities of the Buyer and to permit the sale or other disposition of such Underlying Shares in accordance with the intended method(s) of distribution thereof. The Seller agrees that if the Seller proposes to include the Underlying Shares or any portion of them in Piggyback Registration that involves an underwriter or underwriters, the Seller shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggyback Registration. This provision shall expire once the Underlying Shares may be freely sold by the Seller under Rule 144 promulgated under the Securities Act without restriction as to the volume of Underlying Shares that may be sold.

 

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6.12 Tag Along Right. The Buyer shall not permit the Buyer’s Executive Chairman (Alfonso J. Cervantes) or its President (Darren Minton) (the “Tag Along Sellers”) to sell any shares of common stock, other capital stock or other securities of the Buyer held by them to a third party (other than to an Affiliate or family member) without the consent of the Seller unless the Seller is able to sell the Seller’s Underlying Shares to such third party on a pro rata basis. For purposes of this provision, “pro rata basis” means the number of total Underlying Shares then held by the Seller multiplied by a fraction where the numerator is the number of shares of Common Stock of the Buyer on a fully-diluted basis that is owned by the Tag Along Seller who is then selling securities and the denominator is the total number of shares of Common Stock of the Buyer that are outstanding on a fully-diluted basis. The Buyer shall treat as void any attempt by the Tag Along Sellers to make a transfer of securities of the Buyer in violation of this provision and shall not register any such transfer on the books and records of the Buyer. This provision shall expire immediately following the closing of the Buyer’s initial public offering of securities, including a public offering of securities under Regulation A of the Securities Act.

 

ARTICLE VII
CONDITIONS TO OBLIGATIONS TO CLOSE

 

7.1 Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate the Acquisition is subject to the satisfaction or waiver by the Buyer of the following conditions:

 

(a) The representations and warranties of the Seller set forth in this Agreement will be true and correct in all respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of another date, in which case such representations and warranties will be true and correct as of such other date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) does not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Buyer will have received a certificate signed by the Seller to such effect.

 

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(b) Each of the Seller and the Companies will have performed all of the covenants required to be performed by it under this Agreement at or prior to the Closing, except where the failure to perform does not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or materially adversely affect the ability of each of the Seller and the Companies to consummate the Acquisition or perform its other obligations hereunder. The Buyer will have received a certificate signed by the Seller to such effect.

 

(c) The Buyer shall have completed its business, accounting and legal due diligence review of the Companies and the Business, its assets and liabilities and the results thereof shall be reasonably satisfactory to the Buyer.

 

(d) There shall not have been any occurrence, event, incident, action, failure to act, or transaction since the date of the Financial Statements that has had or is reasonably likely to cause a Material Adverse Effect.

 

(e) All applicable waiting periods (and any extensions thereof) will have expired or otherwise been terminated, and the parties hereto will have received all other authorizations, consents and approvals of all Governmental Entities in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

(f) No temporary, preliminary or permanent restraining Order preventing the consummation of the Acquisition will be in effect.

 

(g) Each party, as appropriate, shall have obtained any required permits, licenses, approvals or notifications.

 

(h) The Seller shall have obtained releases of any liens, charges or encumbrances against any of the assets of the Companies, at the Seller’ expense.

 

(i) The Companies shall have delivered evidence reasonably satisfactory to the Buyer of the Companies’ limited liability company or limited partnership organization and proceedings and its existence in the jurisdiction in which it is organized, including evidence of such existence as of the Closing.

 

(j) The Buyer and Seller shall have entered into an employment agreement containing a one-year non-competition provision in form and substance mutually agreed upon by the Buyer and the Seller.

 

(k) The Plant Manager and Vice President of the Companies shall have entered into change of control agreements containing non-competition provisions that are in form and substance reasonably satisfactory to the Buyer.

 

(l) The Buyer shall have obtained on terms and conditions satisfactory to it all of the financing it needs in order to consummate the transactions contemplated hereby and fund the working capital requirements of the Companies after the Closing.

 

(m) All actions to be taken by the Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Buyer.

 

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7.2 Conditions to Obligation of the Seller. The obligation of the Seller to consummate the Acquisition is subject to the satisfaction or waiver by the Seller of the following conditions:

 

(a) The representations and warranties of the Buyer set forth in this Agreement will be true and correct in all respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of another date, in which case such representations and warranties will be true and correct as of such other date), except where the failure of such representations and warranties to be so true and correct does not adversely affect the ability of the Buyer to consummate the Acquisition and the other transactions contemplated by this Agreement. The Seller will have received a certificate signed on behalf of the Buyer by a duly authorized officer of the Buyer to such effect.

 

(b) The Buyer will have performed in all material respects all of the covenants required to be performed by it under this Agreement at or prior to the Closing except such failures to perform as do not materially adversely affect the ability of the Buyer to consummate the Acquisition and the other transactions contemplated by this Agreement. The Seller will have received a certificate signed on behalf of the Buyer by a duly authorized officer of the Buyer to such effect.

 

(c) All applicable waiting periods (and any extensions thereof) will have expired or otherwise been terminated and the parties hereto will have received all other required authorizations, consents and approvals of all Governmental Entities in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

(d) No temporary, preliminary or permanent restraining Order preventing the consummation of the Acquisition will be in effect.

 

(e) Each party, as appropriate, shall have obtained any required permits, licenses, approvals or notifications of any Governmental Entities, or other third parties for which the Buyer will assume responsibility for properly completing any and all necessary forms required when applying for and securing any necessary transfers.

 

(f) The Buyer and Seller shall have entered into an employment agreement containing a one-year non-competition provision in form and substance mutually agreed upon by the Buyer and the Seller.

 

(g) All actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Seller.

 

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ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER

 

8.1 Termination of Agreement. This Agreement may be terminated as follows:

 

(a) by mutual written consent of the Buyer and the Seller at any time prior to the Closing;

 

(b) by either the Buyer or the Seller if any Governmental Entity will have issued an Order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement;

 

(c) by either the Buyer or the Seller if the Closing does not occur on or before the date that that is ninety (90) days after the later of the date of delivery to the parties of the Quality of Earnings Report or the date that the Seller delivers to the Buyer the final Company Disclosure Schedule in accordance with Section 6.10 hereof; provided that the right to terminate this Agreement under this Section ARTICLE VIII(c) will not be available to any party whose breach of any provision of this Agreement results in the failure of the Closing to occur by such time;

 

(d) by the Buyer if either of the Seller or the Companies has breached their respective representations and warranties or any covenant or other agreement to be performed by it in a manner such that the Closing conditions set forth in Section 7.1(a) or 7.1(b) would not be satisfied; or

 

(e) by the Seller if the Buyer has breached its representations and warranties or any covenant or other agreement to be performed by it in a manner such that the Closing conditions set forth in Section 7.2(a) or 7.2(b) would not be satisfied.

 

8.2 Effect of Termination. In the event of termination of this Agreement by either Seller or the Buyer as provided in Section 8.1 , this Agreement will forthwith become void and have no effect, without any Liability (other than with respect to any suit for breach of this Agreement) on the part of the Buyer, the Companies or the Seller (or any stockholder, member, agent, consultant or Representative of any such party); provided, that the provisions of Sections 10.1, 10.6, 10.7, and this Section 8.2 will survive any termination hereof pursuant to Section 8.1.

 

8.3 Amendments. This Agreement may not be amended except by an instrument in writing signed on behalf of the Buyer, the Companies and the Seller.

 

8.4 Waiver. At any time prior to the Closing, the Buyer may (a) extend the time for the performance of any of the covenants, obligations or other acts of the Seller and the Companies or (b) waive any inaccuracy of any representations or warranties or compliance with any of the agreements, covenants or conditions of the Seller or any conditions to its own obligations. Any agreement on the part of the Buyer to any such extension or waiver will be valid only if such waiver is set forth in an instrument in writing signed on its behalf by its duly authorized officer. At any time prior to the Closing, the Seller and the Companies, may (a) extend the time for the performance of any of the covenants, obligations or other acts of the Buyer or (b) waive any inaccuracy of any representations or warranties or compliance with any of the agreements, covenants or conditions of the Buyer or any conditions to their own obligations. Any agreement on the part of the Seller and the Companies to any such extension or waiver will be valid only if such waiver is set forth in an instrument in writing signed by the Seller and the Companies. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise will not constitute a waiver of such rights. The waiver of any such right with respect to particular facts and other circumstances will not be deemed a waiver with respect to any other facts and circumstances, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time.

 

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ARTICLE IX
INDEMNIFICATION

 

9.1 Survival. The representations and warranties made herein and in any certificate delivered in connection herewith shall survive for a period of eighteen (18 ) months following the Closing Date, at which time they shall expire; provided, however, that the representations and warranties set forth in Sections  3.1 (Authority and Enforceability), 3.3 (The Securities), 3.4 (Brokers Fees), 4.1 (Organization, Qualification and Corporate Power; Authority and Enforceability), 4.3 (Capitalization), 4.6 (Taxes), 4.19 (Brokers Fees), 5.1 (Organization); 5.2 Authorization) and 5.4 (Broker Fees) of this Agreement (the “Fundamental Representations”) shall survive until the expiration of the applicable statute of limitations. If written notice of a claim has been given prior to the expiration of the applicable representations and warranties, then notwithstanding any statement herein to the contrary, the relevant representations and warranties shall survive as to such claim, until such claim is finally resolved. Unless a specified period is set forth in this Agreement (in which event such specified period will control), all agreements and covenants contained in this Agreement will survive the Closing and remain in effect indefinitely.

 

9.2 Indemnification by Seller. From and after the Closing, the Seller agree to indemnify, defend and save Buyer and its Affiliates, stockholders, officers, directors, employees, agents and representatives (each, a “Buyer Indemnified Party” and collectively, the “Buyer Indemnified Parties”) harmless from any and all losses, liabilities, damages, fines, and out-of-pocket costs and expenses (including reasonable attorneys’ fees) against or affecting such Person; provided, that “Losses” shall not include punitive damages, speculative damages or damages that are not the reasonably foreseeable consequence of the breach giving rise to such Losses except, in each case, to the extent such damages are required to be paid to a third party pursuant to a Third-Party Claim. (individually and collectively, the “Losses”) suffered, sustained or incurred by any Buyer Indemnified Party arising out of or otherwise by virtue of: (a) any breach of any of the representations or warranties of the Seller or the Companies contained in Article III or IV of this Agreement; or (b) the failure of Seller to perform any of their covenants or obligations contained in this Agreement

 

9.3 Indemnification by Buyer. From and after the Closing, the Buyer agrees to indemnify, defend and save the Seller and to the extent applicable, the Seller’ Affiliates, employees, agents and representatives (each, a “Seller Indemnified Party” and collectively the “Seller Indemnified Parties”) harmless from and against any and all Losses sustained or incurred by any Seller Indemnified Party arising out of or otherwise by virtue of: (a) any breach of any of the representations and warranties of Buyer contained in Article V of this Agreement or (b) the failure of Buyer to perform any of its covenants or obligations contained in this Agreement.

 

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9.4 Indemnification Procedure.

 

(a) If a Buyer Indemnified Party or a Seller Indemnified Party seeks indemnification under this Article IX, such party (the “Indemnified Party”) shall give written notice to the other party (the “Indemnifying Party”) of the facts and circumstances giving rise to the claim. In that regard, if any Action, Liability or obligation shall be brought or asserted by any third party which, if adversely determined, would entitle the Indemnified Party to indemnity pursuant to this Article IX (a “Third-Party Claim”), the Indemnified Party shall promptly notify the Indemnifying Party of such Third-Party Claim in writing, specifying the basis of such claim and the facts pertaining thereto, and the Indemnifying Party, if the Indemnifying Party so elects, shall assume and control the defense thereof (and shall consult with the Indemnified Party with respect thereto), including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all necessary expenses. If the Indemnifying Party elects to assume control of the defense of a Third-Party Claim, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnified Party unless the Indemnifying Party has failed to assume the defense and employ counsel; in which case the fees and expenses of the Indemnified Party’s counsel shall be paid by the Indemnifying Party. All claims other than Third-Party Claims (a “Direct Claim”) may be asserted by the Indemnified Party giving notice to the Indemnifying Party. Absent an emergency or other extenuating circumstance, the Indemnified Party shall give written notice to the Indemnifying Party of such Direct Claim prior to taking any material actions to remedy such Direct Claim.

 

(b) In no event shall the Indemnified Party pay or enter into any settlement of any claim or consent to any judgment with respect to any Third-Party Claim without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

 

9.5 Failure to Give Timely Notice. A failure by an Indemnified Party to provide notice as provided in Section 9.4 will not affect the rights or obligations of any Person except and only to the extent that, as a result of such failure, any Person entitled to receive such notice was damaged as a result of such failure to give timely notice. Nothing contained in this Section 9.4 shall be deemed to extend the period for which Seller’s representations and warranties will survive Closing as set forth in Section 9.1 above.

 

9.6 Limited on Indemnification Obligation. Notwithstanding anything in this Agreement to the contrary, the liability of the Seller to the Buyer Indemnified Parties with respect to claims for indemnification pursuant to Section 9.2(a) (but not with respect to the Fundamental Representations for which recovery shall not be so limited) is subject to the following limitations:

 

(a) The Seller shall not, in the aggregate, be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) (other than with respect to Fundamental Representations for which recovery shall be limited to the amount of the Purchase Price actually received by the Seller in cash or from the receipt of payments under the Buyer Notes) to the extent that the amounts otherwise indemnifiable for such breaches exceeds an aggregate maximum equal twenty –five percent (25%) of the Purchase Price. actually received by the Seller in cash or from the receipt of payments under the Buyer Notes.

 

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(b) The Seller shall not be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) (other than with respect to Fundamental Representations) until and unless the aggregate amounts indemnifiable for such breaches exceeds $150,000. (the “Deductible”). In the event the Buyer Indemnified Parties’ claim for Losses, in the aggregate, exceed the Deductible, the Buyer Indemnified Parties shall only be entitled to recover those Losses in excess of the Deductible.

 

(c) Neither Party shall be liable to the other Party for Losses arising under Section 9.2 or 9.3, as applicable, unless the claim therefor is asserted in writing on or prior to the expiration of the applicable representations and warranties.

 

9.7 Payments. Payments of all amounts owing by an Indemnifying Party under this Article IX shall be made promptly upon the determination in accordance with this Article IX that an indemnification obligation is owing by the Indemnifying Party to the Indemnified Party.

 

9.8 Recoupment under Buyer Notes.

 

(a) If the Seller is obligated to indemnify the Buyer or any other Buyer Indemnified Party for any indemnification claim in accordance with this Article IX, Buyer shall have the right to set-off the amount of such claim against its obligations against the Buyer Notes.

 

(b) If the Buyer intends to set-off any amount hereunder, the Buyer shall provide not less than thirty (30) days’ prior written notice to the Seller of its intention to do so, together with a reasonably detailed explanation of the basis therefor (a “Set-Off Notice”). If, within twenty (20) days of its receipt of a Set-Off Notice, the Seller provides the Buyer with written notice of Seller’ dispute with Buyer’s right to make such set-off, Buyer and Seller (and their respective representatives and advisors) shall meet (which may be accomplished telephonically) in good faith within ten (10) days to attempt to resolve their dispute. If such dispute remains unresolved despite Buyer’s good faith attempt to meet with the Seller and resolve such dispute, Buyer may set-off under this Section 9.8 only (a) with respect to those indemnification claims that have been Finally Determined (as defined below), (b) as described in the first sentence of Section 9.8(c) or with the prior written consent of the Seller.

 

(c) In the event of a dispute with respect to any indemnification claim against Seller made in good faith pursuant to this Article IX, and the liability for and amount of Losses therefore, Buyer may place any payments due to the Seller under the Buyer Notes in escrow to be held in its attorney’s escrow account, up to the disputed amount until the matter is resolved.

 

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ARTICLE X
MISCELLANEOUS

 

10.1 Press Releases and Public Announcement. Neither the Buyer on the one hand, nor the Seller or the Companies on the other, will issue any press release or make any public announcement relating to this Agreement, the Acquisition or the other transactions contemplated by this Agreement without the prior written approval of the other party; provided, however, that the Buyer may make regulatory filings referring to this Agreement or attaching a copy hereof as may be required by applicable law.

 

10.2 No Third-Party Beneficiaries. This Agreement will not confer any rights or remedies upon any Person other than the parties hereto and their respective successors and permitted assigns.

 

10.3 Entire Agreement. This Agreement (including the Exhibits and the Schedules hereto) constitutes the entire agreement among the parties hereto and supersedes any prior understandings, agreements or representations by or among the parties hereto, written or oral, to the extent they related in any way to the subject matter hereof.

 

10.4 Succession and Assignment. This Agreement will be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party hereto may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval, in the case of assignment by the Buyer, by the Seller, and, in the case of assignment by the Seller or the Companies, the Buyer.

 

10.5 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement, and, in the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

 

10.6 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission or mailed (by registered or certified mail, postage prepaid, return receipt requested) or delivered by reputable overnight courier, fee prepaid, to the parties hereto at the addresses of the parties as specified below:

 

If to the Buyer: BONNE SANTÉ GROUP, INC
  ______________________
  ______________________
  Attention: Alfonso J. Cervantes
  Email:
   
with a copy to: BEVILACQUA PLLC
  1050 Connecticut Avenue, NW
  Suite 500
  Washington, D.C. 200036
  Attn: Louis A. Bevilacqua
  Email:
  Fax:

 

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If to the Seller  
Or to the Companies: Doctors Scientific Organica L.L.C.
  ______________________
  ______________________
  Attention:
  Email:
   
with a copy to: Weiss Serota Helfman Cole & Bierman, P. L.
  Attn: Marc Solomon
  1200 North Federal Highway
  Suite # 312
  Boca Raton, Florida 33432
  Email:

 

Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties notice in the manner set forth herein.

 

10.7 Governing Law; Mediation; Arbitration.

 

(a) This Agreement shall be governed by and construed under the laws of the State of Florida without regard to the choice of law principles thereof.

 

(b) The Parties agree to attempt to resolve any dispute, claim or controversy arising out of or relating to this Agreement by mediation, which shall be conducted under the then current mediation procedures of JAMS or any other procedure upon which the Parties may agree. The Parties further agree that their respective good faith participation in mediation is a condition precedent to pursuing any other available legal or equitable remedy, including litigation, arbitration or other dispute resolution procedures. Either party may commence the mediation process by providing to the other party written notice, setting forth the subject of the dispute, claim or controversy and the relief requested. Within ten (10) days after the receipt of the foregoing notice, the other party shall deliver a written response to the initiating party’s notice. The initial mediation session shall be held within thirty (30) days after the initial notice. The Parties agree to share equally the costs and expenses of the mediation (which shall not include the expenses incurred by each party for its own legal representation in connection with the mediation). The Parties further acknowledge and agree that mediation proceedings are settlement negotiations, and that, to the extent allowed by applicable law, all offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties or their agents shall be confidential and inadmissible in any arbitration or other legal proceeding involving the parties; provided, however, that evidence which is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. The provisions of this section may be enforced by any court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including reasonable attorneys’ fees, to be paid by the party against whom enforcement is ordered.

 

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(c) All disputes, controversies or claims between the Parties hereto arising out of or in connection with this Agreement (including its existence, validity or termination) that cannot be amicably resolved or resolved through mediation shall be finally resolved and settled by arbitration administered by the JAMS in accordance with its commercial arbitration rules. The arbitration tribunal shall be composed of one (1) arbitrator. The arbitration will take place in Miami, Florida, and shall be conducted in the English language. The arbitration award shall be final and binding on the parties, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each party hereto irrevocably submits to the exclusive jurisdiction of the federal and state courts located in the Miami, Florida for such purpose and for the purpose of exercising any equitable remedies available to the Parties hereunder, and each party hereby waives any objection such person may have based on improper venue or inconvenient forum in connection with any such action or proceeding in any such court.

 

10.8 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Agreement.

 

10.9 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms of such illegal, invalid or unenforceable provision as may be possible.

 

10.10 Expenses. Except as otherwise provided in this Agreement, whether or not the Acquisition is consummated, all expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such expenses. As used in this Agreement, “expenses” means the out-of-pocket fees and expenses of the financial advisor, counsel and accountants incurred in connection with this Agreement and the transactions contemplated hereby.

 

10.11 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

 

10.12 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties will be entitled to specific performance of the terms hereof in addition to any other remedy at Law or equity.

 

10.13 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

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

 

  BUYER:
     
  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Executive Chairman
     
  COMPANIES:
     
  DOCTORS SCIENTIFIC ORGANICA L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: CEO
     
  OYSTER MANAGEMENT SERVICES LTD
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: CEO
     
  LAWEE ENTERPRISES L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: CEO
     
  U.S. MEDICAL CARE HOLDINGS, L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: CEO
     
  SELLER:
     
  DR. SASSON E. MOULAVI
     
  /s/ Sasson E. Moulav

 

 

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Exhibit 10.16

 

FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT

 

This First Amendment dated July 7, 2020 shall form a part of that certain Securities Purchase Agreement dated February 11, 2020 (the “Agreement”) by and between BONNE SANTE GROUP, INC., a Delaware corporation (the “Buyer”), DOCTORS SCIENTIFIC ORGANICA L.L.C., a Florida limited liability company (“DSO”), OYSTER MANAGEMENT SERVICES LTD, a Florida limited partnership (“Oyster”), LAWEE ENTERPRISES L.L.C., a Florida limited liability company (“Lawee”), and U.S. MEDICAL CARE HOLDINGS, L.L.C., a Florida limited liability company (“US Medical” and, together with DSO, Oyster, and Lawee, the “Companies”), and Dr. Sasson E. Moulavi, an individual (“Seller”).

 

To the extent that the terms of this First Amendment conflict with those contained in the Agreement, the terms of this First Amendment shall control.

 

The Seller, the Companies, and the Buyer hereby agree to amend the Agreement to provide as follows:

 

I. The Defined and Capitalized Terms in this First Amendment shall have the same meaning as ascribed to them in the Agreement, except as otherwise provided herein.

 

2. Section 1.1 of the Agreement (“Certain Definitions” - “Adjusted EBIDTA”), shall be amended to read as follows:

 

“Adjusted EBITDA” means, on a combined basis, the Companies’ earnings before (i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense, (iv) equity based compensation expense, (v) owner’s compensation of $120,000, (vi) non-essential travel and entertainment, (vii) extraordinary one-time items, which may include personal cars and related expenses, monies paid to Epiderma, LLC, a non-affiliated laser Companies which has no operations, merchandise which was shipped to Seller’s medical clinic at no charge and adjusted in the cost of goods on the income statement as allowances, Hurricane Irma related expenses and Canadian tariff’s paid for shipments to Costco, which are no longer in effect, and (viii) such other adjustment items as mutually agreed upon by the Buyer and the Seller for the twelve (12) month period from April 1, 2019 through March 31, 2020”

 

3. Section 2.2(a)(i) of the Agreement (“Adjusted EBITDA Adjustment”) shall be amended to read as follows:

 

“Adjusted EBITDA Period

 

The Purchase Price is based upon a six times multiple of estimated Adjusted EBITDA for the twelve (12) month period from April 1, 2019 through March 31, 2020 (“Adjusted EBITDA Period”). The Buyer has engaged Eisner Amper to prepare a quality of earnings report on the Companies (the “Quality of Earnings Report”). The Purchase Price shall be adjusted upwards or downwards upon delivery of the Quality of Earnings Report to all parties based upon the difference between six times the Adjusted EBITDA for the Adjusted EBITDA Period, as shown in the Quality of Earnings Report and the Purchase Price. The adjusted Purchase Price shall be allocated among the Cash Portion and the Buyer Notes based on the percentage of the Purchase Price that each such component of consideration makes up as described above in Section 2.1.” First Amendment to

 

First Amendment to

Securities Purchase Agreement

 

 

 

4. Section 4.5 of the Agreement (“Financial Statements”) shall be amended to read as follows:

 

“Section 4.5 of the Company Disclosure Schedule contains true and complete copies of (i) the unaudited, combined balance sheet of the Companies for the two years ended December 31, 2019 and December 31, 2018 and the interim period from January 1, 2020 through March 31, 2020; and (ii) the related unaudited statements of income, members’ or partners’ equity and cash flows for the two years ended December 31, 2019 and December 31, 20 I 8 and the interim period from January 1, 2020 through March 31, 2020 (the “Financial Statements”). The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and, on that basis, fairly present, in all material respects, the financial condition, results of operations and cash flows of the Companies as of the indicated dates and for the indicated periods.”

 

5. Section 8.1 (c) (under the Section 8 heading “Termination of Agreement”) shall be amended to read as follows:

 

“by either the Buyer or the Seller if the Closing does not occur on or before July 31, 2020. The right to terminate the Agreement under this Section 8.1(c) may be extended by the Buyer until August 31, 2020 in the event that: (i) the Buyer has received a written loan commitment from its lender prior to July 31, 2020; and (ii) the Buyer’s lender is unable to close the Buyer’s loan by July 31, 2020 but expects to be able to close the Buyer’s loan on or before August 31, 2020. The right to terminate this Agreement under this Section 8.l(c) will not be available to any party whose breach of any provision of this Agreement results in the failure of the Closing to occur by such time.”

 

6. All other terms and conditions contained within the Securities Purchase Agreement shall remain in full force and effect.

 

[SIGNATURES ON FOLLOWING PAGES]

 

First Amendment to

Securities Purchase Agreement

2

 

 

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

 

  BUYER:
     
  BONNE SANTÉ GROUP, INC.,
  a Delaware corporation
     
  By: /s/ Alfonso J. Cervantes
  Alfonso J. Cervantes, Executive Chairman
     
  COMPANIES:
     
  DOCTORS SCIENTIFIC ORGANICA L.L.C.,
  a Florida limited liability company
     
  By: /s/ Sasson E. Moulav
  Dr. Sasson E. Moulavi, CEO
     
  OYSTER MANAGEMENT SERVICES LTD,
  a Florida limited partnership
     
  By: /s/ Sasson E. Moulav
  Dr. Sasson E. Moulavi, CEO
     
  LAWEE ENTERPRISES L.L.C.,
  a Florida limited liability company
     
  By: /s/ Sasson E. Moulav
  Dr. Sasson E. Moulavi, CEO
     
  U.S. MEDICAL CARE HOLDINGS, L.L.C.,
  a Florida limited liability company
     
  By: /s/ Sasson E. Moulav
  Dr. Sasson E. Moulavi, CEO
     
  SELLER:
     
  /s/ Sasson E. Moulav
  Dr. Sasson E. Moulavi, Individually

 

First Amendment to

Securities Purchase Agreement

3

 

 

Exhibit 10.17

 

SECOND AMENDMENT TO SECURITIES PURCHASE AGREEMENT

 

This Second Amendment, dated June 4, 2021(the “Second Amendment”), shall form a part of that certain Securities Purchase Agreement, dated February 11, 2020 (the “Purchase Agreement”), as amended by that certain First Amendment to Securities Purchase Agreement, dated July 7, 2020 (the “First Amendment” and together with the Purchase Agreement, the “Agreement”), among Bonne Santé Group, Inc., a Delaware corporation (the “Buyer”), Doctors Scientific Organica L.L.C., a Florida limited liability company (“DSO”), Oyster Management Services Ltd, a Florida limited partnership (“Oyster”), Lawee Enterprises L.L.C., a Florida limited liability company (“Lawee”), and U.S. Medical Care Holdings, L.L.C., a Florida limited liability company (“US Medical” and, together with DSO, Oyster and Lawee, the “Companies”), and Dr. Sasson E. Moulavi, an individual (“Seller”). The Buyer, the Companies and the Seller may each be referred to herein individually as a “Party” or together as the “Parties.”

 

To the extent that the term of this Second Amendment conflict with these contained in the Agreement, the terms of this Second Amendment shall control. Capitalized terms not defined herein shall have the meanings assigned to them on the Purchase Agreement.

 

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations and warranties, covenants and agreements contained herein, the Parties agree as follows:

 

1. The definition of “Adjusted EBITDA” in Section 1.1 of the Agreement shall be deleted in its entirety.

 

2. The definition of “Closing Working Capital” in Section 1.1 of the Agreement shall be amended to read as follows:

 

““Closing Working Capital” means the difference, as of the Closing Date, between (a) the sum of Required Cash on Hand, accounts receivable, inventory, capitalized work in process, prepaid expenses and other current assets of the Companies, which shall be reflected on the Closing Date Balance Sheet, less (b) the accounts payable, customer deposits, sales taxes payable, and the current liabilities of the Companies as reflected on the Closing Date Balance Sheet, in each case, determined in accordance with GAAP.”

 

3. The definition of “Minimum Working Capital” in Section 1.1 of the Agreement shall be amended to read as follows:

 

““Minimum Working Capital Requirement” means the average monthly working capital for the twelve-month period ended April 30, 2021, which shall include the Required Cash on Hand, but shall not include the McKesson Claim as a part of the Accounts Payable.

 

 

 

 

4. The definition of “Preliminary Working Capital” in Section 1.1 of the Agreement shall be amended to read as follows:

 

“Preliminary Working Capital means the difference, as of the Closing Date, between (a) the sum of Required Cash on Hand, accounts receivable, inventory, capitalized work in process, prepaid expenses and other current assets of the Companies, which shall be reflected on the Closing Date Balance Sheet, less (b) the accounts payable, customer deposits, sales taxes payable, and the current liabilities of the Companies as reflected on the Preliminary Balance Sheet, in each case, determined in accordance with GAAP.”

 

5. Section 1.1 of the Agreement shall be amended for the addition of the following definitions:

 

“Escrow Agreement” means that certain escrow agreement, dated as of the Closing Date, among DSO, the Seller, the Buyer and the Escrow Agent, in a form to be agreed among the Parties thereto.

 

“McKesson Claim” means $103,873 relating to a claim by McKesson Specialty Care Distribution Corp.

 

“PPP Loan” means that certain loan under the Paycheck Protection Program between US Century Bank and DSO, in the original principal amount of $356,438.72.

 

“Required Cash On Hand” means $430,000 in Cash to remain in bank accounts maintained by the Companies at the time of Closing.

 

6. Section 2.1 of the Agreement shall be amended to read as follows:

 

“Purchase and Sale of the Securities. Upon the terms and subject to the conditions set forth in this Agreement, the Buyer agrees to pay to the Seller for the Securities in the aggregate at the Closing Twelve Million Dollars ($12,000,000) (the “Purchase Price”), subject to adjustment as described in Section 2.2 below, by delivery of (i) cash in the amount of Six Million Dollars ($6,000,000) (the “Cash Portion”) payable by wire transfer or delivery of other immediately available funds to one or more accounts at banks identified by Seller to Buyer in writing at least two (2) business days prior to the Closing Date, (ii) a convertible promissory note (“Buyer Note I”) in a form to be mutually agreed to between the Buyer and the Seller in the aggregate principal amount of Three Million Dollars ($3,000,000), and (iii) a non-convertible promissory note (“Buyer Note II,” and together with Buyer Note I the “Buyer Notes”) in the form to be mutually agreed to in the aggregate principal amount of Three Million Dollars ($3,000,000). The Buyer Notes will each bear interest at the rate of 6% per annum and will be amortized on a 60-month straight line basis with a balloon payment on the 36th month. The Buyer Notes will be subordinated to the senior indebtedness of the Buyer and the Companies and will have a subordinated security interest (after the senior secured indebtedness) covering all of the assets of the Companies.”

 

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7. Section 2.2(a) of the Agreement shall be deleted in its entirety and replaced with:

 

“[RESERVED]”.

 

8. Section 2.2(c) of the Agreement shall be amended to read as follows:

 

“In the event the Seller does not agree with the Closing Date Balance Sheet, the Seller shall so inform the Buyer in writing within 20 days of the Seller’s receipt thereof, such writing to set forth the objections of the Seller in reasonable detail. If the Seller and the Buyer cannot reach agreement as to any disputed matter regarding differences between the Preliminary Balance Sheet and the Closing Date Balance Sheet or as to the calculation of working capital as shown thereon within 15 days after notification by the Seller to the Buyer of a dispute, they shall forthwith refer the dispute to an Independent Accounting Firm mutually agreeable to the Seller and the Buyer for resolution, with the understanding that such firm shall resolve all disputed items within 20 days after such disputed items are referred to it. If the Buyer and the Seller are unable to agree on the choice of an Independent Accounting Firm, they shall select an Independent Accounting Firm by lot from up to three firms proposed by each of the Seller and Buyer (after excluding their respective regular outside accounting firms). Each of the Seller and the Buyer shall bear one-half of the costs of such accounting firm. The decision of the accounting firm with respect to all disputed matters relating to the Preliminary Balance Sheet and the Closing Date Balance Sheet or as to the calculation of working capital as shown thereon shall be deemed final and conclusive and shall be binding upon the Seller and the Buyer. In addition, if the Seller does not object to within the 20-day period referred to above, the Closing Date Balance Sheet shall be deemed final and conclusive and binding upon the Seller and the Buyer.”

 

9. Section 2.2(d) of the Agreement shall be amended to read as follows:

 

“Adjustment for Outstanding Indebtedness. The Cash Portion shall be decreased by the amount of any outstanding indebtedness of the Companies for borrowed money existing as of the Closing Date and the deducted amount shall be utilized to pay off such outstanding indebtedness except as set forth in Section 2.4 (c) below.”

 

10. Section 2.4(c) is hereby added to the Agreement and shall read as follows:

 

“(c) At the Closing, the Cash Portion shall be decreased by an amount equal to the outstanding balance of the PPP Loan as of the Closing Date (the “Escrow Amount”), which will be delivered to US Century Bank (the “Escrow Agent”) for deposit into an escrow account (the “Escrow Account”) to be established pursuant to the terms of the Escrow Agreement.”

 

11. Section 4.5 of the Agreement shall be amended to read as follows:

 

“Financial Statements. Section 4.5 of the Company Disclosure Schedule contains true and complete copies of (i) the unaudited, combined balance sheet of the Companies for the two years ended December 31, 2020 and December 31, 2019 and the interim period from January 1, 2021 through March 31, 2021; and (ii) the related unaudited statements of income, members’ or partners’ equity and cash flows for the two years ended December 31, 2020 and December 31, 2019 and the interim period from January 1, 2021 through March 31, 2021 (the “Financial Statements”). The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and, on that basis, fairly present, in all material respects, the financial condition, results of operations and cash flows of the Companies as of the indicated dates and for the indicated periods.”

 

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12. Section 4.22 of the Agreement shall be amended to read as follows:

 

“Customers and Suppliers. Section 4.22 of the Company Disclosure Schedule sets forth a correct and complete list of the top 20 customers and top 20 suppliers of the Companies during the fiscal year ended December 31, 2020 and indicates with respect to each the name, address and dollar volume of business with the Companies (including the primary categories, based on purchases or sales, of products or services bought or sold). The Companies are not required to provide any material bonding or other financial security arrangements in connection with their transactions with any customer or supplier required to be disclosed on Section 4.22 of the Company Disclosure Schedule except as set forth therein. Since the date of the Financial Statements, no customer or supplier required to be disclosed on Section 4.22 of the Company Disclosure Schedule has terminated its relationship with, or materially reduced its purchases from or sales to, the Companies.”

 

13. Section 6.9 of the Agreement shall be amended to read as follows:

 

“Transfer of Cash and Cash Equivalents. On or prior to the Closing, the Companies and Seller will transfer, or cause to be distributed all cash and cash equivalents of the Companies to pay any fees owed by Companies to brokers or advisors (including termination fees under any advisory agreement), any indebtedness for borrowed money and for such other purposes as determined by the Companies and Seller; provided, however, that the Companies shall have an amount in cash in its corporate bank account and on hand at the Closing, which shall remain with the Companies, that is equal to a minimum of $430,000 in the aggregate.”

 

14. Section 6.13 is hereby added to the Agreement and shall read as follows:

 

“PPP Loan.  The Company has applied for forgiveness of the PPP Loan in accordance with U.S. Small Business Administration (“SBA”) Procedural Notice # 5000-20057. At the Closing, the Parties are delivering from the Cash Portion the Escrow Amount to Escrow Agent to be held by Escrow Agent in accordance with the terms of this Section 6.13 and the Escrow Agreement. Within five (5) days following the Closing Date, the Parties shall cooperate to cause the Companies to furnish the following information to Escrow Agent and the U.S. Small Business Administration: (i) the identity of Buyer; (ii) the ownership percentage(s) of Buyer; (iii) the Tax ID/ EIN for any owner holding 20% or more of the Companies; and (iv) a copy or summary of terms of the Escrow Agreement. The Escrow Agent shall deliver from the Escrow Amount to the Seller any outstanding balance under the PPP Loan that is forgiven by the SBA, and any remaining PPP Loan amounts that are not forgiven by the SBA shall be paid to the SBA from the Escrow Amount in reduction of the PPP Loan.”

 

15. Section 8.1(c) of the Agreement shall be amended to read as follows:

 

“by either the Buyer or the Seller if the Closing does not occur on or before the date that that is forty-five (45) days after the date of this Agreement. The right to terminate this Agreement under this Section 8.1(c) will not be available to any party whose breach of any provision of this Agreement results in the failure of the Closing to occur by such time;”

 

16. All other terms and conditioned contained within the Agreement shall remain in full force and effect.

 

17. Counterparts. This Second Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Second Amendment to be duly executed as of the date first above written.

 

  BUYER:
     
  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
     
  COMPANIES:
     
  DOCTORS SCIENTIFIC ORGANICA L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: CEO
     
  OYSTER MANAGEMENT SERVICES LTD
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: CEO
     
  LAWEE ENTERPRISES L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title:  CEO
     
  U.S. MEDICAL CARE HOLDINGS, L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: CEO
     
  SELLER:
     
  DR. SASSON E. MOULAVI
     
  /s/ Sasson E. Moulav

 

 

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Exhibit 10.18

 

THIRD AMENDMENT TO SECURITIES PURCHASE AGREEMENT

 

This Third Amendment, dated July 1, 2021 (the “Third Amendment”), shall form a part of that certain Securities Purchase Agreement, dated February 11, 2020 (the “Purchase Agreement”), as amended by that certain First Amendment to Securities Purchase Agreement, dated July 7, 2020 (the “First Amendment”), and that certain Second Amendment to Securities Purchase Agreement, dated June 4, 2021(the “Second Amendment” and collectively with the First Amendment and the Purchase Agreement, the “Agreement”), among Bonne Santé Group, Inc., a Delaware corporation (the “Buyer”), Doctors Scientific Organica L.L.C., a Florida limited liability company (“DSO”), Oyster Management Services Ltd, a Florida limited partnership (“Oyster”), Lawee Enterprises L.L.C., a Florida limited liability company (“Lawee”), and U.S. Medical Care Holdings, L.L.C., a Florida limited liability company (“US Medical” and, together with DSO, Oyster and Lawee, the “Companies”), and Dr. Sasson E. Moulavi, an individual (“Seller”). The Buyer, the Companies and the Seller may each be referred to herein individually as a “Party” or together as the “Parties.”

 

To the extent that the term of this Third Amendment conflict with these contained in the Agreement, the terms of this Third Amendment shall control. Capitalized terms not defined herein shall have the meanings assigned to them on the Purchase Agreement.

 

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations and warranties, covenants and agreements contained herein, the Parties agree as follows:

 

1. Section 1.1 of the Purchase Agreement shall be amended to include the following definition:

 

“Adjustment Payment Date” means the earlier of (a) six months following the Closing or (b) two (2) days after the closing date of the Buyer’s proposed initial public offering.

 

2. The definition of “Minimum Working Capital” in Section 1.1 of the Agreement shall be amended to read as follows:

 

““Minimum Working Capital Requirement” means the average monthly working capital for the twelve-month period ended April 30, 2021, which shall not include the McKesson Claim as a part of the Accounts Payable.”

 

3. Section 2.2(b)(iii) of the Agreement shall be amended to read as follows:

 

“If the Closing Working Capital exceeds the Minimum Working Capital, then the Buyer shall pay to the Seller an amount in cash that is equal to the deficiency on or before the Adjustment Payment Date. If the Minimum Working Capital exceeds the Closing Working Capital, then the Seller shall pay to the Buyer an amount in cash that is equal to the deficiency on or before the Adjustment Payment Date.”

 

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4. All other terms and conditioned contained within the Agreement shall remain in full force and effect.

 

5. Counterparts. This Third Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Third Amendment to be duly executed as of the date first above written.

 

  BUYER:
   
  BONNE SANTÉ GROUP, INC.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Executive Chairman
     
  COMPANIES:
   
  DOCTORS SCIENTIFIC ORGANICA L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: Manager
     
  OYSTER MANAGEMENT SERVICES LTD
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: Manager
     
  LAWEE ENTERPRISES L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: Manager
     
  U.S. MEDICAL CARE HOLDINGS, L.L.C.
     
  By: /s/ Sasson E. Moulav
  Name: Dr. Sasson E. Moulavi
  Title: Manager
     
  SELLER:
   
  DR. SASSON E. MOULAVI
   
  /s/ Sasson E. Moulav

 

 

 

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Exhibit 10.19

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

Bonne Santé Group, Inc.

 

6% SECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE

 

$3,000,000 July 1, 2021

 

For value received Bonne Santé Group, Inc., a Delaware corporation (the “Company”), promises to pay to Dr. Sasson E. Moulavi, an individual (“Holder”) the principal sum of Three Million Dollars ($3,000,000) (the “Principal”) together with accrued and unpaid interest thereon, each due and payable on the date and in the manner set forth below.

 

This secured subordinated convertible promissory note (the “Note”) is issued pursuant to the terms of that certain Securities Purchase Agreement, dated as of February 11, 2020, as amended by the First Amendment to the Securities Purchase Agreement, dated July 13, 2020, the Second Amendment to Securities Purchase Agreement, dated June 4, 2021 and the Third Amendment to the Securities Purchase Agreement, dated June 30, 2021 (as so amended, the “Purchase Agreement”), among the Company, Doctors Scientific Organica L.L.C., Oyster Management Services Ltd., Lawee Enterprises L.L.C., U.S. Medical Care Holdings, L.L.C., and the Holder. Capitalized terms used herein without definition shall have the meanings given to such terms in the Purchase Agreement.

 

The following is a statement of the rights of the Holder of this Note and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment. The Principal along with any accrued, but unpaid interest shall be paid in one lump sum on the third anniversary date of this Note ( the “Maturity Date”) subject to the terms of Section 3 below.

 

2. Interest. Interest (the “Interest”) shall accrue on the unpaid Principal from the date hereof until such Principal is repaid in full at the rate of six percent (6%) per annum. The Principal along with any accrued, but unpaid Interest shall be paid in one lump sum on the Maturity Date, subject to the terms of Section 3 below.

 

 

 

 

3. Conversion; Repayment Premium Upon Sale of the Company.

 

(a) In the event that the Company issues and sells shares of its common stock to investors (the “Investors”) on or before the Maturity Date or earlier acceleration of this Note in an initial public offering under the Securities Act of 1933, as amended (the “Securities Act”), including an initial public offering under Regulation A of the Securities Act and concurrent listing on a national securities exchange (an “Initial Public Offering”), then, the outstanding Principal of this Note shall be automatically converted in whole into such common stock at a conversion price equal to the price per share paid by any Investor in the Initial Public Offering, and otherwise on the same terms and conditions as given to the Investors (the “Conversion Shares”). Upon such automatic conversion, any unpaid accrued interest on this Note shall be converted into common stock on the same terms as the Principal of the Note.

 

(b) To the extent the Company does not maintain an effective registration statement for the Underlying Shares, if the Company proposes to register any of the Common Stock (other than pursuant to a Registration on Form S-4 or S-8 or any successor form), then, for a period commencing on the date of the Purchase Agreement and terminating on the 2nd anniversary thereof, it will give written notice to the Holder of its intention to effect such registration (the “Incidental Registration”), as soon as practicable but in no event less than ten (10) business days before the anticipated filing date. Within five (5) business days of receiving such written notice of an Incidental Registration, the Holder may make a written request (the “Piggy-Back Request”) that the Company include in the proposed Incidental Registration all, or a portion, of the Underlying Shares reserved for the Holder, in connection with a conversion of this Note. In addition, the Company shall cause such Underlying Shares to be included in such Incidental Registration and shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit such Underlying Shares which the Company has been requested to register pursuant to any timely Piggy-Back Request to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Underlying Shares so to be registered. Additionally, Borrower shall include on the next registration statement Borrower files with SEC (or on the subsequent registration statement if such registration statement is withdrawn) the Underlying Shares This provision shall expire once the Conversion Shares may be freely sold by the Holder under Rule 144 promulgated under the Securities Act, without restriction as to the volume of Conversion Shares that may be sold.

 

(c) In the event that (i) an Initial Public Offering is not consummated prior to the Maturity Date, or: (ii), there is a sale of all or substantially all of the Company’s assets before the Maturity Date, then, at the election of the Holder made at least five days prior to the Maturity Date, effective upon the Maturity Date, the outstanding Principal and any unpaid accrued interest under this Note shall be due and payable.

 

(d) If, after aggregation, the conversion of this Note would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the price per share paid by Investors in the Initial Public Offering for one share of common stock by such fraction.

 

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4. Events of Default. In the event that any of the following (each, an “Event of Default”) shall occur:

 

(a) Non-Payment. The Company shall default in the payment of the Principal of, or accrued Interest on, this Note as and when the same shall become due and payable, whether by acceleration or otherwise; or

 

(b) Default in Covenants. The Company shall default in any material manner in the observance or performance of any covenants or agreements set forth in the Purchase Agreement; or

 

(c) Breach of Representations and Warranties. The Company materially breaches any representation or warranty contained in the Purchase Agreement; or

 

(d) Illegality of Note. Any court of competent jurisdiction issues an order declaring the Note or any provision thereunder to be illegal; or

 

(e) Cross Default. There occurs with respect to any Senior Indebtedness: (i) a default with respect to any payment obligation thereunder that then entitles the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity, or (ii) any other default thereunder that entitles, and has caused, the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity; or

 

(f) Bankruptcy. The Company shall: (i) admit in writing its inability to pay its debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property; or (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; then, and so long as such Event of Default is continuing for a period of two (2) business days in the case of non-payment under Section 4(a) or for a period of thirty (30) calendar days in the case of events under Sections 4(b) through 4(d) or for a period of five (5) calendar days in the case of an event under Section 4(e) (and the event which would constitute such Event of Default, if curable, has not been cured), by written notice to the Company from the Holder, all obligations of the Company under this Note shall be immediately due and payable without presentment, demand, protest or any other action nor obligation of the Holder of any kind, all of which are hereby expressly waived, and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If an Event of Default specified in Section 4(f) above occurs, the principal of, and accrued interest on, the Note shall automatically, and without any declaration or other action on the part of any Holder, become immediately due and payable and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If the Purchase Agreement is assigned by the Company pursuant to the terms thereof, for purposes of this Section 4, “Company” shall be deemed to include such assignee.

 

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5. Covenants. The Company hereby agrees that, so long as the Note remains outstanding and unpaid, or any other amount is owing to the Holder hereunder:

 

(a) The Company will not, without providing at least 30 days’ prior written notice to the Holder, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, location of its chief executive office or its principal place of business or its organizational identification number. The Company will, prior to any change described in the preceding sentence, take all actions requested by the Holder to maintain the perfection and priority of the Holder’s security interest in the Collateral.

 

(b) The Company shall, at its own cost and expense, defend title to the Collateral and the lien and security interest of the Holder therein against the claim of any person claiming against or through the Company and shall maintain and preserve such perfected security interest for so long as this Note shall remain in effect.

 

(c) The Company will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein except with the prior written consent of the Holder.

 

(d) The Company will keep the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon. The Company will permit the Holder, or its designee, to inspect the Collateral at any reasonable time, wherever located.

 

(e) The Company will pay promptly when due all taxes, assessments, governmental charges, and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement.

 

6. Subordination.

 

(a) All claims of the Holder to principal, interest and any other amounts at any time owed under this Note (collectively, “Junior Indebtedness”) is hereby expressly subordinated in right of payment, as herein set forth, to the prior payment in full of all Senior Indebtedness (as defined below). No payment under Junior Indebtedness shall be made by the Company, nor shall the Holder exercise any remedies under the Junior Indebtedness (including taking any legal action (whether judicial or otherwise) to collect the Junior Indebtedness), if, at the time of such payment, exercise or immediately after giving effect thereto, (i) there shall exist any material “Default” or “Event of Default” under any agreements governing any of the Senior Indebtedness, upon which the Company shall notify the Holder in writing of such Default within three (3) days of its receipt of notice of the Default from the Senior Lender or (ii) the maturity of any of the Senior Indebtedness has been accelerated and (A) such acceleration has not been waived or (B) such Senior Indebtedness has not been paid in full; provided, however, that (x) in the event that the holder of any Senior Indebtedness accelerates such Senior Indebtedness, then the Holder may accelerate the indebtedness evidenced by this Note, and (y) if the Company is permitted under the terms of the Senior Indebtedness to pay an amount due and owing under this Note and fails to make such payment, then so long as the terms of the Senior Indebtedness do not prohibit such action, the Holder may exercise its rights to be paid such amount, but only such amount (and Holder shall not be permitted to accelerate hereunder).

 

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(b) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money, before any payment is made under Junior Indebtedness; and upon any such dissolution or winding up or liquidation or reorganization, any distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holder as holder of the Junior Indebtedness would be entitled except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holder if received by Holder, directly to the holder of the Senior Indebtedness, or its representatives, to the extent necessary to pay all such Senior Indebtedness in full, in money, after giving effect to any concurrent prepayment or distribution to or for the benefit of the holders of such Senior Indebtedness, before any payment or distribution is made to the Holder with respect to the Junior Indebtedness.

 

(c) If the holders of the Senior Indebtedness in good faith believe Holder may fail to timely file a proof of claim in any such proceeding, the holder(s) of the Senior Indebtedness may do so for Holder.

 

(d) In the event that any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing where the holder has actual knowledge of a Senior Indebtedness payment default shall be received by the Holder before all the Senior Indebtedness is paid in full, or provisions made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of the Senior Indebtedness or their representative or representatives, as their respective interests may appear, for application to the payment of all the Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full, in money, in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

 

(e) The provisions hereof are solely for the purpose of defining the relative rights of the holders of the Senior Indebtedness on the one hand and the Holder as holder of the Junior Indebtedness on the other hand, and nothing herein shall impair, as between the Company and the Holder, the obligations of the Company under the Junior Indebtedness, which are unconditional and absolute. With this in mind, notwithstanding the other provisions of this Section 6, if and so long as all documents governing the Senior Indebtedness permit one of the actions restricted by this Section 6, the restriction shall be waived and the restricted action permitted hereunder.

 

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(f) No right of any present or future holder of any Senior Indebtedness to enforce the subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any act or failure to act, in good faith, by any such holder of the Senior Indebtedness, or any noncompliance by the Company with the terms, provisions and covenants hereof, regardless of any knowledge thereof any holder of the Senior Indebtedness may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the holders of the Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Note or the obligations hereunder of the Holder to the holders of the Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or create, renew or alter, the Senior Indebtedness, or otherwise amend or supplement in any manner the Senior Indebtedness or any instrument evidencing the same or any agreement under which the Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any person liable or contingently liable in any manner for the payment or collection of the Senior Indebtedness; and/or (iv) exercise or refrain from exercising any rights against the Company or any other person.

 

(g) Each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of this Note, shall be entitled to rely on the subordination provisions set forth in this Note.

 

(h) Notwithstanding the provisions of this Section 6, the Holder shall not be charged with knowledge of the existence of facts which would prohibit the making of any payments on the Junior Indebtedness unless and until the holder(s) of the Senior Indebtedness or their representatives send written notice to Holder of same.

 

(i) Subject to the payment in full of all the Senior Indebtedness, Holder as holder of the Junior Indebtedness shall be subrogated to the rights of the holders of the Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the Senior Indebtedness shall be paid in full.

 

(j) The Holder shall confirm (in writing) the above subordination provisions if requested by any holder of the Senior Indebtedness, and shall execute and deliver such additional subordination agreements, consistent with the foregoing as any holder of Senior Indebtedness may require.

 

(k) For purposes hereof, “Senior Indebtedness” means, with respect to the Company and the Companies, all senior secured indebtedness of the Company and the Companies, whether outstanding on the date of the execution of this Note or thereafter created, to banks, insurance companies, other financial institutions, private equity funds, hedge funds or other similar funds.

 

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7. Security Agreement.

 

(a) Grant of Security Interest. To secure the prompt performance and repayment of each and all of the obligations of the Company hereunder to the Holder and its assigns, the Company hereby pledges, grants, assigns and transfers to the Holder and its assigns a continuing lien on and security interest in and to all of the following property of the Companies, whether now owned or later acquired (collectively the “Collateral”):

 

(i) All accounts, accounts receivable, contract rights, general intangibles related to or arising from any account, debit balances, note, documents, chattel paper, instruments, acceptances, drafts or other forms of obligations and receivables of the Companies arising from the sale or lease of inventory or rendition of services by the Companies, or on behalf of the Companies, in the ordinary course of its business or otherwise (all of the foregoing being herein collectively called “Accounts”), whether or not the same are listed on any schedules, assignments or reports furnished to the Holder from time to time, whether such Accounts are now existing or are created at any time hereafter, and all proceeds therefrom including without limitation, proceeds of insurance thereon and all guaranties, securities, and liens which the Companies may hold for the payment of any Accounts, including without limitation, all rights of stoppage in transit, replevin and reclamation and all other rights and remedies of unpaid vendor or lienor, and any liens held by the Companies as a mechanic, contractor, subcontractor, processor, materialman, machinist, manufacturer, artisan, or otherwise.

 

(ii) All documents, instruments, documents of title, policies and certificates of insurance, guaranties, securities, chattel paper (both tangible and electronic), deposits, proceeds of insurance, cash, liens or other property relating to Accounts and owned by the Companies or in which the Companies have an interest, which are now or may hereafter be in the possession of the Companies or as to which the Company may now or hereafter control possession by documents of title or otherwise.

 

(iii) All books, records, customer lists, supplier lists, ledgers, evidences of shipping invoices, purchase orders, sales orders, computer records, lists, software, programs, and all other such evidences of the Companies’ business records related to the Accounts, including all cabinets, drawers, etc. that may hold same, all whether now existing or hereafter arising or acquired.

 

(iv) All of the Companies’ tangible property of whatever nature or description, whether real or personal, now or hereafter used, owned, held or leased, including without limitation all goods, furniture, fixtures, vehicles, equipment, inventory and supplies.

 

(v) All of the Companies’ payment intangibles, instruments, letters of credit, letter-of-credit rights, money, deposit accounts, investment property, commodity contracts, and commodity accounts.

 

(vi) All of the Companies’ intangible property of whatever nature or description, including without limitation, all intellectual property, general intangibles, software, trade names, trademarks, service marks, computer programs (including source code and object code), patents and copyrights now owned or hereafter acquired.

 

(vii) All renewals, substitutions, replacements, additions, accessions, proceeds, and products of any and all the foregoing.

 

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The Company’s grant of such security interests to the Holder shall secure the payment and performance of the indebtedness, obligations and liabilities of the Company to the Holder of every kind and description, direct and indirect, absolute and contingent, due or to become due, now existing or hereafter arising, that relate to this Note and the rights and remedies created hereunder, and all legal and other professional fees incurred in connection with any of the foregoing. The security interest granted to the Holder hereunder shall be prior to all other interests in the Collateral. Terms used in the preceding collateral description shall have the respective meanings accorded such terms in the Uniform Commercial Code as enacted in the state of Delaware as of the date of this Agreement.

 

(b) The Company hereby agrees that the Holder shall have all the rights and remedies of a secured party under the Uniform Commercial Code as in effect from time to time in the State of Delaware. The Company agrees that at any time, and from time to time, at the request of the Holder, the Company shall execute and deliver (or cause to be executed and delivered) any and all such further instruments and/or documents (including without limitation, UCC-1 financing statements) as the Holder may consider reasonably necessary or desirable in order to effectuate, complete, perfect or preserve and maintain the lien created hereby. Upon any failure by the Company to do so, the Holder may make, execute, record, file, re-record or refile any and all such instruments and documents for and in the name of the Company; the Company hereby irrevocably appoints the Holder as the agent and attorney-in-fact of the Company to do so; and the Company shall reimburse the Holder, on demand, for all costs and expenses incurred by the Holder in connection therewith, such amount being added to the indebtedness arising under the Note.

 

(c) The security interest created hereunder shall terminate upon the irrevocable payment in full by the Company to the Holder of any and all indebtedness, obligations and liabilities arising from, or in any way related to, the Note.

 

(d) Events of Default; Acceleration of Maturity. If an Event of Default (as defined below) shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any governmental authority), then, in addition to the remedies provided for elsewhere in this Note or as a matter of law and without limitation thereof, at the option of the Holder exercised by written notice to the Company, the Holder may (A) foreclose the liens and security interests created under this Note or under any other agreement relating to the Collateral, by any available judicial process, (B) enter any premises where any of the Collateral may be located for the purpose of taking possession or removing the same, and (C) sell, assign, lease or otherwise dispose of the Collateral or any part thereof, either at public or private sale or at any broker’s board, in lots or in bulk, for cash, on credit or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to the Holder, all at the sole option of the Holder and as the Holder, in its sole discretion, may deem advisable and to the extent permitted by law, the Holder may bid or become a purchaser at any such sale, and the Holder shall have the right, at its option, to apply or be credited with the amount of all or any part of the obligations owing by the Company to the Holder under this Note, against the purchase price bid by the Holder at any such sale. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral (including, without limitation a sale where the Holder is the purchaser) shall be applied first to the expenses (including reasonable attorneys’ and other professional fees) of retaking, holding, storing, processing and preparing the Collateral for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all such obligations, application as to particular obligations or against principal or any interest to be in the sole discretion of the Holder. The Holder shall give the Company at least five (5) Business Days prior written notice of the time and place of any public sale of Collateral.

 

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(e) Suits for Enforcement. In case any one or more of the Events of Default shall have occurred and be continuing, the Holder may proceed to protect and enforce rights of the Holder either by suit in equity or by action at law, or both, whether for the specific performance of any covenant or agreement in this Note or in aid of the exercise of any power granted in this Note, including without limitation, possession or foreclosure on the Collateral securing the Note, or the Holder may proceed to enforce the payment of the Note or to enforce any other legal or equitable right of the Holder.

 

(f) Remedies Cumulative. No remedy herein conferred upon the Holder is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

 

(g) Remedies Not Waived. No course of dealing between the Company and the Holder and no delay in exercising any rights hereunder shall operate as a waiver of any rights of the Holder.

 

8. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to its satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity (which shall not include the posting of any bond) as may be reasonably required by the Company to hold the Company harmless.

 

9. Waiver of Demand, Presentment, etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. The Company agrees that, in the event of an Event of Default, to reimburse the Holder for all reasonable costs and expenses (including reasonable legal fees of one counsel) incurred in connection with the enforcement and collection of this Note.

 

10. Payment. All payments with respect to this Note shall be made in lawful money of the United States of America, at the address of the Holder as of the date hereof or as designated in writing by the Holder from time to time. The receipt by the Holder of immediately available funds shall constitute a payment of Principal and Interest hereunder and shall satisfy and discharge the liability for Principal and Interest on this Note to the extent of the sum represented by such payment.

 

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11. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the successors and permitted assigns of the parties hereto. To complete an assignment or transfer this Note, the Holder shall deliver a completed and executed Form of Assignment attached hereto as Exhibit A and surrender and deliver this Note, duly endorsed, to the Company’s office or such other address which the Company shall designate, upon receipt of which a new Note, in substantially the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Note that the Holder has in respect of this Note. Interest and principal are payable only to the registered Holder of this Note set forth on the books and records of the Company

 

12. Amendment; Waiver; Modification. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

 

13. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if given in accordance with the provisions of the Purchase Agreement.

 

14. Governing Law and Arbitration. This Note shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Florida. Any dispute shall be resolved by arbitration conducted pursuant to Section 10.7 of the Purchase Agreement. The provisions of this Section 14 shall survive the entry of any judgment, and will not merge, or be deemed to have merged, into any judgment.

 

15. Headings. The descriptive headings contained in this Note are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Note.

 

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

 

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IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of the date first above written.

 

  Bonne Santé Group, Inc.
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Executive Chairman

 

[Signature page to 6% Secured Subordinated Convertible Promissory Note of Bonne Santé Group]

 

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EXHIBIT A

 

Form of Assignment

 

TO: Bonne Santé Group, Inc.

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________ (name), __________________________________________ (address), US$____________ of 6% Secured Subordinated Convertible Promissory Note (“Note”) of Bonne Santé Group, Inc. (the “Company”), including any and all accrued and unpaid interest owing thereon, registered in the name of the undersigned on the records of the Company represented by the within certificate, and irrevocably appoints ___________________ the attorney of the undersigned to transfer the said securities on the books or register with full power of substitution.

 

DATED this ________ day of, __________________, 20 ____.

 

   
   
(Signature of Registered Note Holder)  
   
   
   
(Print name of Registered Note Holder)  

 

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the face of the Note.

 

2. If the transfer of Note is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 

 

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Exhibit 10.20

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

Bonne Santé Group, Inc.

 

6% SECURED SUBORDINATED PROMISSORY NOTE

 

$3,000,000 July 1, 2021

 

For value received, Bonne Santé Group, Inc., a Delaware corporation (the “Company”), promises to pay to Dr. Sasson E. Moulavi, an individual (the “Holder”), the principal sum of Three Million Dollars ($3,000,000) (the “Principal”) together with accrued and unpaid interest thereon, each due and payable on the date and in the manner set forth below.

 

This secured subordinated promissory note (the “Note”) is issued pursuant to the terms of that certain Securities Purchase Agreement, dated as of February 11, 2020, as amended by the First Amendment to the Securities Purchase Agreement, dated July 13, 2020, the Second Amendment to Securities Purchase Agreement, dated June 4, 2021 and the Third Amendment to the Securities Purchase Agreement, dated June 30, 2021 (as so amended, “Purchase Agreement”), among the Company, Doctors Scientific Organica LL.C., Oyster Management Services Ltd., Lawee Enterprises L.L.C., U.S. Medical Care Holdings, L.L.C., and the Holder. Capitalized terms used herein without definition shall have the meanings given to such terms in the Purchase Agreement.

 

The following is a statement of the rights of the Holder of this Note and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment. The outstanding principal amount of this Note and all accrued interest shall be amortized on a five-year straight-line basis and payable quarterly in accordance with the amortization schedule set forth on Exhibit A to this Note (the “Amortization Schedule”), provided that no such payment shall be made prior to the first anniversary of the date hereof, with all of the unpaid principal and accrued, but unpaid interest thereon, ( including interest due prior to the first anniversary of the date hereof) being fully paid on the third (3rd) anniversary of the date of this Note (the “Maturity Date”). All payments of interest and principal shall be in lawful money of the United States of America.

 

 

 

 

2. Interest. Interest (the “Interest”) shall accrue on the unpaid Principal from the date hereof until such Principal is repaid in full at the rate of six percent (6%) per annum. Interest shall be paid in accordance with the Amortization Schedule with all unpaid Interest being paid on the Maturity Date or the date of the redemption of this Note. All computations of the Interest rate hereunder shall be made on the basis of a 360-day year of twelve 30-day months. In the event that any Interest rate provided for herein shall be determined to be unlawful, such Interest rate shall be computed at the highest rate permitted by applicable law. Any payment by the Company of any Interest amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the Principal of this Note without prepayment premium or penalty.

 

3. Redemption. The Company will have the right to redeem all or any portion of the Note at any time prior to the Maturity Date without premium or penalty of any kind. The redemption price will be payable in cash and is equal to the then outstanding principal amount of this Note plus accrued but unpaid interest thereon. However, no partial redemption shall excuse or defer the Company’s subsequent payments on, or entitle the Company to a release of any collateral used to secure, the unredeemed portion of this Note.

 

4. Events of Default. In the event that any of the following (each, an “Event of Default”) shall occur:

 

(a) Non-Payment. The Company shall default in the payment of the Principal of, or accrued Interest on, this Note as and when the same shall become due and payable, whether by acceleration or otherwise; or

 

(b) Default in Covenants. The Company shall default in any material manner in the observance or performance of any covenants or agreements set forth in the Purchase Agreement; or

 

(c) Breach of Representations and Warranties. The Company materially breaches any representation or warranty contained in the Purchase Agreement; or

 

(d) Illegality of Note. Any court of competent jurisdiction issues an order declaring the Note or any provision thereunder to be illegal; or

 

(e) Cross Default. There occurs with respect to any Senior Indebtedness: (i) a default with respect to any payment obligation thereunder that then entitles the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity, or (ii) any other default thereunder that entitles, and has caused, the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity; or

 

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Bankruptcy. The Company shall: (i) admit in writing its inability to pay its debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property; or (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; then, and so long as such Event of Default is continuing for a period of two (2) business days in the case of non-payment under Section 4(a) or for a period of thirty (30) calendar days in the case of events under Sections 4(b) through 4(d) or for a period of five (5) calendar days in the case of an event under Section 4(e) (and the event which would constitute such Event of Default, if curable, has not been cured), by written notice to the Company from the Holder, all obligations of the Company under this Note shall be immediately due and payable without presentment, demand, protest or any other action nor obligation of the Holder of any kind, all of which are hereby expressly waived, and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If an Event of Default specified in Section 4(f) above occurs, the principal of, and accrued interest on, the Note shall automatically, and without any declaration or other action on the part of any Holder, become immediately due and payable and Holder may exercise any other remedies the Holder may have by contract, at law or in equity. If the Purchase Agreement is assigned by the Company pursuant to the terms thereof, for purposes of this Section 4, “Company” shall be deemed to include such assignee.

 

5. Covenants. The Company hereby agrees that, so long as the Note remains outstanding and unpaid, or any other amount is owing to the Holder hereunder:

 

(a) The Company will not, without providing at least 30 days’ prior written notice to the Holder, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, location of its chief executive office or its principal place of business or its organizational identification number. The Company will, prior to any change described in the preceding sentence, take all actions requested by the Holder to maintain the perfection and priority of the Holder’s security interest in the Collateral.

 

(b) The Company shall, at its own cost and expense, defend title to the Collateral and the lien and security interest of the Holder therein against the claim of any person claiming against or through the Company and shall maintain and preserve such perfected security interest for so long as this Note shall remain in effect.

 

(c) The Company will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein except with the prior written consent of the Holder.

 

(d) The Company will keep the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon. The Company will permit the Holder, or its designee, to inspect the Collateral at any reasonable time, wherever located.

 

(e) The Company will pay promptly when due all taxes, assessments, governmental charges, and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement.

 

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6. Subordination.

 

(a) All claims of the Holder to principal, interest and any other amounts at any time owed under this Note (collectively, “Junior Indebtedness”) is hereby expressly subordinated in right of payment, as herein set forth, to the prior payment in full of all Senior Indebtedness (as defined below). No payment under Junior Indebtedness shall be made by the Company, nor shall the Holder exercise any remedies under the Junior Indebtedness (including taking any legal action (whether judicial or otherwise) to collect the Junior Indebtedness), if, at the time of such payment, exercise or immediately after giving effect thereto, (i) there shall exist any material “Default” or “Event of Default” under any agreements governing any of the Senior Indebtedness, upon which the Company shall notify the Holder in writing of such Default within five (5) business days of its receipt of notice of the Default from the Senior Lender or (ii) the maturity of any of the Senior Indebtedness has been accelerated and (A) such acceleration has not been waived or (B) such Senior Indebtedness has not been paid in full; provided, however, that (x) in the event that the holder of any Senior Indebtedness accelerates such Senior Indebtedness, then the Holder may accelerate the indebtedness evidenced by this Note, and (y) if the Company is permitted under the terms of the Senior Indebtedness to pay an amount due and owing under this Note and fails to make such payment, then so long as the terms of the Senior Indebtedness do not prohibit such action, the Holder may exercise its rights to be paid such amount, but only such amount (and Holder shall not be permitted to accelerate hereunder).

 

(b) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money, before any payment is made under Junior Indebtedness; and upon any such dissolution or winding up or liquidation or reorganization, any distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holder as holder of the Junior Indebtedness would be entitled except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holder if received by Holder, directly to the holder of the Senior Indebtedness, or its representatives, to the extent necessary to pay all such Senior Indebtedness in full, in money, after giving effect to any concurrent prepayment or distribution to or for the benefit of the holders of such Senior Indebtedness, before any payment or distribution is made to the Holder with respect to the Junior Indebtedness.

 

(c) If the holders of the Senior Indebtedness in good faith believe Holder may fail to timely file a proof of claim in any such proceeding, the holder(s) of the Senior Indebtedness may do so for Holder.

 

(d) In the event that any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing where the holder has actual knowledge of a Senior Indebtedness payment default shall be received by the Holder before all the Senior Indebtedness is paid in full, or provisions made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of the Senior Indebtedness or their representative or representatives, as their respective interests may appear, for application to the payment of all the Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full, in money, in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

 

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(e) The provisions hereof are solely for the purpose of defining the relative rights of the holders of the Senior Indebtedness on the one hand and the Holder as holder of the Junior Indebtedness on the other hand, and nothing herein shall impair, as between the Company and the Holder, the obligations of the Company under the Junior Indebtedness, which are unconditional and absolute. With this in mind, notwithstanding the other provisions of this Section 6, if and so long as all documents governing the Senior Indebtedness permit one of the actions restricted by this Section 6, the restriction shall be waived and the restricted action permitted hereunder.

 

(f) No right of any present or future holder of any Senior Indebtedness to enforce the subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any act or failure to act, in good faith, by any such holder of the Senior Indebtedness, or any noncompliance by the Company with the terms, provisions and covenants hereof, regardless of any knowledge thereof any holder of the Senior Indebtedness may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the holders of the Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Note or the obligations hereunder of the Holder to the holders of the Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or create, renew or alter, the Senior Indebtedness, or otherwise amend or supplement in any manner the Senior Indebtedness or any instrument evidencing the same or any agreement under which the Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any person liable or contingently liable in any manner for the payment or collection of the Senior Indebtedness; and/or (iv) exercise or refrain from exercising any rights against the Company or any other person.

 

(g) Each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of this Note, shall be entitled to rely on the subordination provisions set forth in this Note.

 

(h) Notwithstanding the provisions of this Section 6, the Holder shall not be charged with knowledge of the existence of facts which would prohibit the making of any payments on the Junior Indebtedness unless and until the holder(s) of the Senior Indebtedness or their representatives send written notice to Holder of same.

 

(i) Subject to the payment in full of all the Senior Indebtedness, Holder as holder of the Junior Indebtedness shall be subrogated to the rights of the holders of the Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the Senior Indebtedness shall be paid in full.

 

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(j) The Holder shall confirm (in writing) the above subordination provisions if requested by any holder of the Senior Indebtedness, and shall execute and deliver such additional subordination agreements, consistent with the foregoing as any holder of Senior Indebtedness may require.

 

(k) For purposes hereof, “Senior Indebtedness” means, with respect to the Company and the Companies, all senior secured indebtedness of the Company and the Companies, whether outstanding on the date of the execution of this Note or thereafter created, to banks, insurance companies, other financial institutions, private equity funds, hedge funds or other similar funds.

 

7. Security Agreement.

 

(a) Grant of Security Interest. To secure the prompt performance and repayment of each and all of the obligations of the Company hereunder to the Holder and its assigns, the Company hereby pledges, grants, assigns and transfers to the Holder and its assigns a continuing lien on and security interest in and to all of the following property of the Companies, whether now owned or later acquired (collectively the “Collateral”):

 

(i) All accounts, accounts receivable, contract rights, general intangibles related to or arising from any account, debit balances, note, documents, chattel paper, instruments, acceptances, drafts or other forms of obligations and receivables of the Companies arising from the sale or lease of inventory or rendition of services by the Companies, or on behalf of the Companies, in the ordinary course of its business or otherwise (all of the foregoing being herein collectively called “Accounts”), whether or not the same are listed on any schedules, assignments or reports furnished to the Holder from time to time, whether such Accounts are now existing or are created at any time hereafter, and all proceeds therefrom including without limitation, proceeds of insurance thereon and all guaranties, securities, and liens which the Companies may hold for the payment of any Accounts, including without limitation, all rights of stoppage in transit, replevin and reclamation and all other rights and remedies of unpaid vendor or lienor, and any liens held by the Companies as a mechanic, contractor, subcontractor, processor, materialman, machinist, manufacturer, artisan, or otherwise.

 

(ii) All documents, instruments, documents of title, policies and certificates of insurance, guaranties, securities, chattel paper (both tangible and electronic), deposits, proceeds of insurance, cash, liens or other property relating to Accounts and owned by the Companies or in which the Companies have an interest, which are now or may hereafter be in the possession of the Companies or as to which the Companies may now or hereafter control possession by documents of title or otherwise.

 

(iii) All books, records, customer lists, supplier lists, ledgers, evidences of shipping invoices, purchase orders, sales orders, computer records, lists, software, programs, and all other such evidences of the Companies’ business records related to the Accounts, including all cabinets, drawers, etc. that may hold same, all whether now existing or hereafter arising or acquired.

 

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(iv) All of the Companies’ tangible property of whatever nature or description, whether real or personal, now or hereafter used, owned, held or leased, including without limitation all goods, furniture, fixtures, vehicles, equipment, inventory and supplies.

 

(v) All of the Companies’ payment intangibles, instruments, letters of credit, letter-of-credit rights, money, deposit accounts, investment property, commodity contracts, and commodity accounts.

 

(vi) All of the Companies’ intangible property of whatever nature or description, including without limitation, all intellectual property, general intangibles, software, trade names, trademarks, service marks, computer programs (including source code and object code), patents and copyrights now owned or hereafter acquired.

 

(vii) All renewals, substitutions, replacements, additions, accessions, proceeds, and products of any and all the foregoing.

 

The Company’s grant of such security interests to the Holder shall secure the payment and performance of the indebtedness, obligations and liabilities of the Company to the Holder of every kind and description, direct and indirect, absolute and contingent, due or to become due, now existing or hereafter arising, that relate to this Note and the rights and remedies created hereunder, and all legal and other professional fees incurred in connection with any of the foregoing. The security interest granted to the Holder hereunder shall be prior to all other interests in the Collateral. Terms used in the preceding collateral description shall have the respective meanings accorded such terms in the Uniform Commercial Code as enacted in the state of Delaware as of the date of this Agreement.

 

(b) The Company hereby agrees that the Holder shall have all the rights and remedies of a secured party under the Uniform Commercial Code as in effect from time to time in the State of Delaware. The Company agrees that at any time, and from time to time, at the request of the Holder, the Company shall execute and deliver (or cause to be executed and delivered) any and all such further instruments and/or documents (including without limitation, UCC-1 financing statements) as the Holder may consider reasonably necessary or desirable in order to effectuate, complete, perfect or preserve and maintain the lien created hereby. Upon any failure by the Company to do so, the Holder may make, execute, record, file, re-record or refile any and all such instruments and documents for and in the name of the Company; the Company hereby irrevocably appoints the Holder as the agent and attorney-in-fact of the Company to do so; and the Company shall reimburse the Holder, on demand, for all costs and expenses incurred by the Holder in connection therewith, such amount being added to the indebtedness arising under the Note.

 

(c) The security interest created hereunder shall terminate upon the irrevocable payment in full by the Company to the Holder of any and all indebtedness, obligations and liabilities arising from, or in any way related to, the Note.

 

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(d) Events of Default; Acceleration of Maturity. If an Event of Default (as defined below) shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any governmental authority), then, in addition to the remedies provided for elsewhere in this Note or as a matter of law and without limitation thereof, at the option of the Holder exercised by written notice to the Company, the Holder may (A) foreclose the liens and security interests created under this Note or under any other agreement relating to the Collateral, by any available judicial process, (B) enter any premises where any of the Collateral may be located for the purpose of taking possession or removing the same, and (C) sell, assign, lease or otherwise dispose of the Collateral or any part thereof, either at public or private sale or at any broker’s board, in lots or in bulk, for cash, on credit or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to the Holder, all at the sole option of the Holder and as the Holder, in its sole discretion, may deem advisable and to the extent permitted by law, the Holder may bid or become a purchaser at any such sale, and the Holder shall have the right, at its option, to apply or be credited with the amount of all or any part of the obligations owing by the Company to the Holder under this Note, against the purchase price bid by the Holder at any such sale. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral (including, without limitation a sale where the Holder is the purchaser) shall be applied first to the expenses (including reasonable attorneys’ and other professional fees) of retaking, holding, storing, processing and preparing the Collateral for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all such obligations, application as to particular obligations or against principal or any interest to be in the sole discretion of the Holder. The Holder shall give the Company at least five (5) Business Days prior written notice of the time and place of any public sale of Collateral.

 

(e) Suits for Enforcement. In case any one or more of the Events of Default shall have occurred and be continuing, the Holder may proceed to protect and enforce rights of the Holder either by suit in equity or by action at law, or both, whether for the specific performance of any covenant or agreement in this Note or in aid of the exercise of any power granted in this Note, including without limitation, possession or foreclosure on the Collateral securing the Note, or the Holder may proceed to enforce the payment of the Note or to enforce any other legal or equitable right of the Holder.

 

(f) Remedies Cumulative. No remedy herein conferred upon the Holder is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

 

(g) Remedies Not Waived. No course of dealing between the Company and the Holder and no delay in exercising any rights hereunder shall operate as a waiver of any rights of the Holder.

 

8. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to its satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity (which shall not include the posting of any bond) as may be reasonably required by the Company to hold the Company harmless.

 

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9. Waiver of Demand, Presentment, etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. The Company agrees that, in the event of an Event of Default, to reimburse the Holder for all reasonable costs and expenses (including reasonable legal fees of one counsel) incurred in connection with the enforcement and collection of this Note.

 

10. Payment. All payments with respect to this Note shall be made in lawful money of the United States of America, at the address of the Holder as of the date hereof or as designated in writing by the Holder from time to time. The receipt by the Holder of immediately available funds shall constitute a payment of Principal and Interest hereunder and shall satisfy and discharge the liability for Principal and Interest on this Note to the extent of the sum represented by such payment.

 

11. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the successors and permitted assigns of the parties hereto. To complete an assignment or transfer this Note, the Holder shall deliver a completed and executed Form of Assignment attached hereto as Exhibit B and surrender and deliver this Note, duly endorsed, to the Company’s office or such other address which the Company shall designate, upon receipt of which a new Note, in substantially the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Note that the Holder has in respect of this Note. Interest and principal are payable only to the registered Holder of this Note set forth on the books and records of the Company.

 

12. Amendment; Waiver; Modification. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

 

13. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if given in accordance with the provisions of the Purchase Agreement.

 

14. Governing Law and Arbitration. This Note shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Florida. Any dispute shall be resolved by arbitration conducted pursuant to Section 10.7 of the Purchase Agreement. The provisions of this Section 14 shall survive the entry of any judgment, and will not merge, or be deemed to have merged, into any judgment.

 

15. Headings. The descriptive headings contained in this Note are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Note.

 

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

 

[Signature page follows]

 

9

 

 

IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of the date first above written.

 

  Bonne Santé Group, Inc.
   
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Executive Chairman

 

[Signature page to 6% Secured Subordinated Promissory Note of Bonne Santé Group]

 

 

 

 

EXHIBIT A

 

Amortization Schedule

 

Quarter   Payment     Principal Paid     Interest Paid     Remaining Balance  
1.   $ 0     $ 0     $ 0     $ 3,024,597.87  
2.   $ 0     $ 0     $ 0     $ 3,049,195.74  
3.   $ 0     $ 0     $ 0     $ 3,073,793.61  
4.   $ 0     $ 0     $ 0     $ 3,098,391.48  
5.   $ 219,257.91     $ 172,782.04     $ 46,475.87     $ 2,925,609.44  
6.   $ 219,257.91     $ 175,373.77     $ 43,884.14     $ 2,750,235.67  
7.   $ 219,257.91     $ 178,004.38     $ 41,253.53     $ 2,572,231.29  
8.   $ 219,257.91     $ 180,674.44     $ 38,583.47     $ 2,391,556.84  
9.   $ 219,257.91     $ 183,384.56     $ 35,873.35     $ 2,208,172.28  
10.   $ 219,257.91     $ 186,135.33     $ 33,122.58     $ 2,022,036.95  
11.   $ 219,257.91     $ 188,927.36     $ 30,330.55     $ 1,833,109.59  
12.   $ 1,860,606.23     $ 1,833,109.59     $ 27,496.64     $ 0  

 

 

 

 

EXHIBIT B

 

Form of Assignment

 

TO: Bonne Santé Group, Inc.

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________ (name), __________________________________________ (address), US$____________ of 6% Secured Subordinated Promissory Note (“Note”) of Bonne Santé Group, Inc. (the “Company”), including any and all accrued and unpaid interest owing thereon, registered in the name of the undersigned on the records of the Company represented by the within certificate, and irrevocably appoints ___________________ the attorney of the undersigned to transfer the said securities on the books or register with full power of substitution.

 

DATED this ________ day of, __________________, 20 ____.

 

_______________________________
(Signature of Registered Note Holder)

 

________________________________
(Print name of Registered Note Holder)

 

   

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the face of the Note.

 

2. If the transfer of Note is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 

 

 

 

 

Exhibit 10.21 

 

Execution Copy

 

LOAN AGREEMENT

 

LOAN AGREEMENT (“Agreement”), dated as of July 1, 2021 by and between Bonne Santé Group, Inc., a Delaware corporation (“BSG”), Bonne Santé Natural Manufacturing, Inc. f/k/a Millenium Natural Manufacturing Corp., a Florida corporation (“BSG Manufacturing”) and Doctors Scientific Organica, LLC, a Florida limited liability company (“DSO” and together with BSG and BSG Manufacturing, “Borrower”), and Diamond Creek Capital, LLC, a Delaware limited liability company (“Lender”).

 

RECITALS

 

Borrower has requested that Lender extend credit to Borrower consisting of a term loan (the “Term Loan”) in an aggregate principal amount of up to Three Million Dollars ($3,000,000), on the terms and conditions set forth herein. The proceeds of the term loan will be used to (i) assist in the leveraged acquisition of 100% of the membership interests in DSO, (ii) assist in providing ongoing working capital requirements; and (iii) pay transaction fees and expenses related to this Agreement and the transactions contemplated hereby.

 

In consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS; CERTAIN TERMS

 

Section 1.01 Definitions. As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

 

“Account” is any “account” as defined in the Uniform Commercial Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

 

“Affiliate” means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 10% or more of the equity interests of such Person, (b) each Person that controls, is controlled by or is under common control with such Person, (c) each of such Person’s officers, directors, managers, members, joint venturers and partners and (d) in the case of Borrower, the immediate family members, spouses and lineal descendants of individuals who are Affiliates of Borrower or entities, directly or indirectly, owned or controlled by such family members, spouse or lineal descendant. For the purposes of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; provided, however, that the term “Affiliate” shall specifically exclude Lender.

 

“Agreement” means this Loan Agreement, including all amendments, modifications and supplements and any exhibit or schedule to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative.

 

Loan Agreement (BSG)

 

1

 

 

“Board of Directors” means, with respect to any Person that is an entity, the board of directors, managers or similar governing body of such Person, and “directors” shall mean the persons constituting such governing body.

 

“Borrower” has the meaning specified therefor in the preamble hereto.

 

“Borrower’s Account” means an account designated by Borrower to Lender at a commercial bank reasonably satisfactory to Lender.

 

“Business Day” means any day other than a Saturday, Sunday or legal holiday on which Lender is open for business in Las Vegas, Nevada.

 

“Capital Expenditures” means all expenditures for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one (1) year and which are required to be capitalized under GAAP.

 

“Change in Control” means the occurrence of one or more of the following events: (a) BSG shall fail to own, beneficially and of record, or otherwise control, directly or indirectly, with power to vote, 100% of the issued and outstanding capital stock and other equity interests of DSO; (b) as of any date a majority of the Board of Directors of Borrower consists (other than vacant seats) of individuals who were not either (i) directors of Borrower as of the Effective Date, (ii) selected or nominated to become directors by the Board of Directors of Borrower of which a majority consisted of individuals described in clause (i), or (iii) voted to become directors by the Board of Directors of Borrower by the owner described in clause (a), or (c) Borrower ceases to directly or indirectly own and control that percentage of the outstanding capital stock, membership interests and other equity interests of any of its subsidiaries that it directly or indirectly owns and controls as of the Effective Date or ceases to have the power to vote, or direct the voting of, any such capital stock, membership interests or equity interests.

 

“Closing Fee” has the meaning specified therefor in Section 2.06(a) hereof.

 

“Collateral” means the collateral described in the Security Agreement.

 

“Commitment” means the Term Loan Commitment.

 

“Default” means any event or condition which upon notice, lapse of time or both would constitute an Event of Default.

 

“Default Rate” means 5% annually above the Interest Rate.

 

“EBITDA” means, with respect to any Person on a consolidated basis with its subsidiaries for any period, the net income for such period (as determined in accordance with GAAP), plus (a) without duplication and to the extent reflected as charges in the statement of net income for such period, the sum of (i) income taxes, (ii) Interest Expense, (iii) depreciation and amortization expense, and (iv) such other items to which Lender may agree in its sole and absolute discretion, minus (b) to the extent added in computing net income for such period, extraordinary gains.

 

Loan Agreement (BSG)

 

2

 

 

“Effective Date” has the meaning specified therefor in Section 3.01 hereof.

 

“Event of Default” means any of the events set forth in Section 6.01 hereof.

 

“Extraordinary Receipts” means any cash received by Borrower or any of its subsidiaries not in the ordinary course of business, including (a) pension plan reversions, (b) proceeds of insurance (but only if an Event of Default exists at such time or results from the event giving rise to the payment of insurance proceeds), (c) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action or claim, (d) condemnation awards (and payments in lieu thereof), (e) indemnity payments and (f) any purchase price adjustment received in connection with any purchase agreement.

 

“Financing Statement” has the meaning specified therefor in Section 3.01(e)(vi) hereof.

 

“Funded Debt” shall mean the aggregate principal amount outstanding under the Loan plus any other Indebtedness of Borrower or their subsidiaries existing on the date hereof or incurred hereafter.

 

“Governmental Authority” means any nation or government, any federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“Indebtedness” means, with respect to any Person, at any time, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (d) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (e)  all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien or security interest on property owned or acquired by such Person (excluding all liens for taxes not yet due and payable), whether or not the obligations secured thereby have been assumed, and (f) all obligations, contingent or otherwise, of any Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or monetary obligation of any other Person in any manner, whether directly or indirectly.

 

“Interest Expense” means, for any period, interest expense and loan fees of such Person and its subsidiaries, determined on a consolidated basis in accordance with GAAP, and including capitalized and non-capitalized interest and the interest component of capitalized lease obligations.

 

“Interest Period” means, a period commencing on the first calendar day of each month and ending on the last calendar day of such month.

 

“Interest Rate” means a rate of 15.00% per annum.

 

Loan Agreement (BSG)

 

3

 

 

“Lender” has the meaning specified therefor in the preamble hereto.

 

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing).

 

“Loan” or “Loans” means all loans (including the Term Loan) made by Lender to Borrower pursuant to this Agreement.

 

“Loan Documents” means this Agreement, the Security Agreement, the Promissory Notes, the Flow of Funds Agreement (attached hereto as Exhibit C) and all other agreements, instruments or other documents executed and delivered by or on behalf of Borrower pursuant to or in connection with this Agreement.

 

“Material Adverse Effect” means a material adverse effect on any of (a) the assets, properties or financial condition of Borrower, (b) the legality, validity or enforceability of this Agreement or any of the other Loan Documents with respect to Borrower’s obligations hereunder, or (c) the aggregate rights and remedies of Lender under this Agreement or any of the other Loan Documents.

 

“Maturity Date” means the earlier of (a) July 1, 2022, (b) upon completion of Borrower’s anticipated initial public offering, and (c) such earlier date on which the Loan is due and payable (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of this Agreement.

 

“Obligations” means (a) the obligation of Borrower to pay, as and when due and payable (by scheduled maturity or otherwise), all amounts from time to time owing by Borrower in respect of any Loan Document, whether for principal, interest (including, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy or insolvency of Borrower), fees, indemnification payments, expense reimbursements or otherwise and (b) the obligation of Borrower to perform or observe all of Borrower’s other obligations from time to time existing under any Loan Document.

 

“Person” means an individual, corporation, partnership, limited liability company or partnership, association, joint-stock company, trust, unincorporated organization, joint venture or Governmental Authority or other regulatory body.

 

“Post-Maturity Rate” means the Default Rate plus 5% annually.

 

“Promissory Note” has the meaning ascribed to it in Section 2.01(d).

 

“Security Agreement” means the Security Agreement dated as of the date hereof, made by Borrower in favor of the Lender, substantially in the form of Exhibit A annexed hereto, as amended or otherwise modified from time to time.

 

Loan Agreement (BSG)

 

4

 

 

“Term Loan Advance” means any Term Loan funds advanced under this Agreement.

 

“Term Loan Commitment” means the commitment by the Lender to make the Term Loan to Borrower in the principal amount of $3,000,000.

 

Section 1.02 Terms Generally; Computation of Time Periods. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. In all cases where there is more than one Borrower, then all words used in this Agreement in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Agreement or when this Agreement is executed by more than one Borrower, the word “Borrower” shall mean all and any one or more of them. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Unless otherwise indicated herein, all references to time of day refer to Pacific standard time or Pacific daylight savings time, in effect in Nevada on such day. In the computation of periods 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 means “to but excluding”, provided, however, that with respect to a computation of fees or interest payable to the Lender, such period shall in any event consist of at least one full day. Except as otherwise expressly provided herein, any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time. A Default or Event of Default, if one occurs, shall “exist”, “continue” or be “continuing” until such Default or Event of Default has been waived in writing by Lender. All terms used herein which are defined in Article 9 of the UCC and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

 

Section 1.03 Accounting and Other Terms. Unless otherwise expressly stated herein, all accounting terms used in this Agreement which are not otherwise defined herein shall be construed in accordance with generally accepted accounting principles (“GAAP”) applied on a basis consistent with that used in preparing the financial statements referred to in Section 4.01(h) hereof. All terms used in this Agreement which are defined in Article 9 of the Uniform Commercial Code in effect in the State of Delaware or Florida on the date hereof and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

 

ARTICLE II

THE LOAN

 

Section 2.01

 

(a) Term Loan.

 

(i) Term Loan. Subject to the terms and conditions of this Agreement and relying upon the representations and warranties set forth herein, and during the term of this Agreement, Lender agrees to make the Term Loan to the Borrower on the Effective Date in the principal amount not to exceed $3,000,000.

 

Loan Agreement (BSG)

 

5

 

 

(b) Purpose. The proceeds of the term loan will be used to (i) assist in the leveraged acquisition of 100% of the membership interests in DSO, (ii) assist in providing ongoing working capital requirements; and (iii) pay transaction fees and expenses related to this Agreement and the transactions contemplated hereby.

 

(c) Promissory Notes. The Loans shall be evidenced by one or more promissory notes substantially in the form attached hereto as Exhibit B (as any such promissory notes may be amended, restated, supplemented, replaced, or otherwise modified, each a “Promissory Note” and together the “Promissory Notes”). Neither the original nor a copy of any Promissory Note shall be required, however, to establish or prove any Obligation. In the event that a Promissory Note is ever lost, mutilated, or destroyed, Borrower shall execute a replacement thereof and deliver such replacement to the Lender upon demand by Lender upon delivery of an appropriate indemnity by Lender. In the event of any inconsistency or conflict between this Agreement and a Promissory Note, the terms, conditions and provisions of this Agreement shall govern and control.

 

Section 2.02 Interest.

 

(a) Interest. After receipt of a Loan contemplated by Section 2.01, the outstanding principal of, and all accrued and unpaid interest on, the Loan shall bear interest, equal at all times to the Interest Rate (or the Default Rate or Post-Maturity Rate, as applicable), and be payable in arrears on the first day of each calendar month beginning July 1, 2021 and continuing until the earlier of the Maturity Date or the date such outstanding amount is paid.

 

(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a) hereof, or in the case of any other Event of Default then beginning 30 days after such Event of Default if it has not been cured, the principal of, and all accrued and unpaid interest on, the Loans, and all outstanding past due fees, indemnities or any other financial Obligations of Borrower under this Agreement and the other Loan Documents, shall (i) bear interest, from the date such Event of Default occurs until the date such Event of Default is cured or waived in writing in accordance herewith, equal at all times to the Default Rate, and (ii) be payable in arrears on the first day of each calendar month after the date such Event of Default occurs until the date such Event of Default is cured or waived in writing in accordance herewith. Such Default Rate interest includes any interest due pursuant to Section 2.02(a).

 

(c) Post-Maturity Interest. Any principal of, and all accrued and unpaid interest on, the Loans, and all fees, indemnities or any other financial Obligations of Borrower under this Agreement and the other Loan Documents that remains outstanding after the Maturity Date shall (i) bear interest from the Maturity Date until the date such outstanding amount is paid in full, equal at all times to the Post-Maturity Rate, and (ii) be payable in arrears on the first day of each calendar month after the Maturity Date until the date such outstanding amount is paid in full. Such Post-Maturity Rate interest includes any interest due pursuant to Section 2.02(a) and Section 2.02(b).

 

In no event shall the interest rates applicable under this Agreement and due to Lender exceed the maximum interest rate allowable under applicable law.

 

Loan Agreement (BSG)

 

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Section 2.03 Repayment. Borrower shall repay to the Lender the unpaid principal of, and all accrued and unpaid interest on, the Loan, as follows: (a) interest shall be payable each calendar month as provided in Section 2.02(a) above, (b) monthly principal installments shall be due and payable on the first day of each calendar month beginning on August 1, 2021 in an amount equal to $50,000.00, (c) twenty percent (20%) of all funds received by Borrower from all paid final invoices by Twinlab (excluding initial deposits) shall be paid to the Lender bi-weekly, which such amounts shall be applied to the outstanding principal, and (d) all remaining unpaid principal and accrued and unpaid interest shall be due and payable on the Maturity Date. Payments made pursuant hereto shall be applied as provided in Section 2.08 or Section 6.02 hereof, as applicable.

 

Section 2.04 Mandatory Prepayment of Loan.

 

(a) Asset Dispositions. Immediately upon Borrower’s receipt of net proceeds from any material disposition of any assets of Borrower outside the ordinary course of business, the Borrower shall prepay an aggregate principal amount of the Loans equal to one hundred percent (100%) of all such proceeds.

 

(b) Equity and Debt Security Issuances. If Borrower sells equity interests or issues equity or debt securities, immediately upon receipt of the net proceeds thereof, Borrower shall prepay an aggregate principal amount of the Loans in an amount equal to (i) one hundred percent (100%) of all such net proceeds from debt securities and (ii) twenty five percent (25%) of all such net proceeds from equity securities.

 

(c) Extraordinary Receipts. If Borrower or any of its subsidiaries shall receive Extraordinary Receipts, then one hundred percent (100%) of the Extraordinary Receipts received by Borrower or any of its subsidiaries shall, at the option of Lender (which option may be exercised in its sole and absolute discretion), be paid on the date of receipt thereof by Borrower (or its subsidiary) to Lender as a mandatory payment of the Obligations.

 

(d) EBITDA Deficit. While any principal under this Agreement is outstanding, the aggregate Funded Debt shall not exceed two (2) times the trailing twelve (12) month EBITDA of Borrower, as measured on a monthly basis 30 days after each calendar month (commencing on September 30, 2021), based on the 12 month period ending on the last day of such calendar month. In the event any such measurement reveals an aggregate outstanding Funded Debt in excess of the limit set forth above (“EBITDA Deficit”), the Borrower shall make a prepayment against the outstanding principal amount under this Agreement equal to the EBITDA Deficit, within 30 days of the EBITDA Deficit measurement. For the avoidance of doubt, EBITDA shall be calculated on an annualized run rate basis during the first twelve months after the Effective Date and then covert to a trailing twelve month basis for all periods thereafter.

 

Section 2.05 Optional Prepayments. Borrower may prepay the Loans in whole or in part upon one (1) Business Day’s irrevocable notice to the Lender, specifying (a) the date of prepayment and (b) the principal amount to be prepaid, provided that any such prepayments shall be in an amount of not less than $25,000. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. All prepayments shall be applied first to the accrued interest on the Loans and to the then outstanding principal of the applicable Loans in the reverse order of maturity.

 

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Section 2.06 Fees.

 

(a) Funding Fees. Lender shall receive a non-refundable closing fee (“Closing Fee”) equal to $60,000 which shall be offset by Lender against the Loans (when made to Borrower) such that the actual payment received by Borrower with respect to such Loans shall be net of such $60,000.

 

(b) Monitoring Fee. Lender shall receive a $1,000 fee (“Monitoring Fee”) payable on the Effective Date and on the first day of each month while any Obligations remain outstanding.

 

(c) Success Fee. Lender shall receive a success fee (“Success Fee”) equal to $500,000 earned in full at Closing and payable on the earlier of: (i) the Maturity Date, (ii) any prepayment in full of the Loans, or (iii) a Change in Control; provided, however, $250,000 of the Success Fee shall be converted into stock of BSG (of the same type of security and at the same price received by Peah Capital, LLC) if BSG consummates an initial public offering; provided, however that if such stock is subject to lock-up restrictions, Lender may choose to have it paid in cash instead.

 

(d) Prepayment. Borrower may prepay the Loans at any time without premium or penalty.

 

Section 2.07 Payments and Computations. Borrower will make each payment under the Loan Documents not later than 2:00 P.M. (prevailing Pacific Time) on the day when due, in lawful money of the United States of America and in immediately available funds, to the Lender at the Lender’s address referred to in Section 7.01 hereof. All payments shall be made by Borrower without defense, set-off or counterclaim to the Lender. Borrower hereby authorize the Lender to, and the Lender may, charge from time to time against Borrower’s Account any amount due under any Loan Document to which Borrower is a party. Whenever any payment to be made under any such Loan Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. All computations of interest under this Agreement and any other Loan Document and all fees shall be made by the Lender on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Each determination by the Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent demonstrable error.

 

Section 2.08 Application and Allocation of Payment. So long as no Default or Event of Default has occurred and is continuing, payments made to the Lender, including prepayments allowed hereunder, shall be applied, first, to fees and reimbursable expenses of Lender then due and payable pursuant to any of the Loan Documents, second, to accrued interest on the Term Loan, third, to reduce the outstanding principal balance of the Loans; provided, however, that payments matching specific scheduled payments then due shall be applied to those scheduled payments. Payments made when a Default or Event of Default has occurred and is continuing shall be applied in accordance with Section 6.02.

 

Section 2.09 Loan Account. Lender shall maintain a loan account (the “Loan Account”) on its books to record: all credit extensions, all payments made by Borrower, and all other debits and credits as provided in this Agreement with respect to the Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Lender’s customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Lender’s most recent printout or other written statement, shall, absent manifest error, be presumptive evidence of the amounts due and owing to Lender by Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect Borrower’ duty to pay the Obligations. Notwithstanding any provision herein contained to the contrary, Lender may elect (which election may be revoked) to dispense with the issuance of the Promissory Notes to Lender and may rely on the Loan Account as evidence of the amount of Obligations from time to time owing to it. Lender shall provide Borrower with a copy of the Loan Account upon written request.

 

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ARTICLE III

CONDITIONS OF LENDING

 

Section 3.01 Conditions Precedent to Effectiveness. This Agreement and the Lender’s obligation to make a Loan in the amount of the Commitment to Borrower hereunder shall become effective as of the Business Day when each of the following conditions precedent shall have been satisfied in a manner satisfactory to the Lender or are waived by Lender in writing (the “Effective Date”):

 

(a) Payment of Fees, Etc. Borrower shall have paid or caused to be paid the Closing Fee pursuant to Section 2.06 hereof and all other reasonable fees, costs, expenses and taxes payable on the Effective Date by Borrower pursuant to Section 7.04 hereof.

 

(b) Representations and Warranties; No Default. The following statements shall be true and correct: (i) the representations and warranties of Borrower contained in Section 4.01 hereof and in each other Loan Document and certificate or other writing delivered to the Lender on or before the Effective Date are true and correct on and as of the Effective Date; (ii) on the Effective Date, no Default or Event of Default has occurred and is continuing under this Agreement and (iii) on the Effective Date, no breach by Borrower or default or event of default has occurred and is continuing under any agreement relating to any other Indebtedness permitted by Section 5.02(b) hereof.

 

(c) Consents and Approvals. Lender shall have received satisfactory evidence that Borrower have obtained all required consents and approvals of all Persons including without limitation all requisite Governmental Authorities, Borrower’s Board of Directors, the shareholders, members, managers and any necessary third parties, to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby.

 

(d) Legality. The obligations of the Lender under this Agreement shall not contravene any law, rule or regulation applicable to the Lender.

 

(e) Delivery of Documents. Lender shall have received on or before the Effective Date the following, each in form and substance satisfactory to the Lender:

 

(i) the Security Agreement duly executed by Borrower;

 

(ii) the Promissory Note duly executed by Borrower;

 

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(iii) certificates and instruments, if any, evidencing securities that constitute the Collateral, duly endorsed for transfer;

 

(iv) the financing statement on Form UCC-1 by Borrower to be filed in such office or offices as may be necessary or, in the opinion of the Lender, desirable to perfect the security interests purported to be created by the Security Agreement (the “Financing Statement”);

 

(v) the financial statements of Borrower as of and for the 12 months ended December 31, 2020 and the interim three-month financial statements though March 31, 2021;

 

(vi) a certificate signed by the secretary or assistant secretary, or manager of Borrower, in form and substance satisfactory to Lender, including a certificate of incumbency with respect to each officer signing any Loan Documents, together with appropriate attachments which shall include the following: (A) a copy of the Articles of Incorporation or Articles of Organization certified by the Secretary of State of the State of formation, (B) a true, complete and correct copy of the By-Laws or Operating Agreement of such Person, (C) a true, complete and correct copy of the resolutions of the Board of Directors of such Person authorizing the execution, delivery and performance by such Person of the Loan Documents and authorizing the borrowings hereunder, and (D) certificates of good standing from the jurisdiction where such person is organized and from each jurisdiction in which such Person does business;

 

(vii) a certificate executed by the Chief Executive Officer of Borrower certifying that each of the conditions set forth in this Section 3.01 has been satisfied;

 

(viii) such other agreements, instruments, approvals and other documents as the Lender may reasonably request, including without limitation any agreements, instruments, documents or filings necessary to perfect the security interests purported to be created by the Security Agreement.

 

(f) Proceedings; Receipt of Documents. All proceedings in connection with the transactions contemplated by this Agreement, and all documents incidental thereto, shall be reasonably satisfactory to the Lender, and the Lender shall have received all such information and such counterpart originals or certified or other copies of such documents as the Lender may reasonably request.

 

(g) Material Adverse Effect. Lender shall have determined that no Material Adverse Effect shall have occurred relating to Borrower since December 31, 2020.

 

(h) Due Diligence. Lender shall have completed its business and legal due diligence with respect to Borrower and the Collateral, and the results thereof shall be acceptable to Lender.

 

(i) Equity Financing. Borrower shall have closed on an equity financing in the minimum aggregate amount of at least $6,000,000.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

Section 4.01 Representations and Warranties of Borrower. Borrower represents and warrants, subject to the matters noted on the Schedules attached to this Agreement, as follows:

 

(a) Organization and Powers. Borrower is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and qualified to do business in all states where such qualification is required except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. Borrower has all requisite organizational power and authority to own and operate its properties, to carry on its business as now conducted, to enter into each of the Loan Documents to which it is a party and to incur the Obligations, grant liens and security interests in the Collateral and carry out the transactions contemplated hereby and thereby.

 

(b) No Violation. The execution, delivery and performance by Borrower of each Loan Document to which Borrower is a party (i) does not and will not violate, contravene or conflict with any law or any contractual provision binding on or otherwise affecting Borrower, or any of the properties of Borrower and (ii) does not and will not result in or require the creation of any Lien upon or with respect to any of the properties of Borrower, other than the security interests created by the Loan Documents.

 

(c) Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body, and no consent of any other Person, is required for the due execution, delivery and performance by Borrower of any Loan Document to which Borrower is or will be a party.

 

(d) Authorization; Enforceability. All corporate action on the part of Borrower and its directors, managers, shareholders and members necessary for the authorization, execution, delivery and performance of the Loan Documents and the performance of Borrower’s obligations hereunder has been taken or will be taken prior to the Effective Date. Each Loan Document to which a Borrower is a party constitutes, and each Loan Document to which a Borrower will be a party, when delivered hereunder, will constitute, a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

 

(e) Capitalization. As of the Effective Date: (i) all issued and outstanding capital stock, membership interests or other equity interests of Borrower is duly authorized and validly issued, fully paid, nonassessable, free and clear of all Liens, and such interests were issued in compliance with all applicable state, federal and foreign laws concerning the issuance of securities, and (ii) there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from Borrower of any capital stock, membership interests or other equity interests of any such entity. The outstanding capital stock and membership interests of Borrower are owned beneficially and of record by the persons and in amounts set forth on Schedule 4.01(e).

 

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(f) Property and Assets. Borrower has good and marketable title to all of its material properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, security interest, lease, charge or encumbrance, other than (i) as set forth on Schedule 4.01(f), and (ii) liens resulting from taxes which have not yet become delinquent and liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of Borrower, and which have not arisen otherwise than in the ordinary course of business.

 

(g) Litigation. There is no pending or, to the knowledge of Borrower, threatened action, suit or proceeding affecting Borrower before any court or other Governmental Authority or any arbitrator, which (i) is reasonably likely to have a Material Adverse Effect, (ii) purports to affect the legality, validity or enforceability of any Loan Document or the consummation of any transaction contemplated hereby or (iii) affects any registration, authorization, license, permit or other approval of Borrower that is necessary for Borrower to conduct its business as presently conducted.

 

(h) Financial Condition. Borrower has provided the reviewed financial statements of Borrower as of and for the year ended December 31, 2020 (the “Financial Statements”). The Financial Statements are accurate and complete in all material respects, and are consistent with the books and records of Borrower. The Financial Statements fairly present the financial condition and operating results of Borrower as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, Borrower has no known liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the Financial Statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of Borrower.

 

(i) Compliance with Law, Etc. Borrower is not in violation or default of any provisions of its Articles of Incorporation, Bylaws or other organizational document, as amended to date, or any contract or agreement, or any applicable laws, regulations, judgments, decrees or orders of the United States of America and all states, foreign countries or other governmental bodies and agencies having jurisdiction over Borrower’s business or properties, other than violations of laws, regulations, judgments, decrees or orders that could not reasonably be expected to have a Material Adverse Effect. Borrower has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a Material Adverse Effect on Borrower, and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted.

 

(j) Taxes, Etc. All Federal, state and local tax returns and other reports required by applicable law to be filed by Borrower have been filed, and all taxes and assessments imposed upon Borrower or any property of Borrower and which have become due and payable on or prior to the date hereof have been paid, except to the extent such taxes and assessments are subject to a payment agreement with the respective taxing authority (provided no lien exists on the Collateral with respect thereto), or contested in good faith by proper proceedings which stay the imposition of any penalty or fine or stay the foreclosure of any Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof.

 

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(k) Subsidiaries. As of the date hereof, Borrower does not presently own or control, directly or indirectly, any equity interest in any other corporation, limited liability company, partnership, trust, joint venture, association or other entity, except as indicated on Schedule 4.01(e).

 

(l) Insurance. Borrower maintains insurance with respect to its properties and business of the kinds and in the amounts not less than are customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated, including, without limitation, insurance against loss, damage, fire, theft and public liability.

 

(m) Intellectual Property. Borrower owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, information and other proprietary rights (collectively “Intellectual Property Rights”) necessary for its business as now conducted, without any known infringement of the rights of others. Borrower is not bound by or a party to any options, licenses or agreements of any kind with respect to the Intellectual Property Rights of Borrower or any other person or entity, other than licenses or agreements relating to Borrower’s use rights regarding “off the shelf” or standard products. Borrower has not received written notice that it is infringing upon, violating or otherwise acting adversely to, or that by conducting its business as proposed it would infringe upon, violate or otherwise act adversely to, the right or claimed right of any person or entity under or with respect to any Intellectual Property Rights or licenses of third parties. Borrower is not aware of any violation by a third party of any of Borrower’s Intellectual Property Rights. Borrower is not obligated or under any liability to make payments by way of royalties, fees or otherwise to any owner, licensor of, other claimant to, or party to any option, license or agreement of any kind with respect to, any Intellectual Property Rights except for commercially available software which Borrower licenses on standard terms.

 

(n) Employees. Borrower is not a party to or bound by any currently effective written employment contract with any of its employees, other than those that are terminable at will. To Borrower’s knowledge, no employee of Borrower is in violation of any term of any employment contract, non-disclosure agreement or any other contract or agreement relating to the right of any such employee to be employed by Borrower because of the nature of the business conducted or to be conducted by Borrower or for any other reason, and the continued employment by Borrower of its present employees will not result in any such violations. Except as set forth on Schedule 4.01(n), Borrower has no deferred compensation, pension, profit sharing, bonus, insurance, severance or any other similar employee benefit plan or obligation covering any of its officers or employees other than as set forth in the Financial Statements.

 

(o) Agreements and Other Documents. Borrower has provided, or upon request by Lender shall provide, to Lender accurate and complete copies (or summaries) of all of the following agreements or documents: (i) vendor agreements and purchase agreements not terminable by Borrower within sixty (60) days following written notice issued by Borrower and involving transactions in excess of $20,000 per annum; (ii) agreements with Affiliates of Borrower; (iii) leases of equipment having a remaining term of one year or longer and requiring aggregate rental and other payments in excess of $20,000 per annum; (iv) licenses and permits held by Borrower; (v) instruments and documents evidencing any Indebtedness of Borrower and any Lien granted by Borrower with respect thereto; (vi) agreements containing noncompetition agreements or exclusivity arrangements or that otherwise restrict Borrower’s ability to do business; (vii) agreements involving payments to or by Borrower in excess of $50,000; and (vii) instruments and agreements evidencing the issuance of any equity securities, ownership interests, warrants, rights or options to purchase equity securities or ownership interests of Borrower.

 

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(p) Business Relationships.  To Borrower’s knowledge, there exists no actual or threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between Borrower and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of Borrower, or with any material supplier; and there exists no present condition or state of facts or circumstances which would materially and adversely affect Borrower or prevent Borrower from conducting such business after the consummation of the transactions contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted.

 

(q) Deposit and Disbursement Accounts. Schedule 4.01(q) lists all banks and other financial institutions at which Borrower maintains deposit or other accounts as of the Effective Date, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

 

(r) Related Party Transactions. No employee, officer, director or manager of Borrower or member of his or her immediate family is indebted to Borrower, nor is Borrower indebted (or committed to make loans or extend or guarantee credit) to any of them, other than as set forth on Schedule 4.01(r). Except as set forth on Schedule 4.01(r), to the knowledge of Borrower, none of such persons has any direct or indirect ownership interest in any business or corporation with which Borrower is affiliated or with which Borrower has a business relationship, or any business or corporation that competes with Borrower, except that employees, officers, directors or managers of Borrower and members of their immediate families may own stock in publicly traded companies that may compete with Borrower. No member of the immediate family of any officer, director or manager of Borrower is directly or indirectly interested in any material contract with Borrower, except as set forth in this Section 4.01(r) above.

 

(s) Books and Records. The minute books of Borrower contain complete and accurate records of all meetings and other corporate actions of its shareholders and Board of Directors and committees thereof.

 

(t) Solvency. The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

 

(u) Benefit Plans and ERISA.

 

(i) Schedule 4.01(u) sets forth a complete and accurate list of all pension, profit-sharing, retirement, deferred compensation, bonus, incentive compensation, equity-based compensation, severance, retention, welfare, health, dental, vision, life insurance, disability, tuition, vacation, and other employee benefit and fringe benefit plans and programs (including, but not limited to, all employee benefit plans as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), whether or not subject to ERISA), which are currently in effect for Borrower, which are intended to provide benefits to current or former employees, directors, officers or independent contractors of Borrower and/or their beneficiaries, or for which Borrower has any liability, whether actual or contingent. Each of these arrangements will be referred to herein as a “Benefit Plan.”

 

(ii) Borrower has delivered to Lender a true and complete copy of each Benefit Plan.

 

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(iii)  Each Benefit Plan has at all times been operated in accordance with its terms, and complies currently, and has complied in the past, both in form and operation, and whether as a matter of substantive law or in order to maintain any intended tax qualification, with all Laws, including ERISA and the Code.

 

(v) Business Locations. Set forth on Schedule 4.01(v) is a list of all real property located in the United States that is owned or leased by Borrower as of the Closing Date. Set forth on Schedule 4.01(v) is the tax payer identification number and organizational identification number of Borrower as of the Closing Date. The exact legal name and state of organization of Borrower is as set forth on the signature pages hereto. Except as set forth on Schedule 4.01(v), Borrower has not during the five years preceding the Closing Date (i) changed its legal name, (ii) changed its state of formation, or (iii) been party to a merger, consolidation or other change in structure.

 

(w) Full Disclosure. No Loan Document or schedule or exhibit thereto, and no certificate, report, statement or other document or information furnished to Lender by Borrower in connection herewith or with the consummation of the transactions contemplated hereby, contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained herein or therein not misleading in any material respect in light of the circumstances under which they were made. There is no fact known to Borrower that materially adversely affects the financial condition of Borrower or the value of the Collateral, or that otherwise is reasonably likely to have a Material Adverse Effect, that has not been disclosed to Lender in writing prior to the Effective Date.

 

ARTICLE V

COVENANTS OF BORROWER

 

Section 5.01 Affirmative Covenants. So long as any principal of or interest on any Loan or any other Obligations (whether or not due) shall remain unpaid or Lender shall have any Commitment hereunder, Borrower will, unless Lender shall otherwise consent in writing:

 

(a) Reporting Requirements. Furnish to Lender:

 

(i) no later than 30 days after the end of each month, unaudited financial statements of Borrower for the prior month, in form and substance reasonably acceptable to Lender, fairly presenting the financial condition of Borrower as of such date, complete with both monthly and year to date financial results, and an affirmative written statement by an officer of Borrower stating that no Defaults have occurred; provided, however that at the end of each month Borrower shall provide Lender with a covenant compliance certificate that includes its calculations of EBITDA;

 

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(ii) no later than 120 days after the end of each fiscal year, financial statements of Borrower for the prior fiscal year, in form and substance reasonably acceptable to the Lender, fairly presenting the financial condition of Borrower as of such date ;

 

(iii) promptly after the commencement thereof but in any event not later than 15 Business Days after service of process with respect thereto on, or the obtaining of knowledge thereof by, Borrower, notice of each action, suit or proceeding at law, in equity, in arbitration or before any other Governmental Authority or other regulatory body or arbitrator involving Borrower or the Collateral;

 

(iv) promptly but in any event not more than 15 Business Days after the occurrence thereof, notice of the occurrence of either any Default or Event of Default under this Agreement, which notice shall contain a brief description of the nature of such Default or Event of Default and any action with respect thereto taken or contemplated to be taken by Borrower;

 

(v) promptly upon request, such other information concerning the financial condition of Borrower or information concerning any of the Collateral, in each case, as the Lender from time to time may reasonably request; and

 

(vi) no later than 30 days after the end of each month after receipt by Borrower, copies of all reports and statement received by Borrower from any of its banks or other financial institutions (in lieu of such requirement, Borrower may grant Lender on-line “view only” access to all of their accounts on terms acceptable to Lender).

 

(b) Compliance with Laws, Etc. Comply in all respects with (i) all applicable laws, rules, regulations and orders, such compliance to include, without limitation, (A) paying before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon Borrower or upon Borrower’s income or profits or upon Borrower’s properties, (B) paying all lawful claims which if unpaid might become a Lien or charge upon Borrower’s properties, except in each case to the extent contested in good faith by proper proceedings which stay the imposition of any penalty or fine or stay the foreclosure of any Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof, and (C) obtaining and maintaining in effect Borrower’s registrations, authorizations, licenses, permits and authorities necessary to carry out Borrower’s business as currently conducted, and (ii) the obligations, covenants and conditions contained in all material contractual obligations of Borrower or any of its subsidiaries, other than, with respect to the foregoing clauses (i)(A), (i)(B) and (ii), those laws, rules, regulations, orders and contractual provisions the noncompliance with which could not be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect.

 

(c) Further Assurances. Do, execute, acknowledge and deliver, at the sole cost and expense of Borrower, all such further acts and assurances as the Lender may reasonably require from time to time consistent with this Agreement, in order to better assure, convey, grant, assign, transfer and confirm unto the Lender the rights now or hereafter intended to be granted to the Lender under this Agreement, any Loan Document or any other instrument under which Borrower may be or may hereafter become bound to effect the intention or facilitate the performance of the terms of this Agreement.

 

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(d) Federal Regulations. If requested by Lender at any time and from time to time, furnish to Lender any information necessary for Lender to file a Federal Reserve Form U-1.

 

(e) Collateral. Take or cause to be taken all steps necessary or reasonably requested by Lender to grant to Lender a perfected, security interest in the Collateral and to enable Lender to realize upon and transfer or otherwise dispose of the Collateral, in compliance with all applicable laws, including without limitation the delivery of duly endorsed stock certificates, the filing of UCC-1 financings statements and, after the occurrence of an Event of Default, the execution of account control agreements or similar agreements (in form satisfactory to Lender) with respect to any bank or brokerage accounts maintained by Borrower and its subsidiaries pursuant to which such bank or broker acknowledges the security interest of Lender in such accounts, agrees to comply with instructions originated by Lender directing disposition of the funds in the accounts without further consent from Borrower or its subsidiary, and agrees to subordinate and limit any security interest the bank or broker may have in any such account on terms satisfactory to Lender.

 

(f) Maintenance of Properties; Insurance. Maintain or cause to be maintained in good repair, working order and condition (ordinary wear and tear excepted) all properties used in the business of Borrower and its subsidiaries and, to the extent deemed prudent business conduct (to be determined by Borrower in its good faith discretion) will make or cause to be made all appropriate repairs, renewals and replacements thereof. Borrower will maintain or cause to be maintained, with financially sound and reputable insurers, public liability and property damage insurance with respect to its business and properties and the business and properties of its subsidiaries against loss or damage of the kinds customarily carried or maintained by companies of established reputation engaged in similar businesses and in amounts reasonably acceptable to Lender and will deliver evidence thereof to Lender. Borrower shall cause Lender, pursuant to endorsements and/or assignments in form and substance reasonably satisfactory to Lender, to be named as lender’s loss payee in the case of casualty insurance, additional insured in the case of all liability insurance and assignee in the case of all business interruption insurance (if any), in each case for the benefit of Lender. In the event Borrower fails to provide Lender with evidence of the insurance coverage required by this Agreement, Lender may, after no less than thirty (30) days prior written notice to Borrower, purchase insurance at Borrower’s expense to protect Lender’s interests in the Collateral. This insurance may, but need not, protect Borrower’s interests. The coverage purchased by Lender may not pay any claim made by Borrower or any claim that is made against Borrower in connection with the Collateral. Borrower may later cancel any insurance purchased by Lender, but only after providing Lender with evidence that Borrower has obtained insurance as required by this Agreement. If Lender purchases insurance for the Collateral, Borrower will be responsible for the costs of that insurance, including interest and other charges imposed by Lender in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to the Obligations. The costs of the insurance may be more than the cost of insurance Borrower is able to obtain on its own.

 

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(g) Inspection; Lender Meeting. Upon reasonable notice (but in no event less than forty eight (48) hours prior notice), permit any authorized representatives of Lender to visit, audit, appraise and inspect the Collateral and Borrower’s financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and business with its and their officers and certified public accountants, at such reasonable times during normal business hours and as often as may be reasonably requested; provided that while any Event of Default is occurring no notice to Borrower shall be required. Any such visits, audits, collateral audits, appraisals and inspections shall be at Borrower’s sole cost and expense; provided, however, that if no Event of Default has occurred and is continuing, then Borrower shall not be obligated to pay for (i) more than 2 days of onsite audit or inspection by Lender in any twelve month period and (ii) more than 1 audit or inspection by a third party in any 12 month period. The cost of audits or inspection by Lender shall not exceed $1,500 per day.

 

(h) Organizational Existence. At all times preserve and keep in full force and effect its organizational existence and all rights and franchises material to its business.

 

(i) Board Meeting and Materials. Provide Lender copies of all final (as opposed to drafts) of notices, minutes, consents and other materials Borrower provides to its directors in connection with meetings of the Board of Directors (or committees thereof) at the same time and in the same manner as it gives to its directors.

 

(j) Formation of Subsidiaries. At the time of the formation of any direct or indirect subsidiary of Borrower after the date hereof or the acquisition of any direct or indirect subsidiary of Borrower after the date hereof, Borrower shall (a) cause such new subsidiary to execute a counterpart signature page to this Agreement, the Security Agreement and the other Loan Documents (as applicable), pursuant to which such new subsidiary shall become a Borrower under this Agreement, the Security Agreement and the other Loan Documents so executed, together with appropriate Uniform Commercial Code financing statements and other security documents, all in form and substance reasonably satisfactory to Lender, (b) provide to Lender a pledge agreement and appropriate certificates and powers or Uniform Commercial Code financing statements, pledging all direct or beneficial ownership interest in such new subsidiary (regardless of whether owned by Borrower or a subsidiary of Borrower or a holder of a minority equity interest), in form and substance reasonably satisfactory to Lender.

 

SECTION 5.02. Negative Covenants. So long as any principal of or interest on any Loan or any other Obligations (whether or not due) shall remain unpaid or the Lender shall have any Commitment hereunder, Borrower will not, without the prior written consent of the Lender:

 

(a) Liens, Pledges, Etc. Create or suffer to exist any Lien or pledge (other than Liens and pledges in favor of the Lender), or other type of preferential arrangement upon or with respect to any of the Collateral.

 

(b) Indebtedness. Create, incur or suffer to exist any Indebtedness or permit any subsidiary to do so, other than:

 

(i) Indebtedness owing to the Lender;

 

(ii) Indebtedness permitted by paragraph (c) of this Section 5.02;

 

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(iii) provided no Event of Default has occurred and is continuing, Indebtedness used solely for the acquisition of equipment as permitted by Section 5.02(m) below, in an aggregate principal amount not to exceed $100,000 outstanding at any time in any twelve month period, without the Lender’s prior written consent. The thresholds provided herein shall be inclusive of, and not in addition to, the thresholds for Capital Expenditures permitted pursuant to Section 5.02(m) hereof.

 

(c) Guaranties, Etc. Assume, guarantee, indorse or otherwise become directly or contingently liable for Indebtedness of any other Person, other than:

 

(i) guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business; and

 

(ii) guaranties in favor of the Lender.

 

(d) Changes to Agreements. Agree or consent to any amendment, modification, supplement or waiver of any provision of any material contract to which Borrower or any of its subsidiaries is a party, if such amendment, modification, supplement or waiver could reasonably be expected to have a Material Adverse Effect. Enter into any agreement that in any way restricts or imposes conditions or fees on the sale, assignment, pledge or other disposition of the Collateral.

 

(e) Fundamental Changes. Directly or indirectly: (i) amend, modify or waive any term or provision of its organizational documents, including its articles of incorporation, articles of organization, by-laws or operating agreement, in any material manner or in any manner which negatively affects Lender; (ii) enter into any transaction involving a merger or consolidation with another Person; (iii) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); (iv) acquire by purchase or otherwise acquire all or any substantial part of the business or assets of any other Person, (v) consummate, or enter into an agreement to consummate, a Change in Control; or (vi) sell, convey, license, lease or dispose of a material portion of Borrower’s assets or business.

 

(f) Investments. (i) Acquire or own, or make any investment in or loan to, any Person, or permit any of its subsidiaries so to do, or (ii) maintain or invest any of its property with a Person other than Lender or permit any subsidiary to do so unless such Person has entered into a control agreement with Lender, in form and substance satisfactory to Lender, or (iii) suffer or permit any subsidiary to be a party to, or be bound by, an agreement that restricts such subsidiary from paying dividends or otherwise distributing property to Borrower.

 

(g) Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, membership interests or other equity interest.

 

(h) Change in Name, Location; Executive Office; Executive Management; Business. Change its name or state of organization or relocate its chief executive office without 30 days prior written notification to Lender; replace its chief executive officer or chief financial officer without 30 days prior written notification to Lender; engage in any business, or permit any of its subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower.

 

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(i) Bank Accounts. Establish any new bank or brokerage accounts without prior written notice to Lender.

 

(j) Transactions with Affiliates. Directly or indirectly enter into or permit to exist any transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms. For the avoidance of doubt, no Borrower shall enter into any contract (or arrangement if no contract) with any other Borrower that has the effect of causing any Borrower to suffer lower margins (other than lower margins that may result from the ordinary course of business), with respect to the services/products in question, than: (i) such first party earned prior to such arrangement; or (ii) such first party would have earned had it performed the service/made the products internally.

 

(k) Confidentiality. Disclose, or permit its Affiliates to disclose, the terms and conditions of the Loan Documents, unless (and only to the extent that) Borrower or such Affiliate is required to do so under law and then, in any event, Borrower or such Affiliate will consult with Lender, as applicable, before making such disclosure. Borrower consents to the publication by Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. Lender reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements; provided that such information shall contain no specific references to Borrower or its Affiliates.

 

(l) Indebtedness. Prepay any Indebtedness (other than to Lender) or amend the material terms of any of its Indebtedness.

 

(m) Capital Expenditures. Incur or contract to incur Capital Expenditures, other than for the purchase of equipment in an aggregate amount not to exceed $250,000 during any twelve month period; which expenditures may be paid in cash or financed through a capital lease, loan or similar arrangement; provided, however, that the thresholds provided herein shall be inclusive of, and not in addition to, the thresholds of Indebtedness permitted pursuant to Section 5.02(b)(iii) hereof; and provided further that no such Capital Expenditures shall be incurred or contracted for at any time an Event of Default exists.

 

(n) Funded Debt/EBITDA Ratio. Borrower shall not permit the aggregate Funded Debt during the trailing twelve (12) month period to exceed two (2) times the trailing twelve (12) month EBITDA of Borrower, as measured on a monthly basis on and after September 30, 2021. For the avoidance of doubt, EBITDA shall be calculated on an annualized run rate basis during the first twelve months after the Effective Date and then covert to a trailing twelve month basis for all periods thereafter.

 

ARTICLE VI

EVENTS OF DEFAULT

 

Section 6.01 Events of Default. Any one or more of the following events shall constitute an Event of Default under this Agreement:

 

(a) Borrower shall fail to pay (i) any principal of any Loan when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) or (ii) any interest on any Loan, any fee or any other amount payable hereunder or any other Indebtedness of Borrower to the Lender when due. Notwithstanding the foregoing requirements, the Borrower will be permitted to pay up to three (3) days late on no more than three occasions within a twelve month period without such tardiness constituting an Event of Default.

 

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(b) any representation or warranty made by Borrower in any Loan Document or in any report, certificate or other document delivered to the Lender pursuant to any Loan Document shall have been incorrect in any material adverse respect when made; or

 

(c) Borrower shall materially fail to perform or observe any term, covenant or agreement contained in any Loan Document to be performed or observed by Borrower (other than as set forth in subsections (a), and (b) of this Section 6.01), and such failure, if capable of being remedied, shall remain unremedied for 15 Business Days after written notice thereof shall have been given to Borrower by the Lender; or

 

(d) Borrower shall fail to pay any Indebtedness (excluding Indebtedness evidenced by this Agreement), or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other material default under any agreement or instrument relating to any such Indebtedness, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

 

(e) Borrower shall be generally not paying its debts as they become due, or shall admit in writing its inability to pay such debts generally as they become due, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against Borrower, seeking to adjudicate Borrower bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of Borrower or the debts of Borrower under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Borrower or for any substantial part of the property of Borrower, and, in the case of any such proceeding instituted against Borrower, the petition commencing such proceeding is not dismissed within 120 calendar days of the date of the filing thereof; or Borrower shall take any action to authorize or effect any of the actions set forth above in this subsection (f); or

 

(f) the Security Agreement and the Financing Statement, or any other security document in connection with the transaction contemplated herein after delivery, shall for any reason, fail or cease to create a valid and perfected first priority lien on and security interest in the Collateral purported to be covered thereby; or

 

(g) the occurrence of any uninsured loss, theft, damage, or destruction of or to any material portion of the Collateral of a value in excess of $50,000; or

 

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(h) any Governmental Authority shall revoke, not renew or suspend (for more than 10 Business Days) any license, permit or authorization of Borrower that is necessary for Borrower to conduct its business as presently conducted; or any such Governmental Authority shall have appointed a conservator, supervisor or trustee to oversee any of the operations of Borrower, any guarantor of the Loan or any of their respective subsidiaries; or

 

(i) Any of Alfonso J. Cervantes, Jr. (Executive Chairman), Ryan F. Zackon (CEO) or Darren C. Minton (President) shall cease to be employed or engaged by Borrower on a full time basis and such Borrower shall have failed to employ or engage a replacement approved by Lender within sixty (60) days, unless otherwise consented to by Lender, which such consent shall not be unreasonably withheld; or

 

(j) the occurrence of a default or event of default under any agreement relating to Indebtedness permitted by Section 5.02(b) hereof; or

 

(k) the occurrence of an event or the existence of a circumstance that is more likely than not to result in a Material Adverse Effect; or

 

(l) the occurrence of a Change in Control; or

 

(m) one or more judgments or orders for the payment of money exceeding any applicable insurance coverage by more than $50,000 in the aggregate, shall be rendered against Borrower, and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

 

(n) any shareholder of Borrower shall transfer or create or suffer to exist any Lien or pledge upon or with respect to any of the shares of stock of Borrower.

 

In any such event, the Lender may, by notice to Borrower, (i) declare the Commitment to be terminated, whereupon the Commitment shall forthwith terminate, (ii) declare all Obligations to be forthwith due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower, (iii) require additional information relating to Borrower, as it sees fit in its reasonable discretion, and (iv) exercise any and all of its other rights under applicable law, hereunder and under the other Loan Documents; provided, however, that in the event of an entry of an order for relief with respect to Borrower under the United States Bankruptcy Code or the occurrence of any event described in paragraph (f) of this Section 6.01, the Commitment shall automatically be terminated and all Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by Borrower.

 

Section 6.02 Application of Proceeds. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of a Default or Event of Default, (a) Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Lender from or on behalf of Borrower, and Lender shall have the continuing and exclusive right to apply and to reapply any and all payments received at any time or times after the occurrence and during the continuance of a Default or Event of Default against the Obligations in such manner as Lender may deem advisable, consistent with the terms hereof, notwithstanding any previous application by Lender and (b) in the absence of a specific determination by Lender with respect thereto, the proceeds of any sale of, or other realization upon, all or any part of the Collateral shall be applied: first to the payment of fees and expenses payable hereunder; second, to accrued interest on the Loans (including any interest which but for the provisions of the Bankruptcy Code, would have accrued on such amounts); third, to reduce the outstanding principal balance of the Loans until the Loans have been paid in full in cash; and fourth, to any other obligations of Borrower owing to Lender under the Loan Documents. Any balance remaining shall be delivered to Borrower or to whomever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct.

 

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ARTICLE VII

MISCELLANEOUS

 

Section 7.01 Notices, Etc. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied, emailed or delivered (including via courier) to Borrower and the Lender at the addresses set forth below, or at such other addresses as shall be designated by Borrower or the Lender in a written notice to the other party complying as to delivery with the terms of this Section 7.01.

 

Borrower

 

Bonne Sante Group, Inc.

10575 NW 37th Terrace

Doral, FL 33178

Attention: Mr. Alfonso J. Cervantes, Chairman

Telephone:

e-mail:

 

Lender  

 

Diamond Creek Capital, LLC

11378 Villa Bellagio Drive

Las Vegas, NV 89141

Attn: Thomas P. Harrison

Telephone: Fax:

e-mail:  

 

All such notices and other communications shall be effective (a) if mailed, three (3) days after the mailing date, (b) if telecopied or emailed, upon receipt or (c) if delivered, upon delivery.

 

Section 7.02 Amendments, Etc. No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by Borrower and the Lender, and no waiver of any provision of this Agreement, nor consent to any departure by Borrower therefrom, shall be effective unless it is in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

Section 7.03 No Waiver; Remedies, Etc. No failure on the part of a party to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of a party provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights and remedies of a party under any Loan Document against another party thereto are not conditional or contingent on any attempt by such party to exercise any of its rights and remedies under any other Loan Document against such other party or against any other Person.

 

Section 7.04 Fees, Costs, Expenses and Taxes. Borrower shall pay or cause to be paid on demand (a) all reasonable fees, costs and expenses in connection with (i) the negotiation, execution and delivery of this Agreement and any other Loan Document and (ii) the amendment, waiver and administration of this Agreement and any other Loan Document and the other documents to be delivered pursuant to the Loan Documents, and (b) all reasonable costs and expenses, if any (including, without limitation, reasonable counsel fees, expenses and other client charges), in connection with the enforcement of (or any “work-out” or restructure with respect to) the Loan Documents and the other documents to be delivered pursuant to the Loan Documents. In addition, Borrower will pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of the Loan Documents and the other documents to be delivered pursuant to the Loan Documents, and will save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. For the avoidance of doubt, such taxes shall not include taxes on Lender’s income hereunder.

 

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Section 7.05 Indemnification. Borrower hereby agrees to indemnify, defend and hold the Lender and its officers, directors, managers, employees, agents, and attorneys (collectively, the “Indemnitees”) harmless from and against any and all claims, charges, actions, suits, proceedings, lawsuits, obligations, liabilities, fines, penalties, costs and expenses (including, without limitation, reasonable attorney’s fees, expenses and other client charges) which the Indemnitee shall incur or which shall be claimed against an Indemnitee by any Person in any way relating to or arising out of (a) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby or (b) the use of the proceeds of the Loans including any and all reasonable expenses set forth in Section 7.04 hereof which arise as a result of any claims, charges, actions, suits, proceedings or lawsuits described in this Section 7.05. Borrower shall not have any obligation to any Indemnitee under this Section 7.05 with respect to any claims, charges, suits, proceedings, lawsuits, obligations, liabilities, fines, penalties, costs and expenses that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnitee. The obligations and provisions of this paragraph shall continue and remain in full force and effect after the Obligations of Borrower under this Agreement and the other Loan Documents have been paid and discharged in full and this Agreement and such other Loan Documents are otherwise terminated.

 

Section 7.06 Right of Set-off. Upon the occurrence and during the continuance of any Event of Default the Lender may, and is hereby authorized to, at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower) and to the fullest extent permitted by law, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of Borrower against any and all obligations of Borrower now or hereafter existing under any Loan Document, irrespective of whether or not the Lender shall have made any demand hereunder or thereunder and although such obligations may be contingent or unmatured. Lender agrees promptly to notify Borrower after any such set-off and application made by the Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section 7.06 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have.

 

Section 7.07 Severability. Any provision of this Agreement, or of any other Loan Document to which Borrower is a party, which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

 

Section 7.08 . Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Borrower and the Lender and their respective successors and assigns, except that Borrower may not assign the rights of Borrower hereunder or any interest herein without the prior written consent of the Lender and any such assignment without the Lender’s prior written consent shall be null and void. Lender may assign, transfer, pledge, grant a security interest in or enter into one or more participations with respect to all or a portion of its rights and obligations under this Agreement and the other Loan Documents without the consent of Borrower or any other Person.

 

Section 7.09 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Agreement.

 

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Section 7.10 Headings. Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

Section 7.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEVADA WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

 

Section 7.12 Consent to Jurisdiction, Etc. SUBJECT TO THE OTHER PROVISIONS SET FORTH HEREIN, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEVADA IN CLARK COUNTY, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF THE PROPERTY OF BORROWER, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL OR VIA NATIONALLY RECOGNIZED COURIER, POSTAGE PREPAID, TO THE OTHER PARTY AT ITS ADDRESS FOR NOTICES CONTAINED IN SECTION 7.01 HERETO. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

Section 7.13 Survival of Agreement. All covenants, agreements, representations and warranties made by Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lender and shall survive the making by the Lender of the Loan, regardless of any investigation made by the Lender or on its behalf, and shall continue in full force and effect so long as the principal of or any accrued interest on the Loan or any fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or the Commitment has not been terminated. The provisions of Section 7.05 hereof shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement or any other Loan Document, the consummation of the transactions contemplated hereby, the repayment of the Loan, the expiration of the Commitment, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Lender.

 

Section 7.14 No Third Party Beneficiaries. No Person, other than the parties (and, in the case of the Lender, its successors and assigns hereunder) to this Agreement, has been given or shall be deemed to have been given any rights as a third party beneficiary hereunder or under any of the other Loan Documents or other instruments and documents executed in connection herewith and therewith.

 

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Section 7.15 Protection of Assets. Lender, in the Lender’s discretion, and from time to time, may discharge any tax or Lien on any of the Collateral or, upon and during the continuance of a Default or Event of Default, take any other action which the Lender may deem necessary or desirable to repair, insure, maintain, preserve, collect, or realize upon any of the Collateral. Lender shall not have any obligation to undertake any of the foregoing and shall have no liability on account of any action so undertaken except where there is a specific finding in a judicial proceeding (in which the Lender has had an opportunity to be heard), from which finding no further appeal is available, that the Lender had acted in bad faith or in a grossly negligent manner. Borrower shall pay to the Lender, on demand, all amounts paid or incurred by the Lender pursuant to this Section.

 

Section 7.16 No Fiduciary Relationship; Limited Liability. No provision in the Loan Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty owing to Borrower by Lender. Borrower agrees that Lender shall have no liability to Borrower or any of its Affiliates or subsidiaries (whether direct or indirect, sounding in tort, contract or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless and to the extent that it is determined that such losses resulted from the willful misconduct of the party from which recovery is sought as determined by a final non-appealable order by a court of competent jurisdiction. Lender shall not have any liability with respect to, and Borrower, for itself and its subsidiaries and Affiliates, hereby waives, releases and agrees not to sue for, any special, indirect, punitive or consequential damages suffered by Borrower or any of its Affiliates or subsidiaries in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby.

 

Section 7.17 Integration. This Agreement and the other Loan Documents represent the entire agreement of Borrower and the Lender with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Lender relative to the subject matter thereof not expressly set forth or referred to herein or in the other Loan Documents.

 

Section 7.18 Acknowledgments. Each Borrower hereby acknowledges that:

 

(a) Borrower has been advised by legal counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; and

 

(b) no joint venture exists between the Lender and Borrower.

 

Section 7.19 Waiver of Trial by Jury. EACH BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

 

Section 7.20 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in Clark County, Nevada, in accordance with the rules, then obtaining of the American Arbitration Association as such rules may be modified herein. An award rendered in connection with any arbitration pursuant to this Section 7.20 may be entered in any court having jurisdiction thereof. The arbitrator or arbitrators shall be bound by the Commercial Arbitration Rules of the American Arbitration Association relating to all arbitration procedures and discovery. During the continuance of any arbitration proceedings, the parties shall continue to perform their respective obligations under the Agreement.

 

[Remainder of this page intentionally left blank]

 

Loan Agreement (BSG)

 

26

 

 

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

 

BORROWER:   LENDER:
         
Bonne Santé Group, Inc.,   Diamond Creek Capital, LLC,
a Delaware corporation   a Delaware limited liability company
         
By: /s/ Alfonso J. Cervantes   By: /s/ Thomas Harrison
Name:  Alfonso J. Cervantes     Thomas Harrison
Its: Executive Chairman     Managing Director
         
Bonne Santé Natural Manufacturing, Inc.,      
a Florida corporation      
         
By: /s/ Alfonso J. Cervantes      
Name: Alfonso J. Cervantes      
Its: Executive Chairman      
         
Doctors Scientific Organica, LLC,      
a Florida limited liability company      
         
By: /s/ Alfonso J. Cervantes      
Name: Alfonso J. Cervantes      
Its: Executive Chairman      

 

[Signature Page to Loan Agreement]

 

 

 

 

 

Exhibit 10.22

 

TERM LOAN PROMISSORY NOTE

 

$3,000,000 July 1, 2021

 

FOR VALUE RECEIVED, Bonne Santé Group, Inc., a Delaware corporation (“BSG”), Bonne Santé Natural Manufacturing, Inc. f/k/a Millenium Natural Manufacturing Corp., a Florida corporation (“BSG Manufacturing”), and Doctors Scientific Organica, LLC, a Florida limited liability company (together with BSG and BSG Manufacturing, the “Borrower” or the “Company” or the “Maker”), promises to pay in lawful money of the United States to the order of Diamond Creek Capital, LLC (“Holder”) the principal sum of Three Million Dollars ($3,000,000), or, if less, so much thereof as may from time to time be advanced as Loans by Holder to Borrower hereunder, together with any and all accrued but theretofore unpaid interest thereon, as hereinafter provided.

 

This Promissory Note is issued pursuant to, and is subject to, that certain Loan Agreement between Maker and Holder dated as of even date herewith (“Loan Agreement”). In the event of any inconsistency or conflict between the Loan Agreement and this Promissory Note, the terms, conditions and provisions of the Loan Agreement shall govern and control. Capitalized terms that are defined in the Loan Agreement and not otherwise defined herein have, unless the context otherwise requires, the respective meanings given to them in the Loan Agreement.

 

The outstanding principal hereof, and all accrued and unpaid interest, shall bear interest at the rate (including the Default Rate and Post-Maturity Rate, as applicable) provided in the Loan Agreement and shall be payable pursuant to the terms of the Loan Agreement. Payments shall be due and payable to Holder at 11378 Villa Bellagio Drive, Las Vegas, NV 89141 or at such other address as the holder hereof may provide by written notice. The Borrower shall repay to the Holder any unpaid principal of, and all accrued and unpaid interest on, the Loan, and all fees, indemnities or any other Obligations of the Borrower under the Loan Agreement and the other Loan Documents on the Maturity Date. The Closing Fee and fees and expenses set forth in the Flow of Funds Agreement shall be offset by Holder against the Loan made pursuant to this Promissory Note such that the actual payment received by Maker with respect to such Loan shall be net of such amounts.

 

The obligations of Maker hereunder shall be secured by all of the tangible and intangible assets of Maker as described in the Security Agreement, and Maker agrees to execute the Security Agreement concurrently herewith to further evidence, and set forth the terms and conditions of, such security interest.

 

Maker may prepay the amounts owing under this Promissory Note in whole or in part in accordance with the terms of the Loan Agreement.

 

Maker hereby waives all notices, demands, presentments, protests, and all other suretyship and similar defenses in connection with the execution, delivery, payment and enforcement of this Promissory Note. No indulgence granted by Holder hereof in any instance shall constitute a waiver or consent to any other indulgence in any other similar or dissimilar, prior or subsequent instance. This Promissory Note may not be amended, modified, or supplemented except by written agreement signed by the party against which the enforcement of the amendment, modification, or supplement is sought. Time is of the essence with respect to all obligations of Maker under this Promissory Note.

 

 

 

 

This Promissory Note shall be governed by the laws of the State of Nevada, without regard to conflict of law principles. Notwithstanding any other provision hereof, in the event that any term for the payment of interest or any other amounts due hereunder shall render this Promissory Note usurious as a matter of Nevada law, then this Promissory Note shall be deemed to have been amended and restated so as to provide for the maximum amount which may be permitted to be collected pursuant to the laws of the State of Nevada without rendering this Promissory Note usurious, and in such event any interest charged or collected in excess of the maximum permissible rate shall be (i) first, applied to outstanding principal under this Promissory Note, (ii) second, applied to any other outstanding Obligations, and (iii) third, returned to Maker, together with interest on the overcharge at the maximum permissible rate. This Promissory Note is executed as a binding obligation of Maker, and may be enforced against Maker and its successors and assigns in the state courts and United States Federal Courts located in or within the State of Nevada.

 

In Witness Whereof, the Maker has caused this Promissory Note to be signed in its name as of the date hereof.

 

Bonne Santé Group, Inc.,  
a Delaware corporation  
     
By: /s/ Alfonso J. Cervantes  
Name:  Alfonso J. Cervantes  
Its: Executive Chairman  
     
Bonne Santé Natural Manufacturing, Inc.,  
a Florida corporation  
     
By: /s/ Alfonso J. Cervantes  
Name: Alfonso J. Cervantes  
Its: Executive Chairman  
     
Doctors Scientific Organica, LLC,  
a Florida limited liability company  
     
By: /s/ Alfonso J. Cervantes  
Name: Alfonso J. Cervantes  
Its: Executive Chairman  

 

 

 

 

Exhibit 10.23

 

Execution Copy

 

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this “Agreement”), dated as of July 1 , 2021 is made by and between Bonne Santé Group, Inc., a Delaware corporation (“BSG”), Bonne Santé Natural Manufacturing, Inc. f/k/a Millenium Natural Manufacturing Corp., a Florida corporation (“BSG Manufacturing”), and Doctors Scientific Organica, LLC, a Florida limited liability company (together with BSG and BSG Manufacturing, the “Company” or the “Debtor”), and Diamond Creek Capital, LLC, a Delaware limited liability company or its permitted transferees or assigns (the “Secured Party”). Capitalized terms that are defined in the Loan Agreement (defined below) and not otherwise defined herein have, unless the context otherwise requires, the respective meanings given to them in the Loan Agreement.

 

W I T N E S S E T H:

 

WHEREAS, the Secured Party has agreed to extend a loan to the Debtor pursuant to that certain Loan Agreement of even date herewith between Secured Party and Debtor (“Loan Agreement”); and

 

WHEREAS, in order to induce the Secured Party to extend the loan evidenced by the Loan Agreement, Debtor has agreed to execute and deliver to the Secured Party this Agreement and to grant the Secured Party a security interest in certain property of Debtor to secure the prompt payment, performance and discharge in full of all of the Debtor’s obligations under the Loan Agreement.

 

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

1 . Certain Definitions.

 

As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement or the Loan Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “vehicles”, “replacement parts”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

 

(a) “Debtor’s Books” are all Debtor’s books and records including ledgers, records regarding Debtor’s assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information.

 

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(b) “Collateral” means all of the property and assets of Debtor, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and shall include without limitation:

 

(i) All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located, excluding leased or financed equipment;

 

(ii) All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Debtor’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above;

 

(iii) All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind;

 

(iv) All now existing and hereafter arising accounts, contract rights, royalties, license rights, accounts receivable and all other forms of obligations owing to Debtor arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Debtor, whether or not earned by performance, and any and all credit insurance, guarantees, and other security therefor, as well as all merchandise returned to or reclaimed by Debtor;

 

(v) All documents, cash, deposit accounts, securities (including capital stock or other equity or debt securities of any subsidiaries of Debtor), securities entitlements, securities accounts, investment property, partnership interests, membership interests, financial assets, letters of credit, letter-of-credit rights, commercial tort claims, certificates of deposit, instruments, chattel paper, notes receivable, now owned or hereafter acquired, and any and all credit insurance, guarantees, and other security therefor;

 

(vi) All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing;

 

(vii) All Debtor’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof;

 

(viii) All right, title and interest to the membership interests of Debtor in any affiliated entities and subsidiaries of Debtor and its interest in the income, distributions, repayment of capital contributions, deductions, losses, tax benefits, payments, sums, fees and voting rights of the Debtor in such affiliated entities and subsidiaries of Debtor, and all books and records pertaining to any of the Collateral;

 

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(ix) All certificates, documents and instruments representing or evidencing ownership of the foregoing Collateral described in subsection (viii) above and all proceeds of such Collateral, including, without limitation, cash, property (including real and personal property) and other distributions, dividends, securities, rights and other property now or hereafter at any time or from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Collateral;

 

(x) All options and other rights to subscribe for or purchase voting or nonvoting interests (including membership interest) in any such affiliated entities of Debtor, respectively, and all benefits to be derived therefrom, whether now existing or hereafter arising during the term of this Security Agreement with respect to any of the foregoing Collateral described in subsections (viii) and (ix) above;

 

(xi) All substituted or additional collateral required to be supplied under the terms of this Security Agreement; and

 

(xii) The proceeds of all of the foregoing Collateral described in subsections (viii) through (xi) above.

 

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the applicable contract or the assignment of which is otherwise prohibited by applicable law or the applicable contract.

 

(c) “Obligations” means all of the Debtor’s obligations under this Agreement and the Loan Agreement, and any other instruments, agreements or other documents executed or delivered in connection herewith or with the Loan Agreement. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Loan Agreement and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtor from time to time under or in connection with this Agreement or the Loan Agreement; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving Debtor.

 

(d) “UCC” means the Uniform Commercial Code of the State of Delaware or Florida and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly, if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

 

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2 . Grant of Security Interest.

 

As an inducement for the Secured Party to extend the loans as evidenced by the Loan Agreement and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, Debtor hereby pledges, grants and hypothecates to the Secured Party a security interest in and to all of its right, title and interest of whatsoever kind and nature in and to the Collateral (the “Security Interest”).

 

3. Delivery of Certain Collateral.

 

Contemporaneously or prior to the execution of this Agreement, Debtor shall deliver or cause to be delivered to the Secured Party any and all certificates and other instruments or documents representing any of the Collateral.

 

4. Representations, Warranties, Covenants and Agreements of the Debtor.

 

Debtor represents and warrants to, and covenants and agrees with, the Secured Party as follows:

 

(a) Debtor has the requisite corporate power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of Debtor and no further action is required by Debtor. This Agreement has been duly executed by Debtor. This Agreement constitutes the legal, valid and binding obligation of Debtor, enforceable against Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

 

(b) Debtor is the sole owner of the Collateral (except for non-exclusive licenses granted by Debtor in the ordinary course of business), free and clear of all Liens and is fully authorized to grant the Security Interest.

 

(c) There is no proceeding involving the rights granted herein pending or, to the best knowledge of Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

 

(d) Debtor shall at all times maintain the Collateral and its books of account and records relating to the Collateral at its principal place of business.

 

(e) This Agreement creates in favor of the Secured Party a valid first priority security interest in the Collateral, securing the payment and performance of the Obligations. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, no action is necessary to create or protect the security interests created hereunder.

 

(f)   Debtor hereby authorizes the Secured Party to file one or more financing statements under the UCC, with respect to the Security Interest with the proper filing and recording agencies in any jurisdiction deemed proper by them. Debtor hereby approves, ratifies and confirms any such financing statements previously filed by Secured Party and waives any right to claim that any such prior filing was not in compliance with the UCC or not pursuant to a prior authenticated record.

 

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(g) Debtor shall at all times maintain the liens and Security Interest provided for hereunder as valid liens and security interests in the Collateral in favor of the Secured Party until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 12. Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Debtor shall safeguard and protect all Collateral for the account of the Secured Party. Debtor shall, from time to time at the request of Secured Party, make and do all such acts and things and execute and deliver all such instruments, agreements, financing statements and documents as Secured Party reasonably requests in order to create, preserve, perfect, validate or otherwise protect the Security Interest, to enable Secured Party to exercise and enforce its rights and remedies hereunder and generally to carry out the provisions and purposes of this Agreement and, to this end, for greater certainty, Debtor shall, from time to time, at the request of Secured Party, execute a power of attorney in such form as may be reasonably satisfactory to Secured Party and Debtor. Debtor shall pay the cost of filing financing statements and other filed or recorded documents in all public offices wherever filing or recording is, or is deemed by the Secured Party to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interest hereunder.

 

(h) Debtor will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except in the ordinary course of its business) without the prior written consent of the Secured Party.

 

(i) Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order.

 

(j) Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Party in sufficient detail, of any substantial and material change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Party’s security interest therein.

 

(k) Debtor shall permit the Secured Party and its representatives and agents to inspect the Collateral at any time, and to make copies of records pertaining to the Collateral as may be requested by the Secured Party from time to time.

 

(l) Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, and causes of action in respect of the Collateral.

 

(m) Debtor shall promptly notify the Secured Party in sufficient detail upon becoming aware of any information received by Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Party hereunder.

 

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(n) All information heretofore, herein or hereafter supplied to the Secured Party by or on behalf of Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

 

(o) Debtor will from time to time, at its own cost and expense, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

 

The representations and warranties of Debtor contained in this Agreement shall survive for so long as any of the Obligations shall remain unpaid or unperformed and, notwithstanding any investigation made by or on behalf of Secured Party, shall continue in full force and effect for the benefit of Secured Party during such period.

 

5. Defaults.

 

The following events shall be “Events of Default”:

 

(a) The occurrence of an Event of Default (as defined in the Loan Agreement) under the Loan Agreement;

 

(b) Any representation or warranty of Debtor in this Agreement shall prove to have been incorrect in any material respect when made; or

 

(c) The failure by Debtor to observe or perform any of the Obligations hereunder for thirty (30) days after delivery to Debtor of notice of such failure by or on behalf of the Secured Party unless such default is capable of cure but cannot be cured within such time frame and Debtor is using commercially reasonable efforts to cure same in a timely fashion.

 

6. Duty To Hold In Trust.

 

Upon the occurrence of any Event of Default and at any time thereafter, Debtor shall upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interest, whether payable pursuant to the Loan Agreement or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Party and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Party for application to the satisfaction of the Obligations.

 

7. Rights and Remedies Upon Default.

 

(a) Upon the occurrence of any Event of Default and at any time thereafter, the Secured Party shall have the right to exercise all of the remedies conferred hereunder and under the Loan Agreement, and the Secured Party shall have all the rights and remedies of a secured party under the UCC.

 

6

 

 

(b) The Secured Party may comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Secured Party may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Secured Party sells any of the Collateral on credit, the Debtor will only be credited with payments actually made by the purchaser. In addition, Debtor waives any and all rights it may have to a judicial hearing in advance of the enforcement of any of the Secured Party’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

 

8. Applications of Proceeds.

 

The proceeds of any such sale, lease or other disposition of the Collateral hereunder shall, be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Secured Party in enforcing its rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations, and to the payment of any other amounts required by applicable law, after which the Secured Party shall pay to the Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Party is legally entitled, the Debtor will be liable for the deficiency, together with interest thereon, at the Default Rate (as defined in the Loan Agreement), and the reasonable fees of any attorneys employed by the Secured Party to collect such deficiency.

 

9. Costs and Expenses.

 

Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases or termination statements related thereto or any expenses of any searches reasonably required by the Secured Party. The Debtor will also, upon demand, pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Secured Party may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Party under the Loan Agreement. Until so paid, any fees payable hereunder shall be added to the principal amount of the Loan Agreement and shall bear interest at the Default Rate.

 

10. Responsibility for Collateral.

 

The Debtor assumes all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) the Secured Party (i) has no duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has no obligation to clean-up or otherwise prepare the Collateral for sale, and (b) Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by Debtor thereunder. The Secured Party shall not have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Secured Party of any payment relating to any of the Collateral, nor shall the Secured Party be obligated in any manner to perform any of the obligations of Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Secured Party or to which the Secured Party may be entitled at any time or times.

 

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11. Power of Attorney.

 

Debtor hereby irrevocably constitutes and designates Secured Party as and for Debtor’s attorney in fact:

 

(a) to exercise, upon the occurrence of an Event of Default and during the continuance thereof any of the rights exercisable and powers referenced in this Agreement, including without limitation Section 7 hereof; and

 

(b) to execute, upon the occurrence of an Event of Default and during the continuance thereof, all and singular such instruments, documents, and papers as Secured Party determines to be appropriate in connection with the exercise of such rights and remedies and to cause the sale, license, assignment, transfer or other disposition of the Collateral, including all filings, recordings or registrations with the US PTO required or appropriate to effect such dispositions of Collateral.

 

The grant of a power of attorney herein, being coupled with an interest, shall be irrevocable until this Agreement is terminated.

 

12. Term of Agreement.

 

This Agreement and the Security Interest shall terminate on the date on which all Obligations have been paid in full or terminated.

 

13. Further Assurances.

 

On a continuing basis, Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Secured Party, to perfect the Security Interest granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Secured Party the grant of a security interest in all the Collateral under the UCC.

 

14. Notices.

 

All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Loan Agreement.

 

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15. Miscellaneous.

 

(a) No course of dealing between the Debtor and the Secured Party, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder or under the Loan Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

(b) All of the rights and remedies of the Secured Party with respect to the Collateral, whether established hereby or by the Loan Agreement or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

 

(c) This Agreement and the other Loan Documents constitute the entire agreement of the parties with respect to the subject matter hereof and thereof and are intended to supersede all prior negotiations, understandings and agreements with respect thereto. Except as specifically set forth in this Agreement, no provision of this Agreement may be modified or amended except by a written agreement specifically referring to this Agreement and signed by the parties hereto.

 

(d) In the event any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction for any reason, unless such provision is narrowed by judicial construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid, prohibited or unenforceable. If, notwithstanding the foregoing, any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction.

 

(e) No waiver of any breach or default or any right under this Agreement shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default or right, whether of the same or similar nature or otherwise.

 

(f)   This Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns. Notwithstanding the foregoing, the Debtor may not assign the rights or obligations of the Debtor hereunder or any interest herein without the prior written consent of the Secured Party and any such assignment without the Secured Party's prior written consent shall be null and void. The Secured Party may assign or grant participation with respect to all or a portion of its rights and obligations under this Agreement without the consent of the Debtor or any other Person.

 

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(g) In all cases where there is more than one Debtor, then all words used in this Agreement in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Debtor named in this Agreement or when this Agreement is executed by more than one Debtor, the word “Debtor” shall mean all and any one or more of them.

 

(h) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

 

(i) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflicts of law thereof.

 

(j) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

 

DEBTOR: SECURED PARTY:  
       
Bonne Santé Group, Inc., Diamond Creek Capital, LLC,  
a Delaware corporation   a Delaware limited liability company  
         
By: /s/ Alfonso J. Cervantes   By: /s/ Thomas Harrison  
Name: Alfonso J. Cervantes     Managing Director  
Its: Executive Chairman      
         
Bonne Santé Natural Manufacturing, Inc.,    
a Florida corporation      
         
 By: /s/ Alfonso J. Cervantes      
Name:  Alfonso J. Cervantes      
Its: Executive Chairman      
         
Doctors Scientific Organica, LLC,    
a Florida limited liability company      
         
By: /s/ Alfonso J. Cervantes      
Name: Alfonso J. Cervantes      
Its: Executive Chairman      

 

[Signature Page to Security Agreement]

 

 

 

 

Exhibit 10.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOAN AND SECURITY AGREEMENT

(for Senior Secured Credit Facility)
among

 

Bonne Santé Natural Manufacturing, Inc. f/k/a Millenium
Natural Manufacturing Corp., a Florida corporation, and
Bonne Santé Group, Inc. a Delaware corporation,
as Borrowers,

 

and

 

Peah Capital, LLC,

a Delaware limited liability company
as Lender

 

Dated as of
December 18, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
I. DEFINITIONS 2
  1.1 General Terms 2
       
II. LOAN, PAYMENTS, INTEREST AND COLLATERAL 10
  2.1 The Loan and Maximum Commitment Amount 10
  2.2 Interest on the Loan 11
  2.3 Payment of Principal 11
  2.4 Payment Priority 11
  2.5 Voluntary Prepayments 12
  2.6 Mandatory Prepayments 13
  2.7 Payments by Lender; Protective Advances 13
  2.8 Grant of Security Interest; Collateral 14
  2.9 Collateral Administration 16
  2.10 Power of Attorney 17
  2.11 Collateral Accounts 18
       
III. FEES AND OTHER CHARGES 18
  3.1 Lawful Limits 18
       
IV. CONDITIONS PRECEDENT 19
  4.1 Conditions to Closing 19
  4.2 [Reserved] 20
       
V. REPRESENTATIONS AND WARRANTIES 20
  5.1 Organization and Authority 20
  5.2 Loan Documents 21
  5.3 Subsidiaries, Capitalization and Ownership Interests 21
  5.4 Properties 21
  5.5 Other Agreements 22
  5.6 Litigation 22
  5.7 Financial Statements and Reports 22
  5.8 Compliance with Law 23
  5.9 Licenses and Permits 23
  5.10 No Default; Solvency 23
  5.11 Disclosure 23
  5.12 Existing Indebtedness; Investments, Guarantees and Certain Contracts 23
  5.13 Affiliated Agreements 23
  5.14 Names; Location of Offices, Records and Collateral 24
  5.15 Deposit Accounts 24
  5.16 Non-Subordination 24
  5.17 [Reserved] 24
  5.18 [Reserved] 24
  5.19 Legal Investments; Use of Proceeds 24
  5.20 Broker’s or Finder’s Commissions 25
  5.21 Anti-Terrorism; OFAC; AML 25
  5.22 Security Interest 26

 

i 

 

 

TABLE OF CONTENTS

(continued)

 

      Page
       
  5.23 Taxes 26
  5.24 Tradenames 27
  5.25 Survival 27
       
VI. AFFIRMATIVE COVENANTS 27
  6.1 Financial Statements, Reports and Other Information 27
  6.2 Payment of Obligations 28
  6.3 Conduct of Business and Maintenance of Existence and Assets 28
  6.4 Compliance with Legal and Other Obligations 29
  6.5 Insurance 29
  6.6 True Books 29
  6.7 Inspection; Periodic Audits; Quarterly Review 29
  6.8 Further Assurances; Post Closing 30
  6.9 Payment of Indebtedness 30
  6.10 Other Liens 30
  6.11 Use of Proceeds 30
  6.12 Collateral Documents; Security Interest in Collateral 31
  6.13 Servicing of Collateral 31
  6.14 [Reserved] 31
  6.15 Collections from Collateral. Borrowers agrees and covenant that Borrowers shall 31
  6.16 Taxes 32
       
VII. NEGATIVE COVENANTS 32
  7.1 Indebtedness 32
  7.2 Liens 32
  7.3 Investments; Investment Property; New Facilities or Collateral; Subsidiaries 33
  7.4 Transactions with Affiliates 33
  7.5 Organizational Documents; Fiscal Year; Dissolution; Use of Proceeds; Insurance Policies; Disposition of Collateral; Trade Names 33
  7.6 Transfer of Collateral 34
  7.7 Contingent Obligations and Risks 34
  7.8 Truth of Statements 34
  7.9 Modifications of Agreements 34
  7.10 Anti-Terrorism; OFAC; AML 34
  7.11 Servicing of Agreements 35
  7.12 Distributions; Transfers and Compensation 35
  7.13 Further Assurances 36
       
VIII. EVENTS OF DEFAULT 36
     
IX. RIGHTS AND REMEDIES AFTER DEFAULT 38
  9.1 Rights and Remedies 38
  9.2 Application of Proceeds 39
  9.3 Right to Appoint Receiver 40

 

ii 

 

 

TABLE OF CONTENTS

(continued)

 

      Page
       
  9.4 Attorney-in-Fact 40
  9.5 Rights and Remedies not Exclusive 40
       
X. WAIVERS AND JUDICIAL PROCEEDINGS 41
  10.1 Waivers 41
  10.2 Delay; No Waiver of Defaults 41
  10.3 Jury Waiver 41
  10.4 Amendment and Waivers 41
       
XI. EFFECTIVE DATE AND TERMINATION 42
  11.1 Effectiveness and Termination 42
  11.2 Survival 42
       
XII. MISCELLANEOUS 43
  12.1 Governing Law; Jurisdiction; Service of Process; Venue 43
  12.2 Successors and Assigns; Assignments and Participations 43
  12.3 Application of Payments 43
  12.4 Indemnity 44
  12.5 Notice 45
  12.6 Severability; Captions; Counterparts; Delivery of Signatures 45
  12.7 Expenses 45
  12.8 Entire Agreement 46
  12.9 Approvals and Duties 46
  12.10 Publicity 46
  12.11 Release of Collateral 46
  12.12 Confidentiality 47
  12.13 Set-off and Offset 48
  12.14 Joint and Several Liability 49
  12.15 [Reserved] 49
  12.16 Additional Debt; Right of First Refusal. 49
  12.17 [Reserved]  
  12.18 [Reserved]  

 

iii 

 

 

SCHEDULES

 

Schedule 1 Shareholders, Beneficiaries, & Directors of Borrower
Schedule 2 Organizational Information of Borrowers
Schedule 3 List of Deposit Accounts
Schedule 4 Wiring Instructions
Schedule 5 Material Litigation
Schedule 6 Existing Indebtedness

 

EXHIBITS

 

Exhibit A Form of Note
Exhibit B Advance Request
Exhibit C Disbursed Amounts
Exhibit D Approved Use of Proceeds
Exhibit E Executive Summary

 

iv 

 

 

This LOAN AND SECURITY AGREEMENT (for Senior Secured Credit Facility), dated as of December 18, 2020 (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”), is entered into by and among Bonne Santé Natural Manufacturing, Inc. f/k/a Millenium Natural Manufacturing Corp., a Florida corporation (“Manufacturing”), and Bonne Santé Group, Inc., a Delaware corporation (“Group” and together with Manufacturing are herein collectively referred to as the “Borrower,” or “Borrowers,” on the one hand, and Peah Capital, LLC, a Delaware limited liability company, on the other hand (the “Lender”). Collectively, the Borrowers and the Lender shall be referred to as the “Parties.”

 

WHEREAS, Borrowers have entered into that certain Factoring Agreement dated as of October 23, 2020 with Lender (the “Factoring Agreement I”), of which the outstanding balance still owed to Lender is in the amount of $0 (the “Factor Balance I”);

 

WHEREAS, Borrowers have entered into that certain Factoring Agreement dated as of November 13, 2020 with Lender (the “Factoring Agreement II”), of which the outstanding balance still owed to Lender is in the amount of $290,655.01 (the “Factor Balance II”);

 

WHEREAS, Borrowers have entered into that certain Factoring Agreement dated as of December 11, 2020 with Lender (the “Factoring Agreement III” and together with Factoring Agreement I and Factoring Agreement II the “Factoring Agreement”), of which the outstanding balance still owed to Lender is in the amount of $92,625.00 (the “Factor Balance III”);

 

WHEREAS, Borrowers have requested that Lender provide Borrowers with a senior secured term loan in an amount of up to the Maximum Commitment Amount (as defined below), and an immediate amount of SEVEN HUNDRED THOUSAND DOLLARS ($700,000.00) (the “Term Loan Advance”), the proceeds of which shall be used by Borrowers for the Approved Use of Loan Proceeds only;

 

WHEREAS, the Parties desire that the Factoring Agreement be superseded and replaced in its entirety by this Agreement, and that all obligations and sums owed to Lender thereunder shall be fully controlled and governed by the terms of this Agreement and Loan Documents (defined below);

 

WHEREAS, in consideration for Lender providing this Senior Secured Credit facility, Borrowers will grant Lender a lien on and security interest in the Collateral (as defined below) to secure this credit facility; and

 

WHEREAS, Lender is willing to provide Borrowers with this Senior Secured Credit Facility upon the terms and subject to the conditions set forth herein.

 

LOAN AND SECURITY AGREEMENT

Page 1

 

 

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Borrowers, and Lender hereby agree as follows:

 

I. DEFINITIONS

 

1.1 General Terms

 

For purposes of the Loan Documents and all Annexes, Schedules and Exhibits thereto, in addition to the definitions elsewhere in this Agreement or the other Loan Documents, the terms listed in this Article I shall have the meanings given such terms in this Article I. All capitalized terms used which are not specifically defined shall have the meanings provided in Article 9 of the UCC in effect on the date hereof to the extent the same are defined therein. In the event of any conflict between the definitions or provisions of this Agreement and the provisions of the other Loan Documents, the provisions of this Agreement shall govern. Unless otherwise specified herein, this Agreement and any agreement or contract referred to herein means such agreement as modified, amended or supplemented from time to time.

 

All references to dates used herein that are otherwise not a Business Day, mean any day that is not a Saturday, Sunday or other day on which commercial banks in the State of Florida are authorized or required by law to remain closed.

 

“Account Debtor” means the meaning set forth in the Uniform Commercial Code.

 

“Accrual Period” means with respect to each Payment Date, the two (2) week period starting on the immediately preceding Payment Date (or the Closing Date with respect to the initial Payment Date) to, but not including, such current Payment Date.

 

“Advance” means any borrowing under and advance of the Loan, including, but not limited to, the Factor Balance, the Term Loan Advance on the Closing Date, future Advances, and any Protective Advance. Any amounts paid by Lender on behalf of Borrowers under any Loan Document shall be an Advance for purposes of this Agreement.

 

“Affiliate” or “affiliate” means, as to any Person, any other Person who directly or indirectly controls, is under common control with, is controlled by or is a director or officer of such Person. As used in this definition, “control” (including its correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of voting securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person who owns directly or indirectly ten percent (10%) or more of the securities having ordinary voting power for the election of the members of the board of directors or other governing body of a corporation or ten percent (10%) or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation, partnership or other Person.

 

“Agreement” has the meaning assigned to it in the preamble hereof.

 

“Applicable Law” means any and all existing and future federal, state, local and/or applicable foreign statutes, treaties, codes, permits, certificates, ordinances, rules, regulations (including temporary and final income tax regulations), orders and licenses of and interpretation by any Governmental Authority (including usury laws, the Dodd-Frank Act, the Federal Truth-in- Lending Act), court orders, judgements, decrees, injunctions, writs, or line actions of any court, arbitrator, or other administrative orders and decrees, and other legal requirements of any and every conceivable type applicable to the Loan, the Loan Documents, Borrowers, or any other Collateral.

 

LOAN AND SECURITY AGREEMENT

Page 2

 

 

“Applicable Rate” means seventeen and one-half percent (17.5%) per annum.

 

“Approved Use of Loan Proceeds” means the use of proceeds as set forth on Exhibit D.

 

“Availability” means, at any date of determination, the Maximum Commitment Amount, minus, the Loan Balance.

 

“Borrower” or “Borrowers ” has the meaning assigned to it in the preamble hereof.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in the State of Florida are authorized or required by law to remain closed.

 

“Change of Control” means with respect to Borrowers, the occurrence of any of the following:

 

(a) Group, at any time for any reason ceases to own directly or indirectly 100% of the issued and outstanding Equity Interests in Manufacturing, free and clear of all Liens, other than the Lien pledged in favor of Lender;

 

(b) Guarantor, at any time for any reason ceases to own or have the power to vote or direct the voting of 67.8% of the issued and outstanding Equity Interests of Group, free and clear of all Liens;

 

(c) any “change in/of control” or “sale” or “disposition” or “merger” or similar event as defined in any certificate of incorporation or formation or statement of designations or operating agreement of Borrowers or in any document governing Indebtedness of such Person (other than any Loan Document) in excess of $50,000, individually or in the aggregate, which gives the holder of such Indebtedness the right to accelerate or otherwise require payment of such Indebtedness prior to the maturity date thereof upon a change of control as defined in such governing document and such change of control event has occurred that entitles the holder of such Indebtedness to exercise such acceleration right;

 

(d) any person other than Borrowers having the right to direct the actions of Borrowers.

 

“Closing” means the satisfaction, or written waiver by Lender, of all of the conditions precedent set forth in this Agreement required to be satisfied prior to the consummation of the transactions contemplated hereby.

 

“Closing Date” means December 18, 2020.

 

“Collateral” has the meaning assigned to such term in Section 2.8 of this Agreement.

 

“Collateral Accounts” means the deposit accounts of Borrowers, more fully described on Schedule 3, or (ii) such other deposit account of Borrowers as approved from time to time by Lender in a written notice to Borrowers.

 

LOAN AND SECURITY AGREEMENT

Page 3

 

 

“Contingent Obligations” means, as to any Person, any obligation of such Person with respect to any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, as a guarantee or otherwise (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure, indemnify or to hold harmless the owner of such primary obligation against loss in respect thereof, provided, however, that the term “Contingent Obligation” shall not include indorsements of instruments for deposit or collection in the Ordinary Course of Business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

 

“Contract Right” means any right of Borrowers to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance.

 

“Corporate Guaranty” means the Guaranties, dated as of the Closing Date, executed by Manufacturing and Group in favor of Lender, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.

 

“Debtor Relief Law” means, collectively, the Bankruptcy Code at Title 11 of the United States Code, 11 U.S.C. §§ 101 et. seq., as amended from time to time and all other United States federal or state or any foreign applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended from time to time.

 

“Default” means any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time, if any, or both, would constitute or be or result in an Event of Default.

 

“Deposit Account” means, individually and collectively, each of the Collateral Accounts and any other bank or depository accounts of Borrowers.

 

“Dodd-Frank Act” means The Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173).

 

“Dollars” and “$” means lawful money of the United States of America.

 

“Electronic Transmission” means each document, instruction, authorization, file, information and any other communication transmitted, posted or otherwise made or communicated by electronic mail (“e-mail”) or transmitted by fax electronically (e-fax), or otherwise to or from an electronic system or other equivalent service.

 

LOAN AND SECURITY AGREEMENT

Page 4

 

 

“Equity Interests” means, with respect to any Person, its equity ownership interests, its common stock and any other capital stock or other equity ownership units of such Person authorized from time to time, and any other shares, options, interests, participations or other equivalents (however designated) of or in such Person, whether voting or nonvoting, including, without limitation, common stock, options, warrants, preferred stock, phantom stock, membership units (common or preferred), partnership interests (general or limited), stock appreciation rights, membership unit appreciation rights, convertible notes or debentures, stock purchase rights, membership unit purchase rights and all securities convertible, exercisable or exchangeable, in whole or in part, into any one or more of the foregoing.

 

“Event of Default” means the occurrence of any event set forth in Article VIII.

 

“Factoring Agreement” has the meaning assigned to it in the recitals.

 

“Factoring Agreement I” has the meaning assigned to it in the recitals.

 

“Factoring Agreement II” has the meaning assigned to it in the recitals.

 

“Factoring Agreement III” has the meaning assigned to it in the recitals.

 

“Factor Balance” means the combined balance of Factor Balance I, Factor Balance II, and Factor Balance III.

 

“Factor Balance I” has the meaning assigned to it in the recitals.

 

“Factor Balance II” has the meaning assigned to it in the recitals.

 

“Factor Balance III” has the meaning assigned to it in the recitals.

 

“Final Maturity Date” means June 18, 2022 (or if such date is not a Business Day, the immediately succeeding Business Day), which is eighteen (18) months from the Closing Date, unless such Final Maturity Date shall be extended from time to time in writing by the mutual agreement of Borrowers and Lender.

 

“Governmental Authority” means any federal, state, municipal, national, local or other governmental department, court, commission, board, authority, bureau, agency or instrumentality or political subdivision thereof, including, without limitation, any attorney general or agency related thereto, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia.

 

“Guarantor” means Alfonso J. Cervantes, an individual residing in the State of Florida, and a principal and officer of the Borrowers.

 

“Guaranty” means the Guaranty, dated as of the Closing Date, executed by Guarantor in favor of Lender, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.

 

LOAN AND SECURITY AGREEMENT

Page 5

 

 

“Indebtedness” of any Person means, without duplication, (a) all items which would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including any lease which would constitute Indebtedness, (b) all indebtedness secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the Ordinary Course of Business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or which is evidenced by a note, bond, debenture or similar instrument, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, Equity Interests, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable (d) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (e) any Contingent Obligations.

 

“Indemnification Claims” has the meaning assigned to it in Section 12.4 hereof.

 

“Indemnified Person” has the meaning assigned to it in Section 12.4 hereof.

 

“Insurance Policies” shall have the meaning set forth in Section 4.1(b) hereof.

 

“IPO Stock” has the meaning assigned to it in Section 2.12(a) hereof.

 

“Lender” has the meaning assigned to it in the preamble.

 

“Lien” means any mortgage, deed of trust, deed to secure debt, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes.

 

“Loan” means, collectively, the Factor Balance, the Term Loan Advance made on the Closing Date, each Protective Advances and each additional Advance made by Lender pursuant to the terms hereof, and all Obligations related thereto.

 

“Loan Balance” means, on any day, the aggregate outstanding principal balance of the Loan, reduced by all payments of principal made on the Loan prior to the date of determination.

 

“Loan Documents” means, collectively and each individually, this Agreement, any Notes, the Security Documents, the Corporate Guaranty, the Guaranty, the Pledge Agreement, the Warrant, the Share Issuance Agreement, and all other agreements, documents, instruments and certificates heretofore or hereafter executed or delivered to Lender in connection with any of the foregoing or the Loan, as the same may be amended, modified or supplemented from time to time.

 

LOAN AND SECURITY AGREEMENT

Page 6

 

 

“Material Adverse Effect” means, with respect to any Person, any development, event, condition, obligation, liability or circumstance or set of events, conditions, obligations, liabilities or circumstances or any change(s) which:

 

(a) has, had or reasonably could be expected to have a material adverse effect upon (i) the legality, validity, enforceability or collectability of any Loan Document, (ii) the status, existence, perfection, priority or enforceability of any Lien granted to Lender under any of the Security Documents or (iii) the value, validity, enforceability or collectability of the receivables or any of the other Collateral;

 

(b) has been or reasonably could be expected to be material and adverse to the value of any significant portion of the Collateral or to the business, operations, performance, properties, prospects, assets, liabilities or condition (financial or otherwise) of such Person;

 

(c) has materially impaired or reasonably could be expected to materially impair the ability of such Person to pay when due any of the Obligations owing by it or to perform in any material respect its other obligations, or to consummate the transactions, under the Loan Documents; and

 

(d) materially impacts or impairs the rights and remedies of Lender under the Loan Documents.

 

“Maximum Commitment Amount” means an amount equal to ONE MILLION AND FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00), as such amount may be increased from time to time pursuant to the terms of the Agreement.

 

“Maximum Rate” means the highest lawful and non-usurious rate of interest applicable to the Loan, that at any time or from time to time may be contracted for, taken, reserved, charged, or received on the Loan and the Obligations under the laws of the United States and the laws of such states as may be applicable thereto, that are in effect or, to the extent allowed by such laws, that may be hereafter in effect and that allow a higher maximum non-usurious and lawful interest rate than would any Applicable Laws now allow.

 

“Net Income” means the net income (or loss) of any Person for such period taken as a single accounting period.

 

“Note(s)” means, individually and collectively, any promissory notes payable to the order of Lender, executed by Borrowers evidencing the Loan, as the same may be amended, modified, supplemented and/or restated from time to time including, without limitation, that certain promissory note dated as of the Closing Date, and attached hereto as Exhibit A.

 

“Obligations” means, without duplication, all present and future obligations, Indebtedness and liabilities of Borrowers to Lender or any of its respective assigns, at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, under any of the Loan Documents or otherwise relating to this Agreement, any Notes and/or the Loan, including, without limitation, the Loan Balance, accrued interest, all applicable fees, charges and expenses and/or all amounts paid or advanced by Lender on behalf of or for the benefit of Borrowers for any reason at any time, and including, in each case, obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against Borrowers.

 

LOAN AND SECURITY AGREEMENT

Page 7

 

 

“OFAC” means the U.S. Department of Treasury’s Office of Foreign Assets Control.

 

“Opinion of Counsel” means, with respect to any Person, a written opinion of counsel, who is reasonably acceptable to Lender.

 

“Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to nature, scope, magnitude, quantity and frequency) that does not require any board of director or shareholder approval or any other separate or special authorization of any nature and in compliance with Applicable Law.

 

“Organizational Documents” means, for the applicable Borrower, (a) the certificate of incorporation, certificate of formation, statutory certificate of trust or other applicable charter document, (b) the bylaws, operating agreement, or other applicable organizational document, which in connection with the Closing shall be certified by an authorized officer of such Borrower as of the Closing Date, (c) evidence of good standing in each jurisdiction that such Person is required to be in good standing, , and (d) the resolutions of the Board of Directors (or other applicable governing body) and, if required, stockholders or other equity owners authorizing the execution, delivery and performance of the Loan Documents to which a Borrower is a party, which in connection with the Closing shall be certified by an authorized officer of such Borrower as of the Closing Date.

 

“Origination Fee” means a fee due and payable to Lender from each Advance equal to three and three-quarters percent (3.75%) of each such Advance.

 

“Payment Date” means (i) every other Friday, commencing on Friday, December 25, 2020, 2020, (ii) a Prepayment Date, (iii) the Termination Date or (iv) the Final Maturity Date.

 

“Performance Certificate” has the meaning assigned to it in Section 4.1(a)(v) hereof.

 

“Permit” means collectively all licenses, leases, powers, permits, franchises, certificates, authorizations and approvals.

 

“Permitted Liens” has the meaning assigned to it in Section 7.2.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a sole proprietorship, a joint venture, a Governmental Authority or any other entity of whatever nature.

 

“Pledge Agreement” means that certain Pledge, Security and Control Agreement, dated as of the Closing Date, made by Borrowers in favor of Lender, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.

 

“Pre-IPO Financing” means financing totaling approximately $11Million, the proceeds of which shall be used exclusively for the pre-IPO acquisitions of Boost Marketing Group, LLC, and Doctors Scientific Organica LLC dba Smart for Life and Oyster Management Services.

 

LOAN AND SECURITY AGREEMENT

Page 8

 

 

“Prepayment Date” means any date that all or a portion of the Obligations are prepaid by Borrowers pursuant to Section 2.5 or Section 2.6.

 

“Prepayment Fee” means a fee due and payable to Lender on any Prepayment Date in accordance with Section 2.5(b).

 

“Protective Advance” has the meaning assigned to it Section 2.7(b).

 

“Quarterly Servicing Report” means each quarterly report prepared by Borrowers, which may be modified from time to time as mutually agreed upon by Borrowers and Lender, and that is to be delivered to Lender on or before the fourteenth (14th) day following the conclusion of each calendar quarter, and provides information relating to the immediately-prior calendar quarter, including information relating to the business of Borrowers during such calendar quarter.

 

“Required Final Principal Payment” means the payment due and payable by Borrowers as of the Termination Date or Final Maturity Date, which shall equal the Loan Balance, all accrued interest, and outstanding fees.

 

“Required Principal Payment” means: (a) as of any Payment Date on which an Event of Default exists, the aggregate outstanding Loan Balance and all accrued interest and outstanding fees.

 

“Required Principal Receivable Payment” means as of any date on which Borrowers receives a payment from a receivable, then Borrowers shall make a payment to Lender equal to twenty percent (20%) of such paid receivable which shall be applied to the Loan Balance.

 

“Responsible Officer” means the chief executive officer, the president, the chief financial officer, the secretary, or any other officer having substantially the same authority and responsibility, and in all cases such person shall be listed on an incumbency certificate delivered to Lender, in form and substance acceptable to Lender in its sole discretion.

 

“Security Documents” means this Agreement, the Pledge Agreement, UCC financing statements, and all other documents or instruments necessary to create or perfect the Liens in the Collateral, as such may be modified, amended or supplemented from time to time.

 

“Share Issuance Agreement” has the meaning assigned to it in Section 2.12(a) hereof.

 

“Subsidiary” means, as to any Person, any other Person in which more than fifty percent (50%) of all Equity Interests is owned directly or indirectly by such Person or one or more of its Subsidiaries.

 

“Term Loan Advance” has the meaning assigned to it in the recitals hereof.

 

“Termination Date” has the meaning assigned to it in Section 11.1 hereof.

 

“UCC” means the Uniform Commercial Code as in effect in the State of Florida; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Florida,.

 

“Warrant” has the meaning assigned to it in Section 2.12(b) hereof.

 

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II. LOAN, PAYMENTS, INTEREST AND COLLATERAL

 

2.1 The Loan and Maximum Commitment Amount

 

(a) Subject to the provisions of this Agreement, including, without limitation satisfaction or waiver in writing by Lender of all conditions set forth in Article IV hereof, on the Closing Date, Lender agrees to make the Term Loan Advance, less the Origination Fee and in accordance with the disbursements on Exhibit C annexed hereto.

 

(b) Subject to the provisions of this Agreement, including, without limitation satisfaction or waiver in writing by Lender of all conditions set forth in Article IV hereof, after the Closing Date, Lender, may make one or more Advances up to the Maximum Commitment Amount to Borrowers from time to time prior to the Final Maturity Date. Each Advance may be made in an amount as requested by Borrowers by submitting an advance request to Lender in the form annexed hereto as Exhibit B; provided that: (i) Borrowers are not in Default under the Agreement, (ii) such requested Advance is not less than One Hundred Thousand Dollars ($100,000.00), (iii) such amount does not exceed an amount equal to the Maximum Commitment Amount reduced by the Loan Balance, provided, (i) Lender shall receive the Origination Fee from each said Advance; and (ii) that under no circumstances shall the aggregate outstanding principal amount for all Advances made hereunder exceed the Maximum Commitment Amount.

 

(c) Evidence of Loan; Promissory Note. The Term Loan Advance made by Lender to Borrowers is evidenced by that certain Promissory Note dated as of the Closing Date, as may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, with each Advance made by Lender, is incorporated herein and shall be made using the form attached hereto as Exhibit A (the “Note”). Lender shall record in its records the date and amount of each Advance made hereunder, each repayment thereof, and other information it deems appropriate. The aggregate unpaid principal amount so recorded by Lender shall be presumptive evidence of the Loan Balance. The failure to so record any such information or any error in so recording any such information shall not, however, limit or otherwise affect the actual Obligations of Borrowers hereunder or under the Note, if any, to repay the outstanding principal amount of the Loan, together with all interest accruing thereon, as set forth in this Agreement.

 

(d) Payment of the Loan. Borrowers shall repay the Loan pursuant to and in accordance with the terms of this Agreement and the Note. The Loan Balance shall be due and payable in full, if not earlier in accordance with this Agreement, on the Final Maturity Date. All other amounts outstanding under the Loan and all other Obligations under the Loan shall be due and payable in full, if not earlier in accordance with this Agreement, on the Final Maturity Date.

 

(e) Increase in Maximum Commitment Amount. At any time prior to the Final Maturity Date, upon the written request from Borrowers for an increase in the Maximum Commitment Amount, Lender, in its sole discretion may increase the Maximum Commitment Amount.

 

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2.2 Interest on the Loan

 

(a) Borrowers agree to pay interest to Lender in respect of the Loan Balance, which interest shall be calculated for each Accrual Period on a bi-weekly basis in arrears, from the date the proceeds thereof are made available to Borrowers until paid in full, at a rate per annum equal to the lesser of (i) the Applicable Rate and (ii) the Maximum Rate. All such payments of interest shall be made pursuant to Section 2.4(a) or (c), as applicable. If Lender is prevented from charging or collecting interest at the Applicable Rate, then, to the extent permitted by law, the interest rate shall continue to be the Maximum Rate, until such time as Lender has charged and collected the full amount of interest that would be chargeable and collectable if interest at the Applicable Rate had always been lawfully chargeable and collectible.

 

(b) As determined on a bi-weekly basis, the interest accrued and due on the Loan Balance outstanding shall equal (i) the product of (x) the actual number of days elapsed during the related Accrual Period, (y) the lesser of (a) the Applicable Rate and (b) the Maximum Rate, and (z) the principal Loan Balance during the related Accrual Period, and divided by (ii) 360.

 

2.3 Payment of Principal

 

(a) When applicable, Borrowers shall pay to Lender the Required Principal Receivable Payment, immediately, without notice or demand. Borrowers hereby agree and acknowledge that the Required Principal Receivable Payment shall, whenever possible, be made directly to Lender by the Account Debtor of such receivables.

 

2.4 Payments

 

(a) On each Payment Date, and with respect to the related Accrual Period, Borrowers shall make payments or cause payments to be made in the following order of priority:

 

(i) to Lender, an amount equal to any Protective Advances, together with all accrued and unpaid interest owed with respect to all Protective Advances, and second, any indemnities owed by Borrowers to Lender under the Loan Documents, in each case, to the extent not previously reimbursed or paid; then

 

(ii) to Lender, all accrued and unpaid interest relating to the Obligations for such Accrual Period; then

 

(iii) to Lender, any other accrued and unpaid costs, fees and expenses relating to the Obligations for such Accrual Period; then

 

(iv) to Lender, any unpaid Required Principal Payment for such Accrual Period; and

 

(v) to Lender, any unpaid interest or Obligations on the Loan Balance for such Accrual Period.

 

(b) On the Termination Date or Final Maturity Date, Borrowers shall pay to Lender in full, the Required Final Principal Payment, plus all accrued and due interest.

 

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(c) In the event that the payments made by Borrowers under Section 2.4(a) are insufficient for payment of the amounts due to Lender as set forth in Section 2.4(a), Borrowers shall pay an amount equal to the extent of such insufficiency either (i) through an Advance hereunder on such Payment Date if there is sufficient Availability for such Advance, or (ii) if insufficient Availability then exists, from a wire transfer of immediately available funds by Borrowers within five (5) Business Days of written request by Lender (email shall suffice).

 

(d) Notwithstanding anything to the contrary contained in this Section 2.4, following the occurrence and during the continuance of an Event of Default, Lender shall have the immediate right to direct and to apply all funds in the Collateral Accounts and any other collections and amounts received of every description payable to Borrowers, to the Obligations in such order and in such manner as Lender shall elect in its sole discretion; provided; however, any amounts payable pursuant to Section 2.4(a)(i) will be paid first and prior to any payments Lender may choose to make pursuant to this Section 2.4(c).

 

(e) Borrowers absolutely and unconditionally promise to pay, when due and payable pursuant hereto, principal, interest and all other amounts and Obligations payable, hereunder or under any other Loan Document, without any right of rescission and without any deduction whatsoever, including any deduction for set-off, recoupment or counterclaim, notwithstanding any damage to, defects in or destruction of the Collateral or any other event, including obsolescence of any property or improvements. Except as expressly provided for herein, Borrowers hereby waives setoff, recoupment, demand, presentment, protest, and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under this Agreement and any other Loan Document, all to the extent permitted by law.

 

2.5 Voluntary Prepayments

 

(a) The Loan Balance may be voluntarily prepaid only as set forth in this Section 2.5.

 

(b) Borrowers may prepay in full, all of the Obligations provided that any such prepayment being accompanied by (i) accrued interest on the outstanding principal amount of the Loan being prepaid and (ii) a Prepayment Fee, if applicable, as follows:

 

(i) 0-12 months from the Closing Date, the Prepayment Fee shall equal six percent (6%) of the Loan Balance being prepaid; and

 

(ii) Thereafter, the Prepayment Fee shall not apply.

 

(c) Except as set forth in Section 2.6(b) below, the Obligations may be prepaid in whole by Borrowers on any Business Day prior to the Final Maturity Date. Upon a prepayment in whole by Borrowers, the applicable Obligations to be prepaid as provided in this Section 2.5, as applicable, shall include, without limitation, (i) all of the Advances made prior to such Prepayment Date, less all principal amounts received by Lender in respect of such Advances to the date of prepayment, plus (ii) accrued and unpaid interest on all such Advances to be prepaid on the applicable Prepayment Date, plus (iii) any applicable Prepayment Fees plus (iv) any unpaid fees or expenses required to be paid by Borrowers under this Agreement and all other unpaid Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) in relation to such Obligations to be prepaid on the Prepayment Date. Borrowers shall give Lender written notice of the proposed prepayment not less than seven (7) calendar days in advance of the proposed Prepayment Date.

 

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2.6 Mandatory Prepayments

 

In addition to and without limiting any provision of any Loan Documents:

 

(a) If a Change of Control occurs that has not been consented to in writing by Lender prior to the consummation thereof, then on or prior to the fifth Business Day following the date of such Change of Control, Borrowers shall prepay the Loan and all other Obligations (other than, indemnity obligations under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) in full in cash together with (i) accrued interest thereon to the date of such prepayment, (ii) all other amounts owing to Lender under the Loan Documents, (iii) an amount equal to the difference between (x) the aggregate amount of interest that would have been due to Lender, for the period from and after the Closing Date to and including the Final Maturity Date based upon the principal amount outstanding immediately prior to and the Applicable Rate in effect as of the date of such prepayment, less (y) the amount of interest actually paid to Lender prior to the date of such prepayment and (iv) the Prepayment Fee that would be due if the date of such prepayment were a Prepayment Date.

 

(b) If Borrowers, in any transaction or series of related transactions after the Closing Date, without the prior written consent of Lender, (i) sells, transfers, pledges or assigns any receivable or other Collateral (other than as contemplated by this Agreement or in the Ordinary Course of Business), (ii) sells or issues any equity or debt securities of Borrower, Equity Interests in Borrowers or other ownership interests in Borrowers, or (iii) incurs any Indebtedness except for Indebtedness under the Loan Documents, then Borrowers shall deposit 100% (or such lesser amount as is required to indefeasibly pay in cash in full the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending)) of the cash proceeds thereof (net of reasonable transaction costs and expenses and taxes) to the Collateral Accounts, together with the Prepayment Fee that would be due if the date of such prepayment were a Prepayment Date.

 

(c) In no event shall the Loan Balance exceed the Maximum Commitment Amount. If at any time and for any reason, the Loan Balance exceeds the Maximum Commitment Amount, Borrowers shall promptly, and in any event within five (5) Business Days from notice of such occurrence from Lender, whether or not a Default or Event of Default has occurred or is continuing, prepay the principal balance of the Loan in an amount equal to the difference between the then Loan Balance and the Maximum Commitment Amount.

 

2.7 Payments by Lender; Protective Advances

 

(a) If any amount required to be paid under any Loan Document remains unpaid beyond any applicable cure period, then such amount may be paid by Lender, which payment shall be deemed a request for an Advance under the Loan as of the date such payment is due, and Borrowers irrevocably authorize disbursement of any such funds to Lender, by way of direct payment of the relevant amount, interest or Obligations in accordance with Section 2.4 without necessity of any demand whether or not a Default or Event of Default has occurred or is continuing. No payment or prepayment of any amount by Lender or any other Person shall entitle any Person to be subrogated to the rights of Lender under any Loan Document, unless and until the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) have been fully performed and paid indefeasibly in cash, the Maximum Commitment Amount has been terminated and this Agreement has been terminated. Any sums expended or amounts paid by Lender as a result of Borrowers’ failure to pay, perform or comply with any Loan Document or any of the Obligations may be charged to Borrowers’ account as an Advance under the Loan and added to the Obligations and shall bear interest at the Applicable Rate from the date such Advance is made by Lender until it is repaid. Lender shall provide at least five (5) Business Days’ written notice (email shall suffice) to Borrowers of any payment made by Lender pursuant to this Section 2.7(a).

 

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(b) Notwithstanding any provision of any Loan Document, Lender, in its sole discretion shall have the right, but not any obligation, at any time that Borrowers fail to do so, and from time to time, with at least five (5) Business Days’ written notice (email shall suffice) to Borrowers, to: (i) discharge (at Borrowers’ expense) taxes or Liens affecting any of the Collateral that have not been paid in violation of any Loan Document or that jeopardize Lender’s Lien priority in the Collateral, including any underlying collateral securing any receivables; (ii) make any payment, defend or protect the interests of Borrowers or its Lien interests in any receivable subject to any litigation or other proceeding or any overt threat of litigation; or (iii) make any other payment (at Borrowers’ expense) for the administration, servicing, maintenance, preservation or protection of the Collateral, including any underlying collateral securing any receivable (each such advance or payment set forth in the foregoing clauses (i), (ii) and (iii) above, a “Protective Advance”). Lender shall be reimbursed for all Protective Advances pursuant to Section 2.4(a) and any Protective Advances shall bear interest at the Applicable Rate from the date the Protective Advance is paid by Lender until it is repaid. No Protective Advance by Lender shall be construed as a waiver by Lender of any Default, Event of Default or any of the rights or remedies of Lender. Lender shall provide at least five (5) Business Days’ written notice (email shall suffice) to Borrowers of any Protective Advance made by Lender pursuant to this Section 2.7.

 

2.8 Grant of Security Interest; Collateral

 

(a) The Parties hereto intend that this Agreement constitute a security agreement and the transactions effected hereby constitute a secured loan by Lender to Borrowers under Applicable Law. To secure the payment and performance of the Obligations, subject to Permitted Liens, Borrower, hereby grants to Lender a valid, perfected and continuing first priority Lien upon all of such Borrower’s right, title and interest, whether now owned or existing or hereafter from time to time acquired or coming into existence, in, to and under, all of Borrowers’ assets, including but not limited to the following (collectively, the “Collateral”):

 

(i) all receivables and all amounts due or to become due in the ordinary course of Borrowers’ business, including but not limited to all the receivables pursuant to that certain agreement between Manufacturing and Twinlabs Consolidation Corporation dated as of February 10, 2020, as amended or extended;

 

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(ii) the Collateral Accounts and all funds and other property credited to the Collateral Accounts, provided, however, that any amounts transferred or paid out of the Collateral Accounts in accordance the terms of this Agreement shall be transferred free and clear of the Lien imposed by this Agreement;

 

(iii) all security interests, Liens, guarantees and other encumbrances in favor of or assigned or transferred to Borrowers in the other receivables; and

 

(iv) all Accounts, General Intangibles, Chattel Paper, Instruments, Documents, Goods, money and any rights to the payment of money or other forms of consideration of any kind, Deposit Accounts (as defined in the Article 9 of the UCC), investment property, letters of credit, Letter-of-Credit Rights, Contract Rights, Contracts, Supporting Obligations, Equipment, Inventory, Fixtures, Computer Hardware, Software, securities, Permits, and intellectual property;

 

(v) all other personal property and other types of property and assets of Borrowers (except as limited in clause (iv) above);

 

(vi) all security interests, Liens, guarantees and other encumbrances in favor of or assigned or transferred to Borrowers; and

 

(vii) all Proceeds of all of the foregoing and all other types of property of Borrowers (except as limited in clause (ii) and (iv) above); provided, however, that any payments made by Borrowers permitted in Article 2 or Article 7 hereof are made free and clear of the Lien granted pursuant to this Agreement or any other Loan Document.

 

(b) Borrowers shall promptly notify Lender of any commercial tort claims, aside from those arising out of Borrowers’ Ordinary Course of Business, related to any Collateral in which Borrowers have an interest arising after the Closing Date, and shall provide all necessary information concerning each such commercial tort claim and take all necessary action with respect thereto to grant and perfect a first priority Lien thereon in favor of Lender.

 

(c) Borrowers has full right and power to grant to Lender a perfected, first priority Lien on the Collateral pledged by it pursuant to this Agreement, subject to Permitted Liens. Upon the execution and delivery of this Agreement, and upon the filing of the necessary financing statements and other documents and the taking of all other necessary action, Lender will have a valid and first priority perfected Lien on the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person other than Permitted Liens. As of the Closing Date and thereafter until all Obligations under the Loan Documents have been paid in full to Lender, no financing statement naming a Borrowers as debtor and describing any of the Collateral is, or will be, on file in any public office, except those naming Lender as secured party and those related to the Permitted Liens. As of the Closing Date and thereafter until all Obligations under the Loan Documents have been paid in full to Lender, Borrowers is not, and will not be, a party to or otherwise bound by any agreement, document or instrument that conflicts with this Section 2.8.

 

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(d) Borrowers hereby authorize Lender to prepare and file financing statements provided for by the UCC and to take such other action as may be required, in Lender’s sole judgment, in order to perfect and to continue the perfection of Lender’s Lien on the Collateral pledged by it, in each case at the expense of Borrowers, unless prohibited by law and subject to Permitted Liens.

 

(e) Lender shall terminate any UCC financing statements after all of the Obligations hereunder have been paid in full and the Loan is terminated in accordance with this Agreement.

 

(f) The grant under this Section does not constitute and is not intended to result in a creation or an assumption by Lender of any obligation of Borrowers or any other Person in connection with any or all of the Collateral or under any agreement or instrument relating thereto. Anything herein to the contrary notwithstanding, (i) Borrowers shall remain liable under such receivables to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by Lender of any of its rights in the Collateral shall not release the applicable Borrowers from any of their duties or obligations under the Collateral and (iii) Lender shall not have any obligations or liability under the Collateral by reason of this Agreement, and Lender shall not be obligated to perform any of the obligations or duties of Borrowers thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

 

(g) Notwithstanding the foregoing grant of security interest, no account, instrument, chattel paper or other obligation or property of any kind due from, owned by or belonging to a Sanctioned Person shall be Collateral.

 

2.9 Collateral Administration

 

(a) All tangible Collateral (except Collateral in the possession of Lender) will at all times be kept by Borrowers at the principal offices of Borrowers and shall not, without thirty (30) calendar days prior written notice to Lender, be moved therefrom to another location as specified in such notice, and in any case shall not be moved outside the continental United States. All receivables constituting Collateral shall, regardless of their location, be deemed to be under Lender’s dominion and control and the related receivable documents shall be deemed to be in Lender’s possession and control. Any of Lender’s officers, employees, representatives or agents shall have the right upon reasonable written notice (email shall suffice), at any time during normal business hours, in the name of Lender or any designee of Lender, to verify the validity, amount or any other matter relating to the Collateral. Borrowers shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process. In addition to any provision of any Loan Document, Lender shall have the right at all times after the occurrence and during the continuance of an Event of Default (i) to notify Account Debtors that all receivables of Borrowers including, if to Account Debtors, their receivables have been assigned to Lender and that all collections from such receivables shall be paid directly to Lender, and (ii) to charge Borrowers for any collection costs and expenses, including reasonable attorney’s fees, incurred by Lender.

 

(b) As and when determined by Lender in its sole discretion, Lender will perform the searches described in clauses (i) and (ii) below against Borrower: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where such Borrowers is organized; (ii) judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction where Borrowers maintains its jurisdiction of organization, executive offices, a place of business or any assets; and (iii) U.S. Bankruptcy court searches.

 

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(c) Borrowers shall keep accurate and complete records of the Collateral, and all payments and collections thereon and shall submit such records to Lender on such periodic basis as Lender may request in writing (email shall suffice) in its reasonable discretion. Upon the receipt of written notice from Lender following the occurrence and continuation of an Event of Default, Borrowers shall cooperate and cause Borrowers to cooperate with Lender, and if Lender elects to attach or associate in electronic format a notation, legend, stamp or other identification to all or any portion of the Collateral to evidence the pledge thereof to Lender, such notation, legend, stamp or other identification shall be in form and substance acceptable to Lender in its sole discretion.

 

2.10 Power of Attorney

 

BORROWERS HEREBY AGREES AND ACKNOWLEDGES THAT LENDER IS HEREBY IRREVOCABLY MADE, CONSTITUTED AND APPOINTED THE TRUE AND LAWFUL ATTORNEY FOR SUCH BORROWERS (WITHOUT REQUIRING LENDER TO ACT AS SUCH) COUPLED WITH AN INTEREST, WITH FULL POWER OF SUBSTITUTION TO DO THE FOLLOWING ONLY UPON THE OCCURANCE AND CONTINUATION OF AN EVENT OF DEFAULT (AS DEFINED IN ARTICLE VIII), IF NOT REMDEDIED BY BORROWERS WITHIN ANY APPLICABLE GRACE OR CURE PERIOD: (i) indorse the name of Borrowers upon any and all checks, drafts, money orders and other instruments for the payment of money that are payable to Borrowers and constitute collections on the receivables; (ii) execute and/or file in the name of Borrowers any financing statements, amendments to financing statements, schedules to financing statements, releases or terminations thereof, assignments, instruments or documents that Borrowers are obligated to execute and/or file under any of the Loan Documents (to the extent Borrowers fail to so execute and/or file any of the foregoing within five (5) Business Days of Lender’s request or the time when Borrowers are otherwise obligated to do so); (iii) execute and/or file in the name of Borrowers, assignments, instruments, documents, schedules and statements that it is obligated to give Lender under any of the Loan Documents (to the extent Borrowers fail to so execute and/or file any of the foregoing within five (5) Business Days of Lender’s request or the time when Borrowers are otherwise obligated to do so); (iv) to make all necessary transfers of Collateral in connection with any sale or other disposition made pursuant hereto, (v) to execute and deliver for value appropriate bills of sale, assignments and other instruments in connection with any such sale or other disposition, Borrowers thereby ratifying and confirming all that such attorney (or any substitute) shall lawfully do hereunder pursuant hereto and in accordance herewith and (vi) do such other and further acts and deeds in the name of Borrowers that Lender may deem necessary to make, create, maintain, continue, enforce or perfect Lender’s Lien on or rights in any Collateral. In addition, if Borrowers breach their obligation hereunder to direct payments of any Collateral to the Collateral Accounts, then Lender, as the irrevocably made, constituted and appointed true and lawful attorney for such Person pursuant to this paragraph, may, by the signature or other act of any of Lender’s officers or authorized signatories (without requiring any of them to do so), direct any federal, state or private payor or fiscal intermediary to pay proceeds of any other Collateral to the Collateral Accounts or another account designated in writing by Lender.

 

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2.11 Collateral Accounts

 

(a) Collateral Accounts. Deposits made into the Collateral Accounts shall be limited to amounts deposited therein by Borrowers, any of Borrowers’ Subsidiaries, or any Account Debtor in accordance with this Agreement.

 

(b) Withdrawals from the Collateral Accounts. Borrowers shall have the right to withdraw or order a transfer of funds from each Collateral Account in the Ordinary Course of Business consistent with past practices of Borrowers, in accordance with the terms and provisions of this Agreement; provided, however, if an Event of Default occurs, no withdrawals will be allowed from the Collateral Accounts except in accordance with Section 2.4. On each Payment Date, amounts in the Collateral Accounts shall be applied by the Borrowers to make the payments and disbursements described in Section 2.4 and this Section 2.12. Borrowers agree to provide Lender with on-line access to view account related activity such as deposits to and withdrawals from each Collateral Account within one (1) business day of Lender’s written request (email shall suffice), and to ensure that Lender has uninterrupted on-line access to the Collateral Accounts until the Final Maturity Date.

 

2.12 Additional Consideration

 

(a) As a material inducement for Lender to provide the Term Loan Advance and enter into this Agreement, and as additional consideration for Lender to enter into this Agreement and the Loan Documents, Borrowers shall grant, assign, and deliver to Lender, Group’s initial public offering common stock (the “IPO Stock”) in an amount equal to seventy-five percent (75%) of the highest Loan Balance occurring from the Closing Date through and until Group’s initial public offering. Borrowers shall cause the IPO Stock to be transferred to the Lender at the time of the initial public offering at the initial public offering price per share in accordance with that certain future equity issuance agreement dated as of the Closing Date by and between Group and Lender (the “Share Issuance Agreement”).

 

(b) In the event that (i) Borrowers’ initial public offering does not occur at least one (1) month prior to the Final Maturity Date, and (ii) during the term of the Agreement Borrowers borrowed an aggregate sum of at least One Million Two Hundred Thousand Dollars ($1,200,000.00) from Lender, (including the funds paid to Borrowers pursuant to the Factoring Agreement), then Borrowers shall create and grant to Lender, a warrant allowing for Lender to purchase up to ten percent (10%) of Group’s equity, at par value (the “Warrant”).

 

III. FEES AND OTHER CHARGES

 

3.1 Lawful Limits

 

In no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Lender, for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Lender shall have received interest or any other charges of any kind which might be deemed to be interest under Applicable Law in excess of the Maximum Rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrowers hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance, Lender shall promptly refund such excess amount to Borrowers in an account designated by the Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate. The terms and provisions of this Section 3.1 shall control to the extent any other provision of any Loan Document is inconsistent herewith.

 

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IV. CONDITIONS PRECEDENT

 

4.1 Conditions to Closing

 

(a) As of the Closing Date, the obligations of Lender to consummate the transactions contemplated herein are subject to the satisfaction (or waiver), in the sole judgment of Lender, of the following:

 

(i) (A) Borrowers shall have delivered to Lender the Loan Documents to which it or any Affiliate of Borrowers is a party, each duly executed by a Responsible Officer of such Borrowers and the other parties thereto, and (B) each other Person shall have delivered to Lender the Loan Documents to which it is a party, each duly executed and delivered by such Person and the other parties thereto;

 

(ii) all in form and substance satisfactory to Lender in its sole discretion, Lender shall have received (A) a report of UCC financing statement, tax and judgment lien searches performed with respect to Borrowers in each jurisdiction determined by Lender, and such report shall show no Liens on the Collateral (other than Permitted Liens), (B) each document (including, without limitation, any UCC financing statement) required by any Loan Document or requested by Lender to be filed, registered or recorded to create in favor of Lender a first priority and perfected security interest upon the Collateral, (C) evidence of release and termination of any and all Liens and/or UCC financing statements in, on, against or with respect to any of the Collateral (other than Permitted Liens) and (D) evidence of each such filing, registration or recordation and of the payment by Borrowers of any necessary fee, tax or expense relating thereto;

 

(iii) Lender shall have received (A) the Organizational Documents of Borrowers, all in form and substance acceptable to Lender in its reasonable discretion, (B) a certificate of the secretary or assistant secretary of Borrowers in his or her capacity as such and not in his or her individual capacity dated the Closing Date, as to the incumbency and signature of the Persons executing the Loan Documents on behalf of such Person in form and substance acceptable to Lender in its sole discretion, and (C) resolutions from Borrowers authorizing the underlying transaction;

 

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(iv) Lender shall have received a performance certificate from the chief financial officer (or, in the absence of a chief financial officer, the chief executive officer) of Borrower, in his or her capacity as such and not in his or her individual capacity, in form and substance satisfactory to Lender in its sole discretion (each, a “Performance Certificate”), certifying as to each Borrower that as of the Closing Date (A) it is able to perform and meet its obligations, after giving effect to the transactions and the Indebtedness contemplated by the Loan Documents, and (B) it has the financial resources and anticipated ability to meet its obligations and liabilities as they become due;

 

(v) Lender shall have received (or is satisfied that it will receive simultaneously with the funding of the Term Loan Advance) all charges and expenses due and payable to Lender on or prior to the Closing Date pursuant to the Loan Documents;

 

(vi) Lender shall have received the Guaranty;

 

(vii) Lender shall have received the Corporate Guaranty;

 

(viii) no Event of Default shall have occurred and be continuing; and

 

(ix) such other documents and items as Lender deems necessary in its reasonable discretion.

 

(b) Immediately after the Closing Date without any delay, but no later than twenty (20) Business Days after the Closing Date, Lender shall have been added as an additional loss payee on any insurance policies providing coverage to Borrowers or any of their Subsidiaries for any employee dishonesty, fraud, theft or similar types of malfeasance, whether currently or hereafter existing (in each case, an “Insurance Policy”), including without limitation any fidelity bond coverage or errors and omissions insurance.

 

4.2 [Reserved].

 

V. REPRESENTATIONS AND WARRANTIES

 

Each Borrower represents, warrants and covenants with respect to itself, as of the Closing Date, and as of each day that any Obligations are owed by Borrowers under the Loan Documents as follows:

 

5.1 Organization and Authority

 

(a) Such Borrower is duly organized, validly existing and in good standing under the laws of its state of organization. Such Borrower (a) has all requisite power and authority to own its properties and assets (including, without limitation, the Collateral) and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (b) is duly qualified to do business in the jurisdictions set forth in Schedule 2 attached hereto, which are all of the jurisdictions in which failure to so qualify could reasonably be likely to have or result in a Material Adverse Effect. Such Borrower has all requisite power and authority (i) to execute, deliver and perform the Loan Documents to which it is a party, (ii) to consummate the transactions contemplated under the Loan Documents to which it is a party, and (iii) to grant the Liens with regard to the Collateral pursuant to the Security Documents to which it is a party. Such Borrower has all requisite power and authority to borrow hereunder. Such Borrower is not an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, nor controlled by such an “investment company.” No transaction contemplated in this Agreement or the other Loan Documents requires compliance with any bulk sales act or similar law.

 

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5.2 Loan Documents

 

(a) The execution, delivery and performance by Borrowers of the Loan Documents to which Borrowers are a party, and the consummation by Borrowers of the transactions contemplated thereby, (a) have been duly authorized by all requisite action of Borrowers and have been duly executed and delivered by Borrowers; (b) do not violate any provisions of (i) any Applicable Law or, order of any Governmental Authority binding on Borrowers or any of their properties in any material respect, or (ii) the operating agreement and/or shareholder agreement (or any other equivalent governing agreement or document) of Borrowers, or any agreement between such Borrowers and their equity owners or among any such equity owners; (c) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which Borrowers are a party, or by which the properties or assets of Borrowers are bound, the effect of which is reasonably expected to have or result in a Material Adverse Effect; (d) except as set forth herein or therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of Borrowers, and (e) except for filings in connection with the perfection of Lender’s Liens, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person that has not been obtained. When executed and delivered, each of the Loan Documents will constitute the legal, valid and binding obligation of Borrowers, enforceable against Borrowers in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity).

 

5.3 Subsidiaries, Capitalization and Ownership Interests

 

Borrowers have no Subsidiaries as of the Closing Date except those set forth on Schedule 1. 62% of the outstanding equity interest in Group are directly owned (both beneficially and of record) by Guarantor. The outstanding ownership or voting interests of Borrowers have been duly authorized and validly issued. Schedule 1 attached hereto, lists all beneficiaries, managers or managing members or directors of Borrowers as of the Closing Date. Except as disclosed pursuant to Section 5.16, Borrowers do not own (i) any investment property, (ii) real property, or (ii) own any interest or participate or engage in any joint venture or partnership or similar arrangements with any Person. Except as set forth in Schedule 1 attached hereto, no other Person owns any of the outstanding Equity Interest of Borrowers.

 

5.4 Properties

 

Borrowers are the lawful owner of, and has good title to, the Collateral applicable to such Borrower, free and clear of any Liens (other than the Lien of this Agreement and any Permitted Liens).

 

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5.5 Other Agreements

 

Borrowers are not (a) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which is reasonably expected to have a Material Adverse Effect on its ability to execute and deliver, or perform under, any Loan Document or to pay the Obligations or (b) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, is reasonably expected to have or result in a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period is reasonably expected to have or result in a Material Adverse Effect.

 

5.6 Litigation

 

Except as set forth in Schedule 5 attached hereto, as may be updated in accordance with this Agreement, Borrowers are (a) not a party to any material pending or threatened action, suit, proceeding or investigation against Borrowers. Furthermore, Borrowers do not have any reason to believe that any material action, suit, proceeding or investigation may be brought or threatened against its business or involving any significant portion of the Collateral, (b) Borrowers are not a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority, nor is there any action, suit, proceeding, inquiry or investigation by any Governmental Authority, in either case, that could reasonably be expected to prevent or materially delay the consummation by Borrowers of the transactions contemplated herein, and (C) Borrowers do not have any existing accrued and/or unpaid penalties, fines or sanctions imposed by and owing to any Governmental Authority or any other governmental payor.

 

5.7 Financial Statements and Reports

 

Any financial statements and financial information relating to Borrowers that may hereafter be delivered to Lender by Borrowers (a) are consistent with the books of account and records of Borrowers, (b) have been prepared, on a consistent basis throughout the indicated periods, except that the financial statements contain no footnotes or year-end adjustments, and except as otherwise provided in Section 6.1(a) hereof, and (c) present fairly in all material respects the financial condition, assets and liabilities and results of operations of Borrowers at the dates and for the relevant periods indicated. Borrowers did not have any material obligations or liabilities of any kind required to be disclosed therein that are not disclosed in such financial statements, and since the date of the most recent financial statements submitted to Lender pursuant to Section 6.1, there has not occurred any Material Adverse Effect.

 

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5.8 Compliance with Law

 

Borrowers (a) are in compliance with all Applicable Laws, and (b) is not in violation of any order of any Governmental Authority or other board or tribunal, except, in the case of both (a) and (b), where noncompliance or violation is not reasonably expected to have or result in a Material Adverse Effect. Borrowers have not received any notice that Borrowers are not in material compliance in any respect with any of the requirements of any of the foregoing. Borrowers have not established and do not maintain or contribute to any “benefit plan” that is covered by Title IV of Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder (“ERISA”). Borrowers have maintained in all material respects all records required to be maintained by any applicable Governmental Authority. Since its formation, Borrowers have not engaged, directly or indirectly, in any business other than the activities set forth herein and the other Loan Documents.

 

5.9 Licenses and Permits

 

Borrowers are in compliance with and has all Permits necessary or required by Applicable Law or any Governmental Authority for the operation of their respective business as presently conducted and as proposed to be conducted, except where noncompliance, violation or lack thereof is not reasonably expected to have or result in a Material Adverse Effect.

 

5.10 No Default;

 

There does not exist any Default or Event of Default.

 

5.11 Disclosure

 

No Loan Document nor any other agreement, document, certificate, or statement furnished to Lender and prepared by or on behalf of Borrowers in connection with the transactions contemplated by the Loan Documents, nor any representation or warranty made by Borrowers in any Loan Document, contains any untrue statement of material fact or omits to state any fact necessary to make the factual statements therein taken as a whole not materially misleading in light of the circumstances under which it was furnished or made. There is no fact known to Borrowers which has not been disclosed to Lender in writing which is reasonably expected to have or result in a Material Adverse Effect.

 

5.12 Existing Indebtedness; Investments, Guarantees and Certain Contracts

 

Borrowers do not (a) have any outstanding Indebtedness, except Indebtedness under the Loan Documents, (b) Indebtedness incurred in the Ordinary Course of Business consistent with past practices of Borrowers (c) Indebtedness specified on Schedule 6, or (d) own or hold any equity investments in any Person, or have any outstanding guarantees for, the obligations of any other Person, except as permitted under Section 7.2 and 7.14.

 

5.13 Affiliated Agreements

 

Except for the Loan Documents or except as approved in writing by Lender, there are no existing or proposed agreements or transactions between Borrowers, on the one hand, and Guarantor’s or Borrowers’ other Affiliates on the other hand.

 

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5.14 Names; Location of Offices, Records and Collateral

 

(a) Borrowers nor any of their predecessors have conducted business under or used any name (whether corporate, partnership, or assumed) other than as shown in Schedule 2 attached hereto. Within five (5) business days after Borrowers making any change in their name, identity or organizational structure which would make any financing statement or continuation statement filed in accordance with this Agreement seriously misleading within the meaning of the UCC as in effect in the applicable State, Borrowers shall give Lender notice of any such change, and within five (5) business days after such change shall authorize, execute and file such financing statements or amendments as may be necessary to continue the perfection of the Lender’s security interest in the receivables of Borrowers and the proceeds thereof.

 

(b) Borrowers maintain and since inception, its predecessors maintained, respective places of business and chief executive offices only at the locations set forth (i) as of the Closing Date on Schedule 2 attached to this Agreement, or (ii) after the Closing Date, Borrowers shall give the Lender prior written notice of at least 60 days before any relocation of any office from which Borrowers keep records or of their principal executive office or their jurisdiction of organization and whether, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and within 60 days after such relocation shall authorize, execute and file such financing statements or amendments as may be necessary to continue the perfection of the interest of the Lender in such receivables and the proceeds thereof. All of the Collateral is located only in the continental United States.

 

5.15 Deposit Accounts

 

Schedule 3 attached hereto lists all Deposit Accounts of Borrowers. Borrowers have not pledged, or assigned, or entered into an account control agreement with respect to any Collateral Accounts, other than in accordance with the terms of this Agreement. Each Collateral Account is a “deposit account” as defined in the relevant UCC.

 

5.16 Non-Subordination

 

The Obligations are not subordinated in any way to any other obligations of Borrowers or to the rights of any other Person except as set forth in Section 7.2 and 7.14.

 

5.17 [Reserved].

 

5.18 [Reserved].

 

5.19 Legal Investments; Use of Proceeds

 

Borrowers are not engaged in the business of extending credit for the purpose of purchasing or carrying any “margin stock” or “margin security” (within the meaning of Regulations T, U or X issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Loan will be used to purchase or carry any margin stock or margin security or to extend credit to others for the purpose of purchasing or carrying any margin stock or margin security.

 

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5.20 Broker’s or Finder’s Commissions

 

No broker’s, finder’s or placement fee or commission or similar compensation will be payable, directly or indirectly, to any broker or agent or other person by Borrowers or any of their officers, directors or agents with respect to the Loan or the transactions contemplated by this Agreement. Borrowers agree to indemnify Lender and hold it harmless from and against any claim, demand or liability for broker’s, finder’s or placement fees or similar commissions or compensation, whether or not payable by Borrowers, alleged to have been incurred in connection with such transactions, other than any broker’s or finder’s fees payable to Persons engaged by Lender without the knowledge of Borrowers.

 

5.21 Anti-Terrorism; OFAC; AML

 

(a) For purposes of this Section and Section 7.10 below, each of the following terms have the following meanings: (i) “Transaction Person” includes Borrowers; any Subsidiary of Borrowers; any other Person controlling or controlled by a Borrower; any Person having a beneficial interest in a Borrower; any Person for whom Borrowers are acting as agent or nominee in connection with this Loan transaction; and any of the respective officers, directors and employees of Borrowers; (ii) “Sanctions” means any economic sanctions law, regulation, Executive Order, program or list administered or enforced by the OFAC or the U.S. Department of State, including without limitation 31 C.F.R. Parts 500 to 597, Section 1 of EO 13224 and OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”); (iii) “EO 13224” means Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001); (iv) “Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56 (signed into law October 26, 2001), as amended; (v) “Sanctioned Person” means any Person (1) named on the SDN List or other sanctions-related list maintained or administered by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, or any European Union member state; (2) any Person located, organized or resident in a Sanctioned Country; or (3) any Person owned or controlled by any such Person; and (vi) “Sanctioned Country” means country or territory that is, or whose government is, the subject of comprehensive Sanctions (currently including, without limitation, Cuba, Iran, North Korea, Sudan, Syria and the Crimea region of Ukraine).

 

(b) No Transaction Person (i) is a Sanctioned Person; (ii) engages or has engaged in any dealings or transactions prohibited by Section 2 of EO 13224 or, to the knowledge of Borrowers, is otherwise a known associate based on publicly available information with any such Sanctioned Person in any manner that violates Section 2 of EO 13224; or (iii) to the knowledge of Borrower, is located, organized or resident in a Sanctioned Country.

 

(c) To the knowledge of Borrowers, no part of the proceeds of the Loan will be used by such Borrowers or lent, contributed or otherwise made available to any other Person, directly or indirectly (i) to fund any activities or business of or with any Sanctioned Person or in any Sanctioned Country or (ii) in any other manner that would result in a violation of any Sanctions by Lender or any other Person.

 

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(d) To the knowledge of Borrowers, (i) no part of the proceeds of the Loan will be used, directly or indirectly, for any payments (1) to fund or facilitate any for money laundering or terrorist financing activities or business; or (2) in any other manner that would cause or result in violation of Patriot Act laws, rules or regulations, and (ii) after due inquiry by Borrowers, the Collateral owned by it does not include any asset that may cause or result in a violation of Patriot Act laws, rules or regulations.

 

(e) To the knowledge of Borrowers, no part of the proceeds of the Loan will be used, directly or indirectly, for any payments to any officer or employee of a foreign government or any department, agency or instrumentality thereof, or of a public international organization, or of any political party, or any person acting in an official capacity for or on behalf of such government or department, agency, instrumentality, political party, or public international organization, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act , as amended (“FCPA”) (15 U.S.C. §§78dd-1, et. seq.) or any other applicable law, rule or regulation prohibiting bribery or corruption, including those of countries other than the United States.

 

(f) Borrowers acknowledge by executing this Agreement that Lender has notified Borrowers that, pursuant to Lender’s compliance with requirements relating to the Patriot Act, Lender may be required to obtain, verify and record such information as may be necessary to identify Borrowers, or any Person owning twenty-five percent (25.00%) or more of the Equity Interests of Borrowers (including, without limitation, the name and address of such Person) in accordance with the Patriot Act.

 

5.22 Security Interest

 

Borrowers have full right and power to grant to Lender a perfected, first priority security interest and Lien on the Collateral pursuant to this Agreement, subject to the following sentence. Upon the execution and delivery of this Agreement, and upon the filing of the necessary financing statements and/or appropriate filings and/or delivery of the necessary certificates evidencing an equity interest, control and/or possession, as applicable, without any further action, Lender will have a good, valid and first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien and security interest in the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person except as set forth in Section 7.2. As of the Closing Date, no financing statement relating to any of the Collateral is on file in any public office except those on behalf of Lender and those related to the Permitted Liens. As of the Closing Date, Borrowers are not party to any agreement, document or instrument that conflicts with this Section 5.22.

 

5.23 Taxes

 

Borrowers have filed or caused to be filed all federal, State, local and foreign tax returns that are required to be filed by it or, where necessary, obtained the requisite extension to file same. Borrowers have paid or made adequate provisions for the payment of all federal, State, local and foreign Taxes and all assessments made against it or any of its property, and no Tax lien has been filed and, to Borrowers’ knowledge, no claim is being asserted, with respect to any such Tax, fee or other charge in each case to the extent that they are reasonably likely to result in a Material Adverse Effect.

 

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5.24 Tradenames

 

Borrowers have no trade names, fictitious names, assumed names or “doing business as” names or other names under which it is doing business.

 

5.25 Survival

 

Borrowers hereby make the representations and warranties made by it herein with the knowledge and intention that Lender is relying and will rely thereon. All such representations and warranties will survive the execution and delivery of this Agreement, the Closing.

 

VI. AFFIRMATIVE COVENANTS

 

Borrowers hereby covenant and agree that, unless otherwise consented to by Lender in writing in its sole discretion, until the full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than indemnity obligations of the Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending), the termination of the Maximum Commitment Amount and termination of this Agreement:

 

6.1 Financial Statements, Reports and Other Information

 

(a) Financial Reports and Compliance Certificate. Upon Lender’s request, Borrowers shall furnish to Lender (i) as soon as available and, in any event, within forty-five (45) calendar days after the end of each quarter, unaudited monthly financial statements of Borrowers on a consolidated basis consisting of a balance sheet and statements of income as of the end of the immediately preceding fiscal quarter, certified as true, accurate and complete by a senior responsible officer of Borrowers, and (ii) one hundred eighty (180) calendar days after the end of each fiscal year thereafter, financial statements of Borrowers and their Subsidiaries on a consolidated and consolidating basis, including the notes thereto, consisting of a balance sheet at the end of such completed fiscal year and the related statements of income, retained earnings, cash flows and owners’ equity for such completed fiscal year. With each financial statement, Borrowers shall also deliver a compliance certificate executed by a Responsible Officer of Borrowers in the form satisfactory to Lender stating that (1) such person has reviewed the relevant terms of the Loan Documents and the condition of Borrowers, and (2) no Default or Event of Default has occurred or is continuing or, if any of the foregoing has occurred or is continuing, specifying the nature and status and period of existence thereof and the steps taken or proposed to be taken with respect thereto.

 

(b) Servicing Reports. As soon as available, and in any event not later than the twenty-first (21st) day following each calendar quarter, Borrowers shall deliver to Lender a Quarterly Servicing Report, in computer file form reasonably accessible and usable by Lender showing, as of the end of the immediately preceding calendar quarter, with respect to all Collateral, in the form satisfactory to Lender, including a summary of all cash receipts during the immediately preceding calendar quarter with respect to the receivables pledged as Collateral, and such other matters as Lender may from time to time reasonably request, all prepared by Borrowers and certified as to being true, correct and complete in all material respects.

 

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(c) Notices. Borrowers shall promptly, and in any event within five (5) Business Days after the occurrence thereof, notify Lender in writing of (i) any notices Borrowers have received of any material claims, offsets or disputes asserted by any Account Debtor with respect to the Collateral or receivables; (ii) any pending legal action, litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative or regulatory proceeding brought, initiated or threatened in writing by or against Borrowers or otherwise affecting or involving or relating to such Borrowers or any of its properties or assets that questions or challenges the validity or enforceability of this Agreement or any of the other Loan Documents or any action to be taken in connection with the transactions contemplated hereby or thereby, that makes a claim or claims in an aggregate in an amount in excess of $125,000, or which, individually or in the aggregate, if adversely determined, would be reasonably likely to have a Material Adverse Effect on Borrowers, (iii) any Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iv) any other development, event, fact, circumstance or condition that is reasonably expected to have or result in a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (v) any matter(s) in existence that Borrowers becomes aware of affecting in any material respect the value, enforceability or collectability of the Collateral, (vi) receipt by Borrowers of any material notice or request from any Governmental Authority regarding any liability, (vii) receipt of any notice or document by Borrowers regarding any lease of real property of Borrowers (and such notice shall include a copy of the notice or document), (viii) any lease of real property entered into by Borrowers after the Closing Date, (ix) the filing, recording or assessment of any federal, state, local or foreign tax lien against the Collateral or Borrowers, (x) any action taken or threatened in writing to be taken by any Governmental Authority (or any notice of any of the foregoing) with respect to Borrowers or the Collateral which is reasonably expected to have or result in a Material Adverse Effect, (xi) any change in the corporate name of Borrowers, and/or (xii) the loss, termination or expiration of any contract to which Borrowers are a party or by which Borrowers’ properties or assets are subject or bound that is reasonably expected to have or result in a Material Adverse Effect.

 

6.2 Payment of Obligations

 

Borrowers shall make full and timely indefeasible payment in cash of the principal of and interest on the Loan and all other Obligations when due and payable in accordance with this Agreement.

 

6.3 Conduct of Business and Maintenance of Existence and Assets

 

Borrowers shall (a) collect all receivables in the ordinary course of business, (b) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and good standing in its jurisdiction of formation and each other jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits or qualification necessary and (c) remain in good standing and maintain operations in all jurisdictions in which currently located.

 

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6.4 Compliance with Legal and Other Obligations

 

Borrowers shall (a) comply with all laws, statutes, rules, regulations, ordinances and tariffs of all Governmental Authorities applicable to their business, assets or operations, (b) pay all taxes, assessments, fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind for which Borrowers are liable when due and payable, except liabilities being contested in good faith and against which adequate reserves have been established, (c) perform in accordance with its terms each contract, agreement or other arrangement to which Borrowers are a party or by which it or any of the Collateral is bound, and (d) properly file all reports required to be filed by Borrowers with any Governmental Authority, except under clauses (a), (b), (c), and/or (d) where the failure to comply, pay, file or perform would not reasonably be expected to be, have or result in a Material Adverse Effect.

 

6.5 Insurance

 

Borrowers shall keep all of their tangible properties and assets that are insurable properties and assets, if any, adequately insured in all material respects against losses, damages and hazards as are customarily insured against by businesses of similar size engaging in similar activities or lines of business or owning similar assets or properties; all such insurance policies and coverage levels, if any, shall (a) be satisfactory in form and substance to Lender in its sole discretion, (b) name Lender as a loss payee or additional insured thereunder, as applicable, and (c) expressly provide that such insurance policies and coverage levels cannot be altered, amended or modified in any manner which is adverse to Lender, or canceled or terminated without thirty (30) calendar days prior written notice to Lender, and that they inure to the benefit of Lender.

 

6.6 True Books

 

Borrowers shall (a) keep true, complete and accurate books of record and account in accordance with commercially reasonable business practices in which true and correct entries are made of all of its dealings and transactions in all material respects; and (b) set up and maintain on its books such reserves with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to Borrowers’ business.

 

6.7 Inspection; Periodic Audits; Quarterly Review

 

Borrowers shall permit the representatives of Lender, at the expense of Lender, from time to time (but no more than twice (2) per quarter unless a Default or Event of Default has occurred and is continuing) during normal business hours upon reasonable written notice (email shall suffice), (a) to visit and inspect the offices of Borrowers, offices or properties of Borrowers or any other place where Collateral is located to inspect the Collateral and/or to examine, review and audit all of the books of account, records, reports and other papers of Borrowers relating to the Collateral, (b) to make copies and extracts therefrom, and (c) to discuss Borrowers’ business, operations, prospects, properties, assets, liabilities, condition with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing) provided, that so long as a Default or an Event of Default has occurred and is continuing or such Event of Default not having been remedied by Borrowers within any applicable grace or cure period, no such notice shall be required. Borrowers shall meet with Lender at least once per quarter, if requested by Lender (which meeting may take place telephonically if requested by Lender), to review solely with respect to the servicing of the receivables its operations, prospects, properties, assets, liabilities, condition and/or performance.

 

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6.8 Further Assurances; Post Closing

 

At Borrowers’ cost and expense, Borrowers shall (a) within five (5) Business Days (or such longer period in the case of actions involving third parties as determined by Lender in its sole and absolute discretion) after Lender’s reasonable demand and written notice of same (email shall suffice), take such further actions, obtain such consents and approvals and shall duly execute and deliver such further agreements, assignments, instructions or documents as Lender may reasonably request in its sole discretion in order to effectuate the purposes, terms and conditions of the Loan Documents and the consummation of the transactions contemplated thereby, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence and during the continuation of a Default or Event of Default, (b) without limiting and notwithstanding any other provision of any Loan Document, execute and deliver, or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise perform, observe and comply with such obligations, as are set forth in any agreement regarding post-closing matters executed by Lender and Borrowers, and (c) upon the exercise by Lender or any of its Affiliates of any power, right, privilege or remedy pursuant to any Loan Document or under Applicable Law or at equity which requires any consent, approval, registration, qualification or authorization of such Person (including, without limitation, any Governmental Authority), execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization.

 

6.9 Payment of Indebtedness

 

Except as otherwise prescribed in the Loan Documents, Borrowers shall pay, discharge or otherwise satisfy when due and payable (subject to applicable grace periods and, in the case of trade payables, to ordinary course of payment practices) all of its obligations and liabilities, except when the amount or validity thereof is being contested in good faith by appropriate proceedings.

 

6.10 Other Liens

 

If Liens other than Permitted Liens shall exist at any time on the Collateral, Borrowers immediately shall take all actions, and execute and deliver all documents and instruments necessary to promptly release and terminate such Liens. Within ten (10) days of discovery of any Lien other than a Permitted Lien, Borrowers shall notify Lender.

 

6.11 Use of Proceeds

 

Borrowers shall use the proceeds of the Loan only in accordance with the Approved Use of Loan Proceeds.

 

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6.12 Collateral Documents; Security Interest in Collateral

 

On written demand of Lender (email shall suffice), Borrowers shall make available to Lender copies of any and all documents, instruments, materials and other items that relate to, secure, evidence, give rise to or generate or otherwise involve Collateral, including, without limitation, the receivables, in each case to the extent Borrowers have access to such documents, instruments, materials and other items. Borrowers shall (a) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise requested by Lender, in its sole discretion, to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect Borrowers’ interest in the Collateral and Lender’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) Lien on the Collateral (and Borrowers irrevocably grant Lender the right, at Lender’s option, to file any or all of the foregoing), (b) maintain, or cause to be maintained, at all times, Lender’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) Lien on the Collateral, and (c) defend the Collateral and Lender’s first priority (other than with respect to property or assets covered by Permitted Liens) and perfected Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Lender, and pay all costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) in connection with such defense, which may, at Lender’s discretion, be added to the Obligations, in any event as necessary pursuant to this Agreement.

 

6.13 Servicing of Collateral

 

Borrowers shall promptly, but within reason, provide Lender with true and complete copies of all notices, invoices, purchase orders, reports, statements and other documents sent or received by Borrowers in the ordinary course of business.

 

6.14 [Reserved].

 

6.15 Collections from Collateral. Borrowers agrees and covenant that Borrowers shall:

 

(a) Ensure that payments from its receipts and receivable are deposited directly and only into the Collateral Accounts.

 

(b) Any collections or other proceeds of the Collateral shall be held in trust for the benefit of Lender and deposit such collections into the Collateral Accounts within five (5) Business Days following Borrowers’ receipt thereof;

 

(c) Prevent the deposit into any Collateral Accounts of any funds other than collections from the Collateral or other funds to be deposited into such Collateral Accounts under this Agreement or the other Loan Documents (provided that, this covenant shall not be breached to the extent that funds are inadvertently deposited into any Collateral Account and are promptly segregated and removed from such Collateral Account); and

 

(d) Notwithstanding anything to the contrary in this Section 6.15, at any time after the occurrence of an Event of Default, (1) Borrowers hereby authorize Lender to send directions to each Account Debtor of Borrowers to make payments directly to Lender or as otherwise determined by Lender in its sole discretion and (2) Lender shall have the right to notify any Account Debtor (i) that all receivables of Borrowers have been assigned to Lender, (ii) that all collections from such receivables shall be paid directly to Lender, and (iii) that all Account Debtors shall be directed to deliver payments directly to a deposit account established by Lender from time to time.

 

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6.16 Taxes

 

Borrowers will file or caused to be filed all tax returns that are required to be filed by it and pay any and all Taxes, including those required to meet the obligations of the Loan Documents. Borrowers will pay when due, cause to be paid when due or make adequate and timely provisions for the payment when due of all federal and State, local and foreign Taxes and all assessments made against it or any of its property, including those required to meet the obligations of the Loan Documents, to the extent failure to pay is reasonably likely to result in a Material Adverse Effect.

 

VII. NEGATIVE COVENANTS

 

Borrowers covenant and agrees that, unless otherwise consented to by Lender in writing in its discretion, until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) and termination of this Agreement:

 

7.1 Indebtedness

 

Borrowers shall not create, incur, assume or suffer to exist any Indebtedness, except Indebtedness under the Loan Documents, except as set forth in Section 7.2 and 7.14.

 

7.2 Liens

 

Borrowers shall not create, incur, assume or suffer to exist any Lien upon, in or against, encumber in any manner to any Person, pledge of, any of the Collateral, whether now owned or hereafter acquired, except as set forth in Section 7.14 and the following (collectively, “Permitted Liens”): (i) Liens under the Loan Documents or otherwise arising in favor of Lender, (ii) any right of set-off granted in favor of any financial institution in respect of Deposit Accounts opened and maintained in the Ordinary Course of Business or pursuant to the requirements of this Agreement, provided, that with respect to any such Deposit Account, Lender has a perfected Lien thereon and control thereof, in form, scope and substance satisfactory to Lender in its sole discretion, (iii) Liens imposed by any Governmental Authority for taxes, assessments or charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Borrowers in accordance with modified cash basis accounting principles, (iv) Liens imposed by law, such as materialmen’s, warehousemen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens upon such underlying assets, arising by operation of law in the ordinary course of business for sums that are not overdue or are being contested in good faith, and (v) those existing Liens that are subordinate to the Loan Documents. Borrowers will promptly notify Lender of the existence of any Lien (other than Permitted Liens) on any portion of Borrowers’ Collateral and Borrowers shall defend the right, title and interest of Lender in, to and under such Collateral, against all claims of third parties.

 

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7.3 Investments; Investment Property; New Facilities or Collateral; Subsidiaries

 

Borrowers shall not, directly or indirectly, (a) merge with, purchase, own, hold, invest in or otherwise acquire any Equity Interests of, or any other interest in, all or substantially all of the assets of, any Person or any joint venture, (b) purchase, own, hold, invest in or otherwise acquire any investment property, (ii) Deposit Accounts with financial institutions and investments in the ordinary course of business or as required by this Agreement; provided, that with respect to any such Deposit Accounts, Lender has a perfected Lien thereon and control thereof, in form, scope and substance satisfactory to Lender in its sole discretion and (iii) the indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business) or (c) make or permit to exist any loan, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person except as provided in clause (b). Borrowers shall not purchase, lease, own, operate, hold, invest in or otherwise acquire any property or asset or any Collateral that is located outside of the continental United States except as provided in clause (b). Borrowers shall not have any undisclosed Subsidiaries.

 

7.4 Transactions with Affiliates

 

No Borrower shall enter into or consummate any transaction of any kind with any of its Affiliates other than (a) the transactions contemplated hereby and by the other Loan Documents, subject to compliance with the requirements set forth in Section 2.6 hereof, and (b) to the extent not otherwise prohibited under this Agreement.

 

7.5 Organizational Documents; Fiscal Year; Dissolution; Use of Proceeds; Insurance Policies; Disposition of Collateral; Trade Names

 

Borrowers shall not (a) amend, modify, restate or change its charter or governance documents in a manner that would be adverse to Lender, (b) change its state of organization or change its corporate name without thirty (30) calendar days prior written notice to Lender, (c) change its fiscal year, (d) amend, alter, suspend, terminate or make provisional in any material way, any Permit, the suspension, amendment, alteration or termination of which is reasonably expected to have or result in a Material Adverse Effect without the prior written consent of Lender, which consent shall not be unreasonably withheld, (e) wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking or that would result in any of the foregoing, (f) use any proceeds of any Loan for purchasing or carrying “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System, for extending credit to others for the purpose of purchasing or carrying any “margin stock” or for any other use not contemplated or permitted by this Agreement, (g) amend, modify, restate, terminate, cancel or change any Insurance Policy in a manner adverse to Lender in any material respect, (h) engage, directly or indirectly, in any business other than as set forth herein the business of substantially the time in which Borrowers are engaged on the Closing Date and businesses reasonably related thereto or, (i) establish new or additional trade names without providing not less than five (5) business days advance written notice to Lender or (j) certificate, or cause to have certificated, any equity ownership interest in Borrowers that is not evidenced by a certificate as of the Closing Date that is Collateral pursuant to this Agreement and the Pledge Agreement, without Lender’s prior written consent.

 

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7.6 Transfer of Collateral

 

(a) Subject to compliance with the requirements set forth in Section 2.6 hereof, Borrowers shall not sell, contribute, lease, convey, pledge, encumber, assign, transfer or otherwise dispose of any Collateral without the prior consent of Lender, except in the Ordinary Course of Business.

 

(b) Borrowers shall not extend, amend, waive or otherwise modify the terms of any receivable or permit the rescission or cancellation of any receivable, whether for any reason relating to a negative change in the related Account Debtor’s creditworthiness or inability to make any payment under the receivable or otherwise, except as approved in writing by Lender or in the Ordinary Course of Business, consistent with the past practices of Borrowers.

 

(c) Except as required by Applicable Law, Borrowers shall not terminate or reject any receivable prior to the end of the term of such receivable except in the Ordinary Course of Business, consistent with the past practices of Borrowers, whether such rejection or early termination is made pursuant to any Applicable Law, unless prior to such termination or rejection, such receivable and any related Collateral have been released from the Lien created by this Agreement pursuant to the terms hereof.

 

7.7 Contingent Obligations and Risks

 

Except as otherwise expressly permitted by this Agreement, Borrowers shall not enter into any Contingent Obligations or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person (other than indemnities to officers and directors of such Person to the extent permitted by Applicable Law); provided, however, that nothing contained in this Section 7.7 shall prohibit Borrowers from indorsing checks in the Ordinary Course of Business.

 

7.8 Truth of Statements

 

Borrowers shall not furnish to Lender any certificate, report or other document that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished.

 

7.9 Modifications of Agreements

 

Borrowers shall not alter, amend or modify, or waive any of the terms or provisions of the Loan Documents, or consent to any alteration, amendment or modification, or waiver of any terms or provisions of the Loan Documents, in each case which affects or could reasonably have an effect on any of the Collateral, or any of the rights thereunder assigned to Borrowers relating in any way to any of the Collateral, in either case, without the prior written consent of Lender.

 

7.10 Anti-Terrorism; OFAC; AML

 

(a) No Transaction Person (as defined in Section 5.21) shall (i) be or become a Sanctioned Person (as defined in Section 5.21), (ii) engage in any dealings or transactions prohibited by EO 13224 or to the knowledge of any Transaction Person, otherwise be associated with any such Sanctioned Person or (iii) be or become located or resident in a Sanctioned Country (as defined in Section 5.21).

 

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(b) Borrowers shall not (i) use the proceeds of any Loan, directly or indirectly, for any payments (1) to fund or facilitate any money laundering or terrorist financing activities or business; or (2) in any other manner that would cause or result in violation of Patriot Act laws, rules or regulations, and (ii) after due inquiry by Borrowers, the Collateral shall not include any asset that may cause or result in a violation of Patriot Act laws, rules or regulations.

 

(c) Borrowers shall not use, loan, contribute, or otherwise make available the proceeds of the Loan to any other Person, directly or indirectly (i) to fund any activities or business of or with any Sanctioned Person or in any Sanctioned Country or (ii) in any other manner that would result in a violation of any Sanctions by Lender or any other Person.

 

(d) Borrowers shall not use the proceeds of the Loan, directly or indirectly, for any payments to any officer or employee of a foreign government or any department, agency or instrumentality thereof, or of a public international organization, or of any political party, or any person acting in an official capacity for or on behalf of such government or department, agency, instrumentality, political party, or public international organization, governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the FCPA, or any other applicable law, rule or regulation prohibiting bribery or corruption, including those of countries other than the United States.

 

(e) Borrowers shall maintain in effect and enforce policies and procedures designed to ensure compliance by Borrowers and each of their Subsidiaries and its or their respective directors, officers, and employees with the FCPA, or any other applicable law, rule or regulation prohibiting bribery or corruption, including those of countries other than the United States.

 

7.11 Servicing of Agreements

 

Without the prior written consent of Lender in its sole discretion, Borrowers shall not:

 

(a) terminate, amend or modify any of its agreements in any manner that is disadvantageous to Lender; and

 

(b) except in a manner consistent with past practice of Borrowers, transfer, assign or delegate substantially all of its duties or functions to any Person, or otherwise engage any such Person to perform any such duties or functions for or on behalf of Borrowers.

 

7.12 Distributions; Transfers and Compensation

 

Borrowers shall not transfer funds or make payments to Affiliates or common controlled entities, except for (i) funds transferred or paid for transactions conducted in the Ordinary Course of Business and on an arms-length basis, or (ii) in accordance with this Loan Agreement.

 

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7.13 Further Assurances

 

Borrowers shall from time to time execute and deliver to Lender such other Documents and shall take such other actions as may be reasonably requested by Lender in order to implement or effectuate the provisions of, or more fully perfect the rights granted or intended to be granted by Borrowers to Lender pursuant to the terms of, this Agreement and the Loan Documents.

 

7.14 Borrower Pre-IPO Financing

 

Specifically excepted from the Article VII and any other obligations set forth in the Loan Documents pertaining or referencing to the subject matter of Article VII and/or any prohibition from subordinating Borrowers’ Obligations under the Loan Documents, Borrowers are expressly allowed to obtain Pre-IPO Financing, upon written notice to Lender of Borrowers intention to proceed with the Pre-IPO Financing, and Lender agrees to subordinate all rights, options and remedies provided for in any Loan Document, under the UCC or at law or in equity, to the Person(s) providing the Pre-IPO Financing to Borrower(s).

 

VIII. EVENTS OF DEFAULT

 

The occurrence of any one or more of the following shall constitute an “Event of Default”:

 

(a) Failure by the Borrowers to pay any amount on the Obligations within five (5) Business Days following the due date thereof (in all cases, whether, at maturity, by reason of acceleration, by notice of intention to prepay, by required payment or prepayment or otherwise required under the Loan Documents); or

 

(b) any representation, statement or warranty made or deemed made by Borrowers in any Loan Document or in any other certificate, document, or report (including the Quarterly Servicing Report) delivered in conjunction with any Loan Document to which it is a party, shall not be true and correct in all material respects or shall have been false or misleading in any material respect on the date when made or deemed to have been made (except to the extent already qualified by materiality, in which case it shall be true and correct in all respects and shall not be false or misleading in any respect); or

 

(c) Borrowers, or any other party hereto, other than Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant (including Section 4.1(b)), obligation or agreement of it set forth in this Agreement (other than any violation, breach or default in the covenants or obligations in Section 2.4 or Section 6.15, including without limitation any misappropriation of any funds to be delivered to the Collateral Accounts pursuant to Section 6.15 and applied pursuant to Section 2.4 of this Agreement, for which there shall be no cure period) and such violation, breach or failure shall continue or not be cured within a period of thirty (30) calendar days after written notice of such violation (email shall suffice), breach or default shall be given by Lender; or

 

(d) Borrowers, or any other party thereto, other than Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in, or any event of default occurs under, any Loan Document other than this Agreement and such violation, breach, default, event of default or failure shall not be cured within the applicable period set forth in the applicable Loan Document or, if no cure period is provided for therein, within a period of thirty (30) calendar days; or

 

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(e) (i) any of the Loan Documents ceases to be in full force and effect (other than in accordance with its terms), (ii) any Lien created under any Loan Document ceases to constitute a valid first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien on the Collateral in accordance with the terms thereof, except with respect to Collateral that is released from the Lien of Lender as permitted under the Loan Documents, or (iii) Borrowers shall fail to own the Collateral free and clear of Liens other than Liens contemplated by the Loan Documents; or

 

(f) one or more judgments or decrees is rendered against a Borrower, Guarantor or in an amount in excess of $150,000 individually or $300,000 in the aggregate (excluding judgments to the extent covered by insurance of such Person), which is/are not bonded pending appeal, satisfied, stayed, vacated or discharged of record within ninety (90) calendar days of being rendered; or

 

(g) Borrowers shall (i) be unable to pay their debts outside the Ordinary Course of Business as they become due, subject to the exceptions set forth in Article VII, or file a voluntary petition under any insolvency statute, (ii) make a general assignment for the benefit of its creditors, (iii) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property or shall otherwise be dissolved or liquidated, or (iv) file a petition seeking reorganization or liquidation or similar relief under any Debtor Relief Law or any other Applicable Law;

 

(h) (i) a court of competent jurisdiction shall (A) enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of Borrowers or the whole or any substantial part of the properties of Borrowers, which shall continue unstayed and in effect for a period of sixty (60) calendar days, (B) shall approve a petition filed against Borrowers seeking reorganization, liquidation or similar relief under the any Debtor Relief Law or any other Applicable Law, which is not dismissed within sixty (60) calendar days or, (C) under the provisions of any Debtor Relief Law or other Applicable Law, assume custody or control of Borrowers or of the whole or any substantial part of the properties of Borrowers, which is not irrevocably relinquished within sixty (60) calendar days, or (ii) there is commenced against a Borrower any proceeding or petition seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other Applicable Law or statute, which (A) is not unconditionally dismissed within sixty (60) calendar days after the date of commencement, or (B) is with respect to which Borrowers takes any action to indicate its approval of or consent;

 

(i) (i) any Change of Control occurs, (ii) any Material Adverse Effect of Borrowers occurs or (iii) Borrowers cease any material portion of their business operations as conducted at the Closing Date, absent Lender’s written consent;

 

(j) Guarantor, Borrowers or any of Borrowers’ directors, managers, managing members or senior or executive officers is criminally indicted or convicted (i) of a felony, or (ii) under any law that could lead to a forfeiture of any material portion of the Collateral (as determined by Lender in its sole discretion);

 

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(k) the Quarterly Servicing Report is not delivered to Lender within fifteen (15) Business Days of the due date; or

 

(l) an Event of Default has occurred and is then continuing.

 

If such Event of Default has occurred or is then continuing the Loan (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall, at Lender’s option, immediately become due and payable and the following actions may be taken with five (5) business days notice to Borrowers: (i) terminate Lender’s obligations hereunder and/or the Maximum Commitment Amount, whereupon the same shall immediately terminate, (ii) with respect to the Collateral, (1) terminate Borrowers solely in their capacity as the servicer of the receivables, including the right to institute collection and other enforcement actions against the Collateral; (2) enter into modification agreements and make extension agreements with respect to payments and other performances; (3) release Account Debtors and other Persons liable for performance; (4) settle and compromise disputes with respect to payments and performances claimed due, all without notice to Borrowers, and all in Lender’s sole discretion and without relieving Borrowers from performance of the obligations hereunder or under any other Loan Document; (5) receive, collect, open and read all mail of Borrowers for the purpose of obtaining all items pertaining to the Collateral and any collateral described in any Loan Document; (6) collect all payments and other amounts of any and every description payable by or on behalf of any Account Debtor pursuant to any receivable, or any other related documents or instruments directly from such Account Debtor; and (7) apply all amounts in or subsequently deposited in any Deposit Account to the payment of the unpaid Obligations or otherwise as Lender in its sole discretion shall determine; (iii) the Lender may exercise all rights and remedies available to it under the Security Agreement and any other Loan Document; (iv) declare all or any of the Loan and/or Notes, all accrued interest thereon and all other Obligations to be due and payable immediately (except in the case of an Event of Default under Section 8(h) or (i) (other than an Event of Default under Section 8(h) or (i) with respect to Borrowers), in which event all of the foregoing shall automatically and without further act by Lender be due and payable and the obligations of Lender hereunder shall terminate, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrowers and (b) effective immediately upon receipt of notice from Lender (unless specifically prohibited and provided for in Article VII, in which case effective immediately upon an Event of Default without any action of Lender), no action permitted to be taken under Article VII hereof may be taken; and (v) commence a suit, action, or proceeding relating to this Agreement or any other Loan Document or the enforcement of its rights hereunder or thereunder.

 

IX. RIGHTS AND REMEDIES AFTER DEFAULT

 

9.1 Rights and Remedies

 

(a) In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and continuation of an Event of Default, Lender shall have the right to the full extent permitted by applicable law exercise any and all rights, options and remedies provided for in any Loan Document, under the UCC or at law or in equity, including, without limitation, the right to (i) apply any property of Borrowers held by Lender to reduce the Obligations, (ii) foreclose the Liens created under the Loan Documents, (iii) realize upon, take possession of and/or sell any Collateral, with or without judicial process, (iv) exercise all rights and powers with respect to the Collateral as Borrowers might exercise, (v) collect and send notices regarding the Collateral, with or without judicial process, (vi) by its own means or with judicial assistance, enter any premises at which Collateral is located or dispose of the Collateral on such premises without any liability for rent, storage, utilities, or other sums, and Borrowers shall not resist or interfere with such action, (vii) at Borrowers’ expense, require that all or any part of the Collateral be assembled and made available to Lender at any place designated by Lender in its sole discretion, (viii) reduce or otherwise change the Maximum Commitment Amount and/or any component of the Maximum Commitment Amount and/or (ix) relinquish or abandon any Collateral or any Lien thereon. Notwithstanding any provision of any Loan Document, Lender, in its sole discretion, shall have the right, at any time that Borrowers fail to do so after an Event of Default, without prior notice, to: (A) obtain insurance covering any of the Collateral to the extent required hereunder; (B) pay for the performance of any of the Obligations; (C) discharge taxes, levies and/or Liens on any of the Collateral that are in violation of any Loan Document unless Borrowers are in good faith with due diligence by appropriate proceedings contesting those items; and (D) pay for the maintenance, repair and/or preservation of the Collateral. Such expenses and advances shall be deemed Advances hereunder and shall be added to the Obligations until reimbursed to Lender, and shall be secured by the Collateral, and such payments by Lender shall not be construed as a waiver by Lender of any Event of Default or any other rights or remedies of Lender.

 

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(b) Borrowers agree that notice received at least twenty (20) calendar days before the time of any intended public sale, private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. At any sale or disposition of Collateral, Lender may (to the extent permitted by Applicable Law) purchase all or any part thereof free from any right of redemption by Borrowers, which right is hereby waived and released, to the extent permitted by law. Borrowers covenant and agree not to interfere with or impose any obstacle to Lender’s exercise of its rights and remedies with respect to the Collateral. In dealing with or disposing of the Collateral or any part thereof, Lender shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process.

 

9.2 Application of Proceeds

 

Notwithstanding any other provision of this Agreement (including, without limitation, Section 2.4 hereof), in addition to any other rights, options and remedies Lender have under the Loan Documents, the UCC, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder upon the occurrence and continuation of an Event of Default shall be applied in the following order of priority: (a) first, to the payment of all costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Borrowers’ business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Collateral, and to the payment of all sums which Lender may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments that Lender may be required or authorized to make under any provision of this Agreement (including, without limitation, in each such case, in-house and outside documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys’ fees and all expenses, liabilities and advances made or incurred in connection therewith); (b) second, to the payment of all Obligations in such order as determined by Lender in its sole discretion; (c) third, to the payment of any surplus then remaining to Borrowers, unless otherwise provided by law or directed by a court of competent jurisdiction; provided, that Borrowers shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) or any of the other items referred to in this Section (other than Section 9.2(c) to the extent the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) have been indefeasibly paid in full in cash).

 

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9.3 Right to Appoint Receiver

 

Without limiting and in addition to any other rights, options and remedies Lender has under the Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default, Lender shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Lender to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue the operation of the business of Borrowers and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated

 

9.4 Attorney-in-Fact

 

Borrowers hereby irrevocably appoint Lender as their attorney-in-fact for the limited purpose of taking any action permitted under the Loan Documents that Lender deems necessary or desirable (in Lender’s sole discretion) upon the occurrence and continuation of an Event of Default to protect and realize upon Lender’s Lien in the Collateral, including the execution and delivery of any and all documents or instruments related to the Collateral in Borrowers’ name, and said appointment shall create in Lender a power coupled with an interest and is irrevocable.

 

9.5 Rights and Remedies not Exclusive

 

Lender shall have the right in its sole discretion to determine which rights, Liens and/or remedies Lender may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way modify or affect any of Lender’s rights, Liens or remedies under any Loan Document, Applicable Law or equity, except those set forth in Section 7.14. The enumeration of any rights and remedies in any Loan Document is not intended to be exhaustive, and all rights and remedies of Lender described in any Loan Document are cumulative and are not alternative to or exclusive of any other rights or remedies which Lender otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy.

 

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X. WAIVERS AND JUDICIAL PROCEEDINGS

 

10.1 Waivers

 

Except as expressly provided for herein, Borrowers hereby waive set-off, counterclaim, demand, presentment, protest, all defenses with respect to any and all notices and demands of any description. Borrowers hereby waive any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Lender to obtain an order of court recognizing the assignment of, or Lien of Lender in and to, any Collateral.

 

10.2 Delay; No Waiver of Defaults

 

No course of action or delay or omission of Lender to exercise any right or remedy hereunder or under any other Loan Document shall impair any such right or operate as a waiver thereof. No single or partial exercise by Lender of any right or remedy shall preclude any other or further exercise thereof, or preclude any other right or remedy. No waiver by any party to any Loan Document of any one or more defaults by any other party in the performance of any of the provisions of any Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision of any Loan Document, by completing the Closing under this Agreement and/or by making Advances, Lender does not waive any breach of any representation or warranty of under any Loan Document, and all of Lender’s claims and rights resulting from any such breach or misrepresentation are specifically reserved.

 

10.3 Jury Waiver

 

EACH OF THE PARTIES HERETO HEREBY (i) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO

(1) ANY LOAN DOCUMENT; OR (2) ANY CONDUCT, ACTS OR OMISSIONS UNDER ANY LOAN DOCUMENT OF BORROWERS OR LENDER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR OTHER AFFILIATES, IN EACH CASE WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, AND (ii) AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION UNDER ANY LOAN DOCUMENT SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY. EACH OF THE PARTIES ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

10.4 Amendment and Waivers

 

(a) No amendment or waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by Borrowers and Lender, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

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(b) No amendment, waiver or consent shall, unless in writing and signed by Lender, affect the rights or duties of Lender under this Agreement or any other Loan Document.

 

(c) Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination or waiver shall be required for Lender to take additional Collateral pursuant to any Loan Document.

 

(d) Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.4 shall be binding upon Lender, and Borrowers, and each other signatory hereto.

 

XI. EFFECTIVE DATE AND TERMINATION

 

11.1 Effectiveness and Termination

 

Subject to Lender’s right to accelerate the Loan upon the occurrence and during the continuation of any Event of Default, this Agreement shall continue in full force and effect until the Final Maturity Date, unless terminated sooner by Borrowers as provided in Section 2.5. All of the Obligations shall be immediately due and payable upon the earlier of (a) the Final Maturity Date, (b) the date on which Lender accelerates the Loan following the occurrence and during the continuance of an Event of Default or (c) the termination date stated in the notice of termination delivered by Borrowers pursuant to Section 2.5 in connection with a prepayment of all of the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending), as applicable (the “Termination Date”). Notwithstanding any other provision of any Loan Document, no termination of this Agreement shall affect Lender’s rights or any of the Obligations existing as of the effective date of such termination, and the provisions of the Loan Documents shall continue to be fully operative until the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) have been fully performed and indefeasibly paid in cash in full. Except for the release of Liens for any Collateral as provided hereunder, the Liens granted to Lender under the Security Documents and the financing statements filed pursuant thereto and the rights and powers of Lender shall continue in full force and effect until all of the Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) have been fully performed and indefeasibly paid in full in cash.

 

11.2 Survival

 

All obligations, covenants, agreements, representations, warranties, waivers and indemnities made by Borrowers in any Loan Document shall survive the execution and delivery of the Loan Documents, the Closing, the making and funding of the Loan and any termination of this Agreement until all Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) are fully performed and indefeasibly paid in full in cash. The obligations and provisions of Sections 3.1, 10.1, 10.3, 11.1, 11.2, 12.1, 12.3, 12.4, 12.7, 12.9, 12.10, 12.11, 12.13 and 12.14 and Article IX shall survive termination of the Loan Documents and any payment in full of the Obligations.

 

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XII. MISCELLANEOUS

 

12.1 Governing Law; Jurisdiction; Service of Process; Venue

 

(A) THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.

 

(b) BY EXECUTION AND DELIVERY OF EACH LOAN DOCUMENT TO WHICH IT IS A PARTY, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF FLORIDA SITTING IN MIAMI-DADE COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF A JUDGMENT ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

(c) EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION 12.1. EACH PARTY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

12.2 Successors and Assigns; Assignments and Participations

 

(a) Borrowers Assignment. Borrowers shall not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of Lender.

 

(b) Lender Assignments and Participations. Lender may assign to one or more Persons all or a portion of its rights and obligations under this Agreement, the Notes and the other Loan Documents, including without limitation any participation in the Loan hereunder only after providing written notice (email shall suffice) ten (10) calendar days prior to any such assignment.

 

12.3 Application of Payments

 

To the extent that any payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Lender and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Lender. Except as specifically provided in this Agreement, any payments with respect to the Obligations received shall be credited and applied in such manner and order as Lender shall decide in its sole discretion.

 

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12.4 Indemnity

 

(a) Borrowers hereby agree that they will indemnify, defend and hold harmless (on an after-tax basis) the Lender and its respective successors and permitted assigns and their respective directors, officers, agents, employees, advisors, shareholders, attorneys and Affiliates (each, an “Indemnified Person”) from and against any and all losses, claims, damages, liabilities, deficiencies, obligations, fines, penalties, actions (whether threatened or existing), judgments, suits (whether threatened or existing) or expenses (including, without limitation, fees and disbursements of counsel, experts, consultants and other professionals) incurred by any of them (collectively, “Indemnification Claims”) (except, in the case of each Indemnified Person, to the extent that any Indemnification Claims are determined in a final and non-appealable judgment by a court of competent jurisdiction to have directly resulted from such Indemnified Person’s gross negligence, willful misconduct or bad faith) arising out of or by reason of (i) any litigation, investigation, claim or proceeding related to (1) this Agreement, any other Loan Document or the transactions contemplated hereby or thereby, or (2) any actual or proposed use by Borrowers of the proceeds of any Advances, including, without limitation, amounts paid in settlement, court costs and the fees and disbursements of counsel incurred in connection with any such litigation, investigation, claim or proceeding, (ii) any remedial or other action taken or required to be taken by Borrowers in connection with compliance by such party, or any of its properties, with any Applicable Law, (iii) any pending, threatened or actual action, claim, proceeding or suit by any shareholder, owner, director, manager or officer of Borrowers or any actual or purported violation of Borrowers’ Organizational Documents or any other agreement or instrument to which Borrowers are a party or by which any of Borrowers’ properties is bound, (iv) any willful misrepresentation with respect to Borrowers or the Collateral, (v) any acts of fraud by Borrowers related to the Loan or made in connection with any Loan Document, (vi) any Change of Control not approved in writing by Lender, or (vii) any material waste, transfer, sale, encumbrance or other disposal of the Collateral not permitted by the Loan Documents. In addition, Borrowers shall, upon written demand (email shall suffice), pay to Lender all costs and expenses incurred by Lender (including the fees and disbursements of counsel and other professionals) in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents, and pay to Lender all costs and expenses (including the fees and disbursements of counsel and other professionals) paid or incurred by Lender in (1) enforcing or defending its rights under or in respect of this Agreement, the other Loan Documents or any other document or instrument now or hereafter executed and delivered in connection herewith, (2) collecting the Obligations or otherwise administering this Agreement and (3) foreclosing or otherwise realizing upon the Collateral or any part thereof. If and to the extent that the obligations of Borrowers hereunder or any other Loan Document are unenforceable for any reason, Borrowers hereby agree to make the maximum contribution to the payment and satisfaction of such obligations that is permissible under Applicable Law. Without limiting any of the foregoing, Borrowers indemnify each Indemnified Person for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Person has directly contracted in writing) which may be made in connection with any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby.

 

(b) Borrowers’ obligations under this Section 12.4 shall survive any termination of this Agreement and the other Loan Documents and the payment in full of the Obligations, and are in addition to, and not in substitution of, any of the other Obligations.

 

(c) All payments due under this Section 12.4 are payable within five (5) Busines Days after written demand therefor.

 

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12.5 Notice

 

Except as otherwise provided herein, all notices and other communications hereunder to any party shall be in writing and sent by certified or registered mail, return receipt requested, by overnight delivery service, with all charges prepaid, by hand delivery, or by Electronic Transmission, to such party’s address set forth beneath its signature on the signature page to this Agreement, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 12.5. All such notices and correspondence shall be deemed effective: (i) if delivered personally, at the time of delivery to the address specified in this paragraph; (ii) if given by mail, on the fifth Business Day following the time of mailing in the manner aforesaid; or (iii) if sent by overnight courier, on the first Business Day following delivery to said courier, provided that notices to the Lender shall not be effective until actually received.

 

12.6 Severability; Captions; Counterparts; Delivery of Signatures

 

In case any provision in or obligation under this Agreement, the Notes or any other Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. The captions in the Loan Documents are intended for convenience and reference only and shall not affect the meaning or interpretation of the Loan Documents. This Agreement and any waiver or amendment hereto may be executed in counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. This Agreement and each of the other Loan Documents may be executed and delivered by Electronic Transmission, all with the same force and effect as if the same was a fully executed and delivered original manual counterpart. Delivery of an executed signature page of this Agreement and each of the other Loan Documents by Electronic Transmission shall be as effective as delivery of a manually executed counterpart hereof.

 

12.7 Expenses

 

Borrowers shall pay all fees, costs and expenses incurred or earned by Lender, in connection with (a) any effort to enforce, protect or collect payment of any Obligation or to enforce any Loan Document or any related agreement, document or instrument, (b) the administration of the Obligations or the taking or refraining from taking by Lender of any action requested by Borrowers, (c) instituting, maintaining, preserving, enforcing and/or foreclosing on Lender’s Liens on any of the Collateral under the Loan Documents, whether through judicial proceedings or otherwise, (d) defending or prosecuting any actions, claims or proceedings arising out of or relating to Lender’s transactions with Borrowers, and/or (e) any Default or Event of Default or occurring thereafter or as a result thereof. All of the foregoing shall be charged to Borrowers’ account and shall be part of the Obligations.

 

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12.8 Entire Agreement

 

This Agreement and the other Loan Documents to which Borrowers are a party constitute the entire agreement among Borrower, and Lender with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings (including but not limited to the term sheet), if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by the Parties hereto. Except as set forth in and subject to Section 10.4, no provision of any Loan Document may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Borrowers, Lender and the other parties thereto. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. The schedules attached hereto may be amended or supplemented by Borrowers upon delivery to Lender of such amendments or supplements and, except as expressly provided otherwise in this Agreement, the written approval thereof by Lender.

 

12.9 Approvals and Duties

 

Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Lender with respect to any matter that is subject of any Loan Document may be granted or withheld by Lender in its sole and absolute discretion. Lender shall have no responsibility for or obligation or duty with respect to any of the Collateral or any matter or proceeding arising out of or relating thereto, including, without limitation, any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights pertaining thereto.

 

12.10 Publicity

 

Neither party hereto shall issue any press releases or similar public announcements using the name of the other party or referring to this Agreement or the transactions contemplated thereunder except (1) disclosures required by applicable law, regulation, legal process or the rules of the Securities and Exchange Commission or (2) with the prior written approval of the other party hereto.

 

12.11 Release of Collateral

 

Subject to Section 12.3, promptly following full performance and satisfaction and indefeasible payment in full in cash of all Obligations (other than indemnity obligations of Borrowers under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) and the termination of this Agreement, the Liens created hereby shall terminate and Lender shall execute and deliver such documents, at Borrowers’ expense, as are necessary to release Lender’s Liens on the Collateral and shall return the Collateral to Borrowers ; provided, however, that the Parties agree that, notwithstanding any such termination or release or the execution, delivery or filing of any such documents or the return of any Collateral, if and to the extent that any such payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Lender and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Lender. Lender shall not be deemed to have made any representation or warranty with respect to any Collateral so delivered except that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts.

 

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12.12 Confidentiality

 

In performing their respective obligations pursuant to this Agreement, each Party understands and acknowledges that each may have access to Confidential Information concerning the other Party, and that the Disclosing Party (defined below) may disclose or deliver Confidential Information (defined below) to the Receiving Party (defined below) and to the Receiving Party’s directors, officers, employees, agents, affiliates, attorneys, representatives or outside advisors (collectively, “Representatives”).

 

Each party agrees that the Receiving Party shall not (and shall cause its Representatives not to) disclose or use Confidential Information disclosed to it by the Disclosing Party for any purpose other than the exclusive purpose (the “Purpose”) of assisting the Receiving Party or its Representatives in the performance of such Party under this Agreement. The Receiving Party (and its Representatives) shall not disclose the Confidential Information to third parties or to its (or other) Representatives, except on a “need to know” basis to such Representatives who are required to have the information in order to carry out the Purpose and only to such Representatives who have been previously made aware of the terms of this Agreement and have agreed to keep such information confidential under terms substantially the same as those in this Agreement. The Receiving Party agrees that it shall be responsible for any breach of this Agreement by the Receiving Party or any of its Representatives. The Receiving Party agrees that it will take reasonable steps to protect the confidentiality of and avoid disclosure or use of Confidential Information in order to prevent it from falling into the public domain or the possession of unauthorized persons. The Receiving Party agrees to promptly notify in writing the Disclosing Party in case of any misuse or misappropriation of such Confidential Information that may come to its attention. In the event that the Receiving Party (or any of its Representatives) is requested or required, by order or any other determination of any court or administrative authority or any other legal proceeding (including any governmental or self-regulatory requests), to disclose any Confidential Information, the Receiving Party shall, to the extent permitted by law, provide the Disclosing Party with prior, to the extent practicable, but in any event prompt, written notice of such request(s) so that the Disclosing Party may seek (at the sole expense of the Disclosing Party) an appropriate protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If, in the absence of a protective order, other appropriate remedy or the receipt of a waiver hereunder, the Receiving Party or its Representatives is nonetheless, in the opinion of its counsel, compelled by law or regulation, or requested by a governmental or self-regulatory authority, to disclose any of the Confidential Information, the Receiving Party may disclose such information, provided that only that portion of the Confidential Information its counsel advises is legally required or requested by a governmental or self-regulatory authority to be disclosed may be disclosed, and the Receiving Party shall, to the extent appropriate and permitted by law in the opinion of its counsel, exercise commercially reasonable efforts to make a request for confidential treatment of such disclosed information under the U.S. Freedom of Information Act.

 

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“Confidential Information” means any information regarding the Disclosing Party or any of its affiliates or any entity sponsored by the Disclosing Party, or any shareholders or owners (or holders of similar equity interests) of the foregoing, whether written (whatever the form or storage medium) or oral, disclosed on or subsequent to the date hereof, including the existence and terms of this Agreement. Confidential Information does not include such information which: (i) is in the possession of the Receiving Party at the time of disclosure as shown by the Receiving Party’s written files and records immediately prior to the time of disclosure; (ii) prior or after the time of disclosure to the Receiving Party is in the public domain through no fault of the Receiving Party and not in breach hereof by the Receiving Party; (iii) is approved by the Disclosing Party, in writing, for release; (iv) was or is hereafter received by the Receiving Party from a third party who, to the knowledge of the Receiving Party at the time of such disclosure, had a right to disclose it and was not subject to an obligation of confidentiality or fiduciary duty owed by the Receiving Party to the third party; or (v) is developed by or for the Receiving Party independently of permitted disclosures hereunder, as shown by written records; provided, that the existence and terms of this Agreement shall not, for the avoidance of doubt, be construed as falling within any of the foregoing exceptions.

 

“Disclosing Party” means the Party disclosing Confidential Information to the other Party, and “Receiving Party” means the Party receiving such Confidential Information.

 

Disclosing Party makes no representation or warranty hereunder, express or implied, as to the accuracy or completeness of the Confidential Information. Neither the Disclosing Party nor its Representatives shall have any liability hereunder resulting from the use of the Confidential Information by the Receiving Party or any of its Representatives.

 

Receiving Party acknowledges that any breach or threatened breach by Receiving Party of the provisions of this Agreement concerning the confidentiality of the information of the Disclosing Party will result in immediate and irreparable harm to the Disclosing Party, for which there will be no adequate remedy at law, and that the Disclosing Party will be entitled to equitable relief to restrain Receiving Party from disclosing the Disclosing Party’s Confidential Information and to compel the Receiving Party to cease and desist all unauthorized disclosure of the Disclosing Party’s Confidential Information. Nothing in this Section shall be construed as prohibiting either party from pursuing any other remedies available to it for such breach or threatened breach, including recovery of damages from the other party.

 

12.13 Set-off and Offset

 

Borrowers (on behalf of themselves and each Affiliate thereof) hereby acknowledge, admit and agree that Borrowers’ obligations under this Agreement are recourse obligations of Borrowers to which Borrowers pledges their full faith and credit. In addition to any rights and remedies of Lender provided by this Agreement and by law, Lender shall have the right, with five (5) business days’ prior notice to Borrowers, upon any amount becoming due and payable by Borrowers under any Loan Document (whether at the stated maturity, by acceleration or otherwise) to set-off, offset and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Lender or any Affiliate thereof to or for the credit or the account of Borrowers or any Affiliate thereof under this Agreement or any other agreement between Borrowers or their Affiliates and Lender or its Affiliates. Lender agrees promptly to notify Borrowers after any such set-off, offset and application made by Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application.

 

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12.14 Joint and Several Liability

 

(a) Borrowers agrees that they are jointly and severally, directly and primarily liable to Lender for payment in full of the Obligations.

 

(b) Any and all present and future indebtedness of Borrower to the other Borrowers is hereby subordinated to the full payment and performance of the Obligations, except as set forth in Section 7.2 and 7.14.

 

(c) Borrowers hereby postpone and subordinate to the final payment in full of the Obligations any right of subrogation it has or may have against the other Borrowers with respect to the Obligations or any other indebtedness incurred pursuant to this Agreement. In addition, Borrowers hereby postpone any right to proceed against the other Borrowers, now or hereafter, for contribution, indemnity, reimbursement, and any other rights and claims, whether direct or indirect, liquidated or contingent, Borrowers may now have or hereafter have as against any other Borrowers with respect to the Obligations or any other indebtedness incurred pursuant to this Agreement, until all Obligations have been finally paid in full.

 

12.15 [Reserved].

 

12.16 Additional Debt; Right of First Refusal.

 

(a) In the event that Borrowers seeks to replace Lender with another lender and pay off the Loan and Obligations in accordance with the terms of this Agreement, and Borrowers has received a bona-fide, arm’s length written offer from a third party regarding a potential debt transaction with Borrowers (the “Debt Offer Notice”), then Borrowers shall deliver the Debt Offer Notice to Lender within five (5) business days of receipt of same. The Debt Offer Notice shall describe in reasonable detail the proposed offer and material terms concerning the potential debt transaction with Borrowers.

 

(b) Lender shall then have the right but not an obligation (such right, the “ROFR”) to consummate the potential debt transaction with Borrowers, at the same terms as those set forth in the Debt Offer Notice. To the extent that Lender wishes to exercise the ROFR, Lender shall within fourteen (14) calendar days of receipt of the Debt Offer Notice, deliver a notice to Borrowers, setting forth Lender’s desire to exercise the ROFR on the same terms and conditions as those set forth in the Debt Offer Notice (“Election Notice”).

 

(c) In the event that Lender timely delivers the Election Notice, then Lender shall negotiate in good faith and use commercially reasonable efforts to (i) enter into customary definitive documentation for a debt transaction of a similar nature, and (ii) to consummate and close the debt transaction as soon as is practicable, but in any event, no later than forty-five (45) calendar days after having received the Debt Offer Notice.

 

(d) Lender acknowledges and agrees that the terms set forth in this Section 12.16 with respect to the ROFR expire twenty-four (24) months from the Closing Date.

 

 

 

 

 

 

 

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IN WITNESS WHEREOF, each of the parties has duly executed this Loan and Security Agreement as of the date first written above.

 

  LENDER:
   
  PEAH CAPITAL LLC, a Delaware limited liability company
     
  By: /s/ Dan Arev
  Name: Dan Arev
  Title: Manager
     
  Address:
  Attn:  
     
  With a copy to:
     
  BORROWERS:
   
  BONNE SANTÉ NATURAL
  MANUFACTURING, INC. f/k/a Millenium Natural Manufacturing Corp., a Florida corporation,
     
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
     
  Address:
  Attn:  
     
  With a copy to: Marko Cerenko, KKSKL
   
  BONNE SANTÉ GROUP, INC. a Delaware
  corporation,
     
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
     
  Address:
  Attn:  
     
  With a copy to: Marko Cerenko, KKSKL

 

 

 

LOAN AND SECURITY AGREEMENT – Signature Page

 

Exhibit 10.25

 

LOAN AND SECURITY AGREEMENT AMENDMENT

 

THIS AMENDMENT AGREEMENT (“Agreement”) is made this 27th day of April 2021 (“Effective Date”), by and between Peah Capital, LLC, (“PEAH”), on the one hand, and Bonne Santé Group, Inc., a Delaware corporation (“Group”), and Bonne Santé Natural Manufacturing, Inc., a Florida Corporation (“Manufacturing” and together with Group, collectively referred to as, “Borrower”), on the other hand.

 

WHEREAS, on or about December 18, 2020, PEAH and the Borrower entered into that certain Loan and Security Agreement of even date herewith (the “Loan Agreement”), that certain Warrant of even date herewith (the “Warrant”), those certain Factoring Agreements dated October 23, 2020, November 13, 2020 and December 11, 2020 between Borrower and Lender (collectively, the “Factoring”), that certain Corporate Guaranty of even date herewith between Group and Lender (the “Group Guaranty”), that certain Guaranty of Corporate Guaranty of even date herewith between Manufacturing and Lender (the “Manufacturing Guaranty” and together with the Group Guaranty, collectively referred to as the “Guaranty”), that certain Second Amended and Restated Promissory Note (the “Note” as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms), and that certain Pledge Agreement of even date herewith (the “Pledge”, and together with the Note, Loan Agreement, Warrant, Factoring, and Guaranty, collectively referred to as the “Loan Document(s)”). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Loan Documents; and

 

WHEREAS, in accordance with the terms of the Loan Agreement, the Parties wish to amend and revise the Loan Agreement as further outlined below.

 

NOW THEREFORE, in consideration of the foregoing recitals, the parties hereby agree as follows:

 

1. AMENDMENT: In accordance with Section 10.4 of the Loan Agreement, the parties hereto agree that the Loan agreement is revised and amended as follows:

 

(a) The term shall “Maximum Commitment Amount” means an amount equal to ONE MILLION SIX HUNDRED TWENTY-FIVE THOUSAND AND 00/100 DOLLARS ($1,625,000.00), as such amount may be increased from time to time pursuant to the terms of the Agreement.

 

2. REPRESENTATIONS AND WARRANTIES. To induce PEAH to enter into this Amendment, Borrower hereby represents and warrants to PEAH that as of the Effective Date hereof: (a) Borrower is duly organized, validly existing and in good standing under the laws of the state in which it was organized and formed, whether by incorporation, partnership, limited liability company, or otherwise, without limitation, and has the power and authority to perform its obligations under this Agreement; (b) the execution, delivery (by the officer signing the same) and performance of this Agreement have been duly authorized by all requisite action on the part of such party and do not and will not violate its organizational documents, agreements, and operating agreements, or other governance document or agreement of such party or any other agreement to which such party bound, or any law, rule or regulation, or any order of any court, governmental authority or arbitrator by which it or any of its properties is bound; (c) as of the date hereof, all liens, security interests, assignments and pledges encumbering the Collateral, created pursuant to and/or referred to herein or in the Loan Documents, are valid, enforceable, duly perfected to the extent required by the Loan Documents, non-avoidable, liens, security interests, assignments and pledges, that continue unimpaired, are in full force and effect and secure and shall continue to secure all of the obligations purported to be secured in the respective security instruments pursuant to which such liens were granted and are subordinate, if at all, only to matters filed of record as of date of the Note or otherwise contemplated therein; and (d) Borrower has not entered into any notes or credit agreements, whether or not secured, which would negatively impact its financial or equity position with respect to the Collateral and Borrower’s assets.

 

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3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL. Borrower hereby acknowledges, ratifies, reaffirms and agrees that each of the Loan Documents and the priority of the perfected liens and security interests created thereby or in this Agreement in favor of PEAH in the Collateral, are and shall remain in full force and effect and binding on Borrower and are enforceable in accordance with their respective terms and applicable law. Furthermore, except as explicitly provided for herein, the terms of the Loan Documents shall remain in full force and effect.

 

4. FACSIMILE SIGNATURES AUTHORIZED: PEAH and Borrower may sign and deliver facsimile or electronic, or PDF copies of this document and such copies shall be treated as original for the purpose of enforcing the terms of this agreement.

 

5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns, provided that Borrower may not assign any rights or obligations under this Agreement without the prior written consent of PEAH. Borrower agrees that PEAH at any time can sell, transfer, assign any convey part or all of the liabilities and any Collateral and Loan Documents related thereto to any party without the prior consent of such Borrower and that Borrower will cooperate with PEAH to facilitate any such assignment as may be necessary.

 

6. FURTHER ASSURANCES. Borrower agrees to execute, acknowledge, deliver, file and record such further certificates, instruments and documents, and to do all other acts and things, as may be requested by PEAH as necessary or advisable to carry out the intents and purposes of this Agreement.

 

7. LOAN DOCUMENTS. Except as expressly modified by this Agreement, all other provisions of the Loan Documents shall remain in full force and effect.

 

<signature page follows>

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 
  LENDER:   BORROWER
  PEAH Capital, LLC    
        Bonne Santé Group, Inc.
  By: /s/ Dan Arev   a Delaware corporation
  Name:  Dan Arev      
  Title: Manger   By: /s/ Alfonso J. Cervantes
        Name:  Alfonso J. Cervantes
        Title: Executive Chairman
           
        Bonne Santé Natural Manufacturing, Inc.
a Florida corporation
           
        By: /s/ Alfonso J. Cervantes
        Name: Alfonso J. Cervantes
        Title: Executive Chairman

 

 

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Exhibit 10.26

 

PROMISSORY NOTE

 

$1,083,280.00   December 18, 2020

 

FOR VALUE RECEIVED, Bonne Santé Group, Inc., a Delaware corporation (“Group”), and Bonne Santé Natural Manufacturing, Inc., a Florida Corporation (“Manufacturing” and together with Group, collectively referred to as, “Borrower”), hereby unconditionally promises to pay to the order of PEAH CAPITAL, LLC, a Delaware limited liability company (together with any subsequent Lender of this Note, and their respective successors and assigns, “Lender”), at such address as Lender may from time to time designate in writing, the maximum principal sum of ONE MILLION EIGHTY THREE THOUSAND TWO HUNDRED EIGHTY AND 00/100 DOLLARS ($1,083,280.00) (the “Loan Amount”), together with interest thereon and all other sums due and/or payable under any Loan Document (the “Loan”); such principal and other sums to be calculated and payable as provided in this Promissory Note (this “Note”). This Note is being executed and delivered in connection with, and is entitled to the rights and benefits of, that certain Loan and Security Agreement of even date herewith (the “Loan Agreement”), that certain Warrant of even date herewith (the “Warrant”), those certain Factoring Agreements dated October 23, 2020, November 13, 2020 and December 11, 2020 between Borrower and Lender (the “Factoring”), that certain Corporate Guaranty of even date herewith between Group and Lender (the “Group Guaranty”), that certain Guaranty of Corporate Guaranty of even date herewith between Manufacturing and Lender (the “Manufacturing Guaranty” and together with the Group Guaranty, collectively referred to as the “Guaranty”), and that certain Pledge Agreement of even date herewith (the “Pledge”, and together with the Note, Loan Agreement, Factoring, and Guaranty, collectively referred to as the “Loan Document(s)”). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Loan Documents.

 

Borrower agrees to pay the Loan Amount of this Note together with interest thereon and all other sums due and/or payable under any Loan Document in accordance with the following terms and conditions:

 

1. Interpretation. For purposes of this Note (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Note as a whole. The definitions given for any defined terms in this Note shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. Unless the context otherwise requires, references herein to: (x) Schedules, Exhibits, and Sections mean the Schedules, Exhibits, and Sections of this Note; (y) an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (z) a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Note shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

 

 

 

2. Interest. Interest shall accrue on the Loan Amount at the Interest Rate (as defined below) commencing on the date of this Note. Interest shall be computed on the actual number of days elapsed based on a 360-day year. Interest shall be due and payable on every other Friday commencing on the first such date to occur after the execution of this Note. For purposes hereof, the following terms shall have the following respective meanings:

 

(a) “Interest Rate” means Seventeen and One-Half Percent (17.50%) per annum; provided, that while an Event of Default exists, the Interest Rate shall be the Default Rate (as defined below).

 

3. Payments; Maturity; Extension Option; Origination Fee.

 

(a) In accordance with Section 2 of the Loan Agreement, Borrower hereby promise to pay interest on the outstanding principal Loan Amount from the date advanced by Lender to Borrower until such Loan Amount is irrevocably paid in full in lawful currency of the United States of America, in immediately available funds. Borrower shall make the following payments to Lender:

 

(i) On December 18, 2020 and bi-weekly thereafter (each, a “Payment Date”) during the term of the Loan, through the Maturity Date (as defined below), Borrower shall pay to Lender (i) a bi-weekly payment of interest-only in an amount equal to interest on the unpaid principal Loan Amount at the Interest Rate and, (ii) twenty percent (20%) of all funds received by Borrower from all paid invoices, which such amounts shall be applied to the outstanding principal Loan Amount.

 

(b) The aggregate unpaid Loan Amount, all accrued and unpaid Interest, and all other amounts payable under this Note shall be due and payable on the earlier of: (i) Eighteen (18) Months from the date of this Note, or (ii) upon completion of Borrower’s anticipated Initial Public Offering (the “Maturity Date”), or (iii) on such earlier date resulting from acceleration of the Loan Amount by Lender. For purposes of making payments hereunder, if the Payment Date of a given month shall not be a Business Day, then the Payment Date for such month shall be the ensuing Business Day.

 

(c) Origination Fee. On the closing date of this Loan, Borrower shall pay to Lender, as a condition precedent to Lender entering into the Loan Documents, a fee equal to three- and three-quarter percent (3.75%) of the Loan Amount (the “Origination Fee”), which amount shall be paid directly to Lender from the Loan proceeds.

 

4. Event of Default; Default Interest.

 

(a) Upon the occurrence of an Event of Default, the Loan Amount shall (a) become due and payable, and (b) bear interest at a per annum interest rate of twenty-five percent (25%) per annum (the “Default Rate”). Borrower will also pay to Lender, after an Event of Default occurs, all reasonable costs of collecting, securing, or attempting to collect or secure this Note or any other Loan Document, including, without limitation, court costs and reasonable attorneys’ fees (including reasonable attorneys’ fees on any appeal by either Borrower or Lender and in any bankruptcy proceedings).

 

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(b) Notice of Default and Cure Period. If Borrower fails to comply with any of its obligations, representations, and/or covenants under this Agreement or any other provision of this Agreement, Lender shall provide written notice of breach to Borrower (the “Breach Notice”) consistent with the notice requirements set forth in this section. Borrower shall then have five (5) business days from the date of receipt of the Breach Notice to cure the breach (the “Grace Period”) or provide written proof that no breach existed, the sufficiency of which shall be in Lender’s reasonable discretion. If Borrower fails to cure any such breach within the Grace Period or fails to provide proof that no claimed breach existed, then Borrower shall have all rights to proceed with its remedies as specified below.

 

(c) Acceleration; Events of Default. It is hereby expressly agreed that the entire unpaid principal balance of the Loan Amount, together with all interest and other sums of any nature whatsoever which may or shall become due to the Lender in accordance with the provisions of this Note or the other Loan Documents, shall, upon proper notice to the Borrower as specified in the preceding subsection, and failure of Borrower to cure within the Grace Period, become immediately due and payable without necessity for further presentment and demand for payment, further notice of protest, demand and dishonor or nonpayment of this Note, all of which are hereby expressly waived by the Borrower after the expiration of the Grace Period, upon any default by the Borrower in making any payment when due hereunder or any other default hereunder or upon any Default (as defined in any Loan Document) or upon the happening of any event by which, under the terms of the Loan Documents said unpaid balance may or shall become due and payable or upon the occurrence of any of the following events, circumstances or conditions (each an “Event of Default”):

 

(i) Any Interest and/or portion of the Loan Amount is not paid when due;

 

(ii) any certification, representation or warranty made by Borrower or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by Borrower or Guarantor in connection with any Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made;

 

(iii) Borrower, or Guarantor shall make an assignment for the benefit of creditors, or shall generally not be paying its debts as they become due;

 

(iv) a receiver, liquidator or trustee shall be appointed for Borrower or Guarantor; or Borrower or Guarantor shall be adjudicated bankrupt or insolvent; or any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or Guarantor, as the case may be; or any proceeding for the dissolution or liquidation of Borrower or Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or Guarantor, as the case may be, only upon the same not being discharged, stayed or dismissed within thirty (30) days;

 

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(v) a default occurs under any term, covenant or provision set forth herein or in any other Loan Document which specifically contains a notice requirement and such notice has been given; and/or

 

(vi) a default shall be continuing under any of the other terms, covenants or conditions of this Note or any other Loan Document, for ten (10) days after notice to Borrower (and Guarantor, if applicable) from Lender, in the case of any default which can be cured by the payment of a sum of money, or for ten (10) days after notice from Lender in the case of any other default; provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within ten (10)-day period, and Borrower (or Guarantor, if applicable) shall have commenced to cure such default within such ten (10)-day period and thereafter diligently and expeditiously proceeds to cure the same, such ten (10)-day period shall be extended for an additional period of time as is reasonably necessary for Borrower (or Guarantor, if applicable) in the exercise of due diligence to cure such default.

 

(vii) Borrower or Guarantor shall not incur (i) any obligation outside the Ordinary Course of Business, (ii) any further debt, or encumbrance, including without limitation, through receiving financing, merchant cash advance, and/or alternative financing, of any kind, without the prior written approval of the Lender, subject to Article VII of the Loan Agreement.

 

5. Optional Prepayment.

 

(a) At any time during the term hereof, the Borrower shall have the privilege of prepaying the unpaid balance of the Loan Amount, in whole or in part on any Business Day (“Prepayment”), however, should the Borrower make a Prepayment during the first twelve (12) months of the Loan term, Borrower shall pay Lender a Prepayment premium equal to six percent (6%) of the total Loan Amount being prepaid. Any Prepayment shall be accompanied by all accrued and unpaid Interest on the amount prepaid to the date of Prepayment or other sums or charges, if any, then due and owing hereunder or under the other Loan Documents. Any payments of the Loan Amount received by the Lender pursuant to the terms of this Section 5 shall be applied in the order determined by the Lender.

 

(b) Borrower acknowledges that the provisions of this Section 5 were independently bargained for and constitute a specific material part of the consideration given by Borrower to Lender for the making of the Loan.

 

6. Method and Place of Payments; Application of Payments; Borrower Obligations Absolute.

 

(a) Except as otherwise specifically provided herein, all payments under this Note and the other Loan Documents shall be made to Lender not later than four (4) p.m., Eastern Standard Time, on the date when due, and shall be made in lawful money of the United States of America by wire transfer of immediately available funds to the Lender’s account at a bank specified by the Lender in writing to the Borrower from time to time, and any funds received by Lender after such time, for all purposes hereof, shall be deemed to have been paid on the next succeeding Business Day.

 

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(b) All proceeds of payment, shall be applied to the Loan Amount in such order and in such manner as Lender shall elect at Lender’s discretion.

 

(c) Except as specifically set forth in any Loan Document, all sums payable by Borrower under any Loan Document shall be paid without notice, demand, counterclaim (other than mandatory counterclaims), setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction.

 

7. Security. The Borrower’s performance of its obligations hereunder is secured by, among other things, the Loan Agreement and Pledge granted in favor of Lender by Borrower and/or encumbering or affecting all of Borrower’s assets.

 

8. Waivers. With respect to the amounts due pursuant to this Note or any other Loan Document, Borrower waives the following: (a) all rights of exemption of property from levy or sale under execution or other process for the collection of debts under the Constitution or laws of the United States or any State thereof; and (b) any further receipt by Lender or acknowledgment by Lender of any collateral now or hereafter deposited as security for the Loan. In addition, Borrower agrees and acknowledges that no release of any security for the Loan or Loan Amount, or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, or the other Loan Documents made by agreement between Lender or any other person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, any guarantor, or any other person who may become liable for the payment of all or any part of the Loan or Loan Amount, under this Note, or the other Loan Documents unless in writing and signed by Borrower and Lender. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action as provided for in this Note, or the other Loan Documents.

 

9. Interest Rate Limitation. This Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Loan Amount at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate of interest designated by applicable laws relating to payment of interest and usury (the “Maximum Amount”). If, by the terms of this Note or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Loan Amount at a rate in excess of the Maximum Amount, the Interest Rate shall be deemed to be immediately reduced to the Maximum Amount and all previous payments in excess of the Maximum Amount shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder.

 

10. Modifications; Remedies Cumulative; Setoffs. Lender shall not by any act, delay, omission or otherwise be deemed to have modified, amended, waived, extended, discharged or terminated any of its rights or remedies, and no modification, amendment, waiver, extension, discharge or termination of any kind shall be valid unless in writing and signed by Lender and Borrower. All rights and remedies of Lender under the terms of this Note and applicable statutes or rules of law shall be cumulative, and may be exercised successively or concurrently. If Borrower is a partnership or limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership or limited liability company, and the term “Borrower,” as used herein, shall include any alternate or successor partnership or limited liability company, but any predecessor partnership or limited liability company and their partners or members shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term “Borrower” as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. Nothing in the foregoing two sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, limited liability company or corporation, as applicable, which may be set forth in any of the Loan Documents.

 

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11. Severability. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under any applicable laws, but if any provision of this Note shall be prohibited by or invalid under any applicable laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

 

12. Release. Lender may, at its option, release any collateral given to secure the Loan Amount, and no such release shall impair the obligations of Borrower to Lender.

 

13. Governing Law; Submission to Jurisdiction. This Note and the Loan Documents shall be governed by and construed and enforced in accordance with the laws (without giving effect to the conflict of law principles thereof) of the State of Florida. Any legal action or proceeding with respect to this Note shall exclusively be brought in the in the appropriate county, state or federal courts located exclusively in Miami-Dade County, Florida, and, by execution and delivery hereof, the Borrower hereby accepts, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower and its heirs, successors, executors, administrators, and assigns, collectively and each of them individually, shall be jointly and severally responsible and liable for the performance of each and every term, covenant and condition on the part of the Borrower to be performed under this Note or any of the Loan Documents.

 

14. Waiver of Jury Trial. BORROWER AND LENDER TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER LOAN DOCUMENTS. EACH OF BORROWER AND LENDER AGREES THAT THE OTHER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF THE OTHER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

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15. Sales and Assignments. Lender may assign, sell, securitize, participate, pledge and/or otherwise transfer all or any portion of Lender’s right, title and interest in, to and under this Note and/or the other Loan Documents in one or more transactions as set forth in the Loan Documents. Upon the transfer of this Note, Lender may deliver all the collateral Loan Agreement, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under legal requirements given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred.

 

16. Intentionally Omitted.

 

17. Representations and Warranties. The Borrower hereby represents and warrants to the Lender on the date hereof as follows:

 

(i) Existence; Power and Authority; Compliance with Laws. Manufacturing is a corporation duly organized, validly existing, and in good standing under the laws of the state of its jurisdiction of Florida. Group is a corporation duly organized, validly existing, and in good standing under the laws of the state of its jurisdiction of Delaware. Borrower (a) are both capable of entering into the Note and Loan Documents, and (b) has the requisite power and authority to execute and deliver this Note and the Loan Documents, and to perform its obligations hereunder.

 

(ii) Authorization; Execution and Delivery. The execution and delivery of this Note and the Loan Documents by the Borrower and the performance of its obligations hereunder and thereunder have been duly authorized by all necessary corporation action in accordance with all applicable laws. The Borrower has duly executed and delivered this Note and the Loan Documents.

 

(iii) No Approvals. No consent or authorization of, filing with, notice to, or other act by, or in respect of, any governmental authority or any other person is required in order for the Borrower to execute, deliver, or perform any of its obligations under this Note or the Loan Documents.

 

(iv) No Violations. The execution and delivery of this Note and the Loan Documents and the consummation by the Borrower of the transactions contemplated hereby and thereby do not and will not (a) violate any law applicable to the Borrower or by which any of its properties or assets may be bound; or (b) constitute a default under any material agreement or contract by which the Borrower may be bound.

 

(v) Enforceability. Each of the Loan Documents is a valid, legal, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

 

(vi) No Litigation. No action, suit, litigation, investigation, or proceeding of, or before, any arbitrator or governmental authority is pending or threatened by or against the Borrower or any of its property or assets (a) with respect to the Note or the Loan Documents or any of the transactions contemplated hereby or thereby or (b) that could be expected to materially adversely affect the Borrower’s financial condition or the ability of the Borrower to perform its obligations under the Note or the Loan Documents.

 

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(vii) PATRIOT Act; Anti-Money Laundering. The Borrower is, and to the knowledge of the Borrower, officers, employees, and agents are, in compliance in all material respects with the PATRIOT Act, and any other applicable terrorism and money laundering laws, rules, regulations, and orders.

 

18. Intentionally Omitted.

 

19. Notice. Except as expressly provided herein, any notice to be given hereunder shall be in writing and shall be either delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid or sent by common courier (e.g., Federal Express), addressed:

 

(a) if to the Borrower, to the Borrower’s address set forth below; or (b) if to the Lender, at the Lender’s address set forth below, or as to any party, at such other address as shall be designated by such party by notice to the other party given in the manner set forth in this Section 19. Each such notice shall be effective: (i) if delivered personally, at the time of delivery to the address specified in this paragraph; or (ii) if given by mail or if sent by courier, on the day actually received.

 

(i) If to the Borrower:

Bonne Santé Group, Inc.
Darren Minton

900 Biscayne Blvd, Suite R107
Miami, FL 33132

 

With a copy to:

 

Marko F. Cerenko, Esq.

Kluger, Kaplan, Silverman Katzen & Levine, P.L.
201 South Biscayne Blvd, Twenty Seventh Floor
Miami, FL 33131

 

If to the Lender:

Peah Capital, LLC

2650 Northwest 5th Avenue
Miami, FL 33127

Attn: Legal Department

Email:

 

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

 

Weiser Law Firm, PLLC

333 Pearsall Avenue Suite 110

Cedarhurst NY 11516

 

20. Further Assurances. Upon the request of the Lender, Borrower shall promptly execute and deliver such further instruments and do or cause to be done such further acts as may be necessary or advisable to carry out the intent and purposes of this Note and the Loan Documents.

 

[Signature Page to Follow]

 

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IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be properly executed as of the date first above written and has authorized this Promissory Note to be dated as of the day and year first above written.

 

  BORROWER:
   
  Bonne Santé Group, Inc.
  a Delaware corporation
   
  By: /s/ Alfonso J. Cervantes
  Name:   Alfonso J. Cervantes
  Title: Executive Chairman
   
  Bonne Santé Natural Manufacturing, Inc.
  a Florida corporation
   
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Executive Chairman

 

[Signature Page to Promissory Note]

 

 

 

 

Exhibit 10.27

 

FIRST AMENDED AND RESTATED PROMISSORY NOTE

 

$1,500,000.00 December 31, 2020

 

FOR VALUE RECEIVED, Bonne Santé Group, Inc., a Delaware corporation (“Group”), and Bonne Santé Natural Manufacturing, Inc., a Florida Corporation (“Manufacturing” and together with Group, collectively referred to as, “Borrower”), hereby unconditionally promises to pay to the order of PEAH CAPITAL, LLC, a Delaware limited liability company (together with any subsequent Lender of this Note, and their respective successors and assigns, “Lender”), at such address as Lender may from time to time designate in writing, the maximum principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($1,500,000.00) (the “Loan Amount”), together with interest thereon and all other sums due and/or payable under any Loan Document (the “Loan”); such principal and other sums to be calculated and payable as provided in this First Amended and Restated Promissory Note (this “Note”). This Note is being executed and delivered in connection with, and is entitled to the rights and benefits of, that certain Loan and Security Agreement of even date herewith (the “Loan Agreement”), that certain Warrant of even date herewith (the “Warrant”), those certain Factoring Agreements dated October 23, 2020, November 13, 2020 and December 11, 2020 between Borrower and Lender (the “Factoring”), that certain Corporate Guaranty of even date herewith between Group and Lender (the “Group Guaranty”), that certain Guaranty of Corporate Guaranty of even date herewith between Manufacturing and Lender (the “Manufacturing Guaranty” and together with the Group Guaranty, collectively referred to as the “Guaranty”), and that certain Pledge Agreement of even date herewith (the “Pledge”, and together with the Note, Loan Agreement, Warrant, Factoring, and Guaranty, collectively referred to as the “Loan Document(s)”). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Loan Documents.

 

This Note is given in renewal and substitution of that certain Promissory Note executed by Borrower in favor of Lender dated December 18, 2020 in the amount of ONE MILLION EIGHTY THREE THOUSAND TWO HUNDRED EIGHTY AND 00/100 DOLLARS ($1,083,280.00) (the “Old Note”). This Note renews the obligations evidenced by the Old Note. The Old Note shall, in its entirety, be superseded, amended, and restated by this Note and payment of the indebtedness thereunder shall be governed by this Note. Borrower hereby renews and extends its covenant and agreement to pay the indebtedness evidenced by the Old Note, as amended and restated pursuant to this Note, and Borrower hereby renews and extends its covenant and agreement to perform, comply with, and be bound by each and every term and provisions of the Old Note, as amended and restated by the terms of this Note. Borrower confirms and agrees that this Note is, and shall continue to be, secured by the Security Documents (as defined in the Loan Agreement) and the Loan Documents and in no way acts as a release or relinquishment of the liens created by the Security Documents or Loan Documents. All of the provisions of the Security Documents and the Loan Documents now or heretofore executed by Borrower as heretofore or contemporaneously herewith modified are hereby ratified and affirmed in all respects. The liens securing payment of this Note are hereby modified, extended, renewed, carried forward, and confirmed by Borrower in all respects and shall remain in full force and effect until the obligations shall be fully and finally paid.

 

 

 

 

Borrower agrees to pay the Loan Amount of this Note together with interest thereon and all other sums due and/or payable under any Loan Document in accordance with the following terms and conditions:

 

1. Interpretation. For purposes of this Note (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Note as a whole. The definitions given for any defined terms in this Note shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. Unless the context otherwise requires, references herein to: (x) Schedules, Exhibits, and Sections mean the Schedules, Exhibits, and Sections of this Note; (y) an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (z) a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Note shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

2. Interest. Interest shall accrue on the Loan Amount at the Interest Rate (as defined below) commencing on the date of this Note. Interest shall be computed on the actual number of days elapsed based on a 360-day year. Interest shall be due and payable on every other Friday commencing on the first such date to occur after the execution of this Note. For purposes hereof, the following terms shall have the following respective meanings:

 

(a) “Interest Rate” means Seventeen and One-Half Percent (17.50%) per annum; provided, that while an Event of Default exists, the Interest Rate shall be the Default Rate (as defined below).

 

3. Payments; Maturity; Extension Option; Origination Fee.

 

(a) In accordance with Section 2 of the Loan Agreement, Borrower hereby promise to pay interest on the outstanding principal Loan Amount from the date advanced by Lender to Borrower until such Loan Amount is irrevocably paid in full in lawful currency of the United States of America, in immediately available funds. Borrower shall make the following payments to Lender:

 

(i)   On December 18, 2020 and bi-weekly thereafter (each, a “Payment Date”) during the term of the Loan, through the Maturity Date (as defined below), Borrower shall pay to Lender (i) a bi-weekly payment of interest-only in an amount equal to interest on the unpaid principal Loan Amount at the Interest Rate and, (ii) twenty percent (20%) of all funds received by Borrower from all paid invoices, which such amounts shall be applied to the outstanding principal Loan Amount.

 

(b) The aggregate unpaid Loan Amount, all accrued and unpaid Interest, and all other amounts payable under this Note shall be due and payable on the earlier of: (i) Eighteen (18) Months from the date of this Note, or (ii) upon completion of Borrower’s anticipated Initial Public Offering (the “Maturity Date”), or (iii) on such earlier date resulting from acceleration of the Loan Amount by Lender. For purposes of making payments hereunder, if the Payment Date of a given month shall not be a Business Day, then the Payment Date for such month shall be the ensuing Business Day.

 

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(c) Origination Fee. On the closing date of this Loan, Borrower shall pay to Lender, as a condition precedent to Lender entering into the Loan Documents, a fee equal to three- and three-quarter percent (3.75%) of the Loan Amount (the “Origination Fee”), which amount shall be paid directly to Lender from the Loan proceeds.

 

4. Event of Default; Default Interest.

 

(a) Upon the occurrence of an Event of Default, the Loan Amount shall (a) become due and payable, and (b) bear interest at a per annum interest rate of twenty-five percent (25%) per annum (the “Default Rate”). Borrower will also pay to Lender, after an Event of Default occurs, all reasonable costs of collecting, securing, or attempting to collect or secure this Note or any other Loan Document, including, without limitation, court costs and reasonable attorneys’ fees (including reasonable attorneys’ fees on any appeal by either Borrower or Lender and in any bankruptcy proceedings).

 

(b) Notice of Default and Cure Period. If Borrower fails to comply with any of its obligations, representations, and/or covenants under this Agreement or any other provision of this Agreement, Lender shall provide written notice of breach to Borrower (the “Breach Notice”) consistent with the notice requirements set forth in this section. Borrower shall then have five (5) business days from the date of receipt of the Breach Notice to cure the breach (the “Grace Period”) or provide written proof that no breach existed, the sufficiency of which shall be in Lender’s reasonable discretion. If Borrower fails to cure any such breach within the Grace Period or fails to provide proof that no claimed breach existed, then Borrower shall have all rights to proceed with its remedies as specified below.

 

(c) Acceleration; Events of Default. It is hereby expressly agreed that the entire unpaid principal balance of the Loan Amount, together with all interest and other sums of any nature whatsoever which may or shall become due to the Lender in accordance with the provisions of this Note or the other Loan Documents, shall, upon proper notice to the Borrower as specified in the preceding subsection, and failure of Borrower to cure within the Grace Period, become immediately due and payable without necessity for further presentment and demand for payment, further notice of protest, demand and dishonor or nonpayment of this Note, all of which are hereby expressly waived by the Borrower after the expiration of the Grace Period, upon any default by the Borrower in making any payment when due hereunder or any other default hereunder or upon any Default (as defined in any Loan Document) or upon the happening of any event by which, under the terms of the Loan Documents said unpaid balance may or shall become due and payable or upon the occurrence of any of the following events, circumstances or conditions (each an “Event of Default”):

 

(i) Any Interest and/or portion of the Loan Amount is not paid when due;

 

(ii) any certification, representation or warranty made by Borrower or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by Borrower or Guarantor in connection with any Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made;

 

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(iii) Borrower, or Guarantor shall make an assignment for the benefit of creditors, or shall generally not be paying its debts as they become due;

 

(iv)   a receiver, liquidator or trustee shall be appointed for Borrower or Guarantor; or Borrower or Guarantor shall be adjudicated bankrupt or insolvent; or any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or Guarantor, as the case may be; or any proceeding for the dissolution or liquidation of Borrower or Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or Guarantor, as the case may be, only upon the same not being discharged, stayed or dismissed within thirty (30) days;

 

(v) a default occurs under any term, covenant or provision set forth herein or in any other Loan Document which specifically contains a notice requirement and such notice has been given; and/or

 

(vi)   a default shall be continuing under any of the other terms, covenants or conditions of this Note or any other Loan Document, for ten (10) days after notice to Borrower (and Guarantor, if applicable) from Lender, in the case of any default which can be cured by the payment of a sum of money, or for ten (10) days after notice from Lender in the case of any other default; provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within ten (10)-day period, and Borrower (or Guarantor, if applicable) shall have commenced to cure such default within such ten (10)-day period and thereafter diligently and expeditiously proceeds to cure the same, such ten (10)-day period shall be extended for an additional period of time as is reasonably necessary for Borrower (or Guarantor, if applicable) in the exercise of due diligence to cure such default.

 

(vii) Borrower or Guarantor shall not incur (i) any obligation outside the Ordinary Course of Business, (ii) any further debt, or encumbrance, including without limitation, through receiving financing, merchant cash advance, and/or alternative financing, of any kind, without the prior written approval of the Lender, subject to Article VII of the Loan Agreement.

 

5. Optional Prepayment.

 

(a) At any time during the term hereof, the Borrower shall have the privilege of prepaying the unpaid balance of the Loan Amount, in whole or in part on any Business Day (“Prepayment”), however, should the Borrower make a Prepayment during the first twelve (12) months of the Loan term, Borrower shall pay Lender a Prepayment premium equal to six percent (6%) of the total Loan Amount being prepaid. Any Prepayment shall be accompanied by all accrued and unpaid Interest on the amount prepaid to the date of Prepayment or other sums or charges, if any, then due and owing hereunder or under the other Loan Documents. Any payments of the Loan Amount received by the Lender pursuant to the terms of this Section 5 shall be applied in the order determined by the Lender.

 

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(b) Borrower acknowledges that the provisions of this Section 5 were independently bargained for and constitute a specific material part of the consideration given by Borrower to Lender for the making of the Loan.

 

6. Method and Place of Payments; Application of Payments; Borrower Obligations Absolute.

 

(a) Except as otherwise specifically provided herein, all payments under this Note and the other Loan Documents shall be made to Lender not later than four (4) p.m., Eastern Standard Time, on the date when due, and shall be made in lawful money of the United States of America by wire transfer of immediately available funds to the Lender’s account at a bank specified by the Lender in writing to the Borrower from time to time, and any funds received by Lender after such time, for all purposes hereof, shall be deemed to have been paid on the next succeeding Business Day.

 

(b) All proceeds of payment, shall be applied to the Loan Amount in such order and in such manner as Lender shall elect at Lender’s discretion.

 

(c) Except as specifically set forth in any Loan Document, all sums payable by Borrower under any Loan Document shall be paid without notice, demand, counterclaim (other than mandatory counterclaims), setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction.

 

7. Security. The Borrower’s performance of its obligations hereunder is secured by, among other things, the Loan Agreement and Pledge granted in favor of Lender by Borrower and/or encumbering or affecting all of Borrower’s assets.

 

8. Waivers. With respect to the amounts due pursuant to this Note or any other Loan Document, Borrower waives the following: (a) all rights of exemption of property from levy or sale under execution or other process for the collection of debts under the Constitution or laws of the United States or any State thereof; and (b) any further receipt by Lender or acknowledgment by Lender of any collateral now or hereafter deposited as security for the Loan. In addition, Borrower agrees and acknowledges that no release of any security for the Loan or Loan Amount, or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, or the other Loan Documents made by agreement between Lender or any other person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, any guarantor, or any other person who may become liable for the payment of all or any part of the Loan or Loan Amount, under this Note, or the other Loan Documents unless in writing and signed by Borrower and Lender. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action as provided for in this Note, or the other Loan Documents.

 

9. Interest Rate Limitation. This Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Loan Amount at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate of interest designated by applicable laws relating to payment of interest and usury (the “Maximum Amount”). If, by the terms of this Note or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Loan Amount at a rate in excess of the Maximum Amount, the Interest Rate shall be deemed to be immediately reduced to the Maximum Amount and all previous payments in excess of the Maximum Amount shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder.

 

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10. Modifications; Remedies Cumulative; Setoffs. Lender shall not by any act, delay, omission or otherwise be deemed to have modified, amended, waived, extended, discharged or terminated any of its rights or remedies, and no modification, amendment, waiver, extension, discharge or termination of any kind shall be valid unless in writing and signed by Lender and Borrower. All rights and remedies of Lender under the terms of this Note and applicable statutes or rules of law shall be cumulative, and may be exercised successively or concurrently. If Borrower is a partnership or limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership or limited liability company, and the term “Borrower,” as used herein, shall include any alternate or successor partnership or limited liability company, but any predecessor partnership or limited liability company and their partners or members shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term “Borrower” as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. Nothing in the foregoing two sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, limited liability company or corporation, as applicable, which may be set forth in any of the Loan Documents.

 

11. Severability. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under any applicable laws, but if any provision of this Note shall be prohibited by or invalid under any applicable laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

 

12. Release. Lender may, at its option, release any collateral given to secure the Loan Amount, and no such release shall impair the obligations of Borrower to Lender.

 

13. Governing Law; Submission to Jurisdiction. This Note and the Loan Documents shall be governed by and construed and enforced in accordance with the laws (without giving effect to the conflict of law principles thereof) of the State of Florida. Any legal action or proceeding with respect to this Note shall exclusively be brought in the in the appropriate county, state or federal courts located exclusively in Miami-Dade County, Florida, and, by execution and delivery hereof, the Borrower hereby accepts, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower and its heirs, successors, executors, administrators, and assigns, collectively and each of them individually, shall be jointly and severally responsible and liable for the performance of each and every term, covenant and condition on the part of the Borrower to be performed under this Note or any of the Loan Documents.

 

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14. Waiver of Jury Trial. BORROWER AND LENDER TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER LOAN DOCUMENTS. EACH OF BORROWER AND LENDER AGREES THAT THE OTHER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF THE OTHER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

15. Sales and Assignments. Lender may assign, sell, securitize, participate, pledge and/or otherwise transfer all or any portion of Lender’s right, title and interest in, to and under this Note and/or the other Loan Documents in one or more transactions as set forth in the Loan Documents. Upon the transfer of this Note, Lender may deliver all the collateral Loan Agreement, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under legal requirements given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred.

 

16. Intentionally Omitted.

 

17. Representations and Warranties. The Borrower hereby represents and warrants to the Lender on the date hereof as follows:

 

(i)   Existence; Power and Authority; Compliance with Laws. Manufacturing is a corporation duly organized, validly existing, and in good standing under the laws of the state of its jurisdiction of Florida. Group is a corporation duly organized, validly existing, and in good standing under the laws of the state of its jurisdiction of Delaware. Borrower (a) are both capable of entering into the Note and Loan Documents, and (b) has the requisite power and authority to execute and deliver this Note and the Loan Documents, and to perform its obligations hereunder.

 

(ii) Authorization; Execution and Delivery. The execution and delivery of this Note and the Loan Documents by the Borrower and the performance of its obligations hereunder and thereunder have been duly authorized by all necessary corporation action in accordance with all applicable laws. The Borrower has duly executed and delivered this Note and the Loan Documents.

 

(iii) No Approvals. No consent or authorization of, filing with, notice to, or other act by, or in respect of, any governmental authority or any other person is required in order for the Borrower to execute, deliver, or perform any of its obligations under this Note or the Loan Documents.

 

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(iv)   No Violations. The execution and delivery of this Note and the Loan Documents and the consummation by the Borrower of the transactions contemplated hereby and thereby do not and will not (a) violate any law applicable to the Borrower or by which any of its properties or assets may be bound; or (b) constitute a default under any material agreement or contract by which the Borrower may be bound.

 

(v) Enforceability. Each of the Loan Documents is a valid, legal, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

 

(vi)   No Litigation. No action, suit, litigation, investigation, or proceeding of, or before, any arbitrator or governmental authority is pending or threatened by or against the Borrower or any of its property or assets (a) with respect to the Note or the Loan Documents or any of the transactions contemplated hereby or thereby or (b) that could be expected to materially adversely affect the Borrower’s financial condition or the ability of the Borrower to perform its obligations under the Note or the Loan Documents.

 

(vii) PATRIOT Act; Anti-Money Laundering. The Borrower is, and to the knowledge of the Borrower, officers, employees, and agents are, in compliance in all material respects with the PATRIOT Act, and any other applicable terrorism and money laundering laws, rules, regulations, and orders.

 

18. Intentionally Omitted.

 

19. Notice. Except as expressly provided herein, any notice to be given hereunder shall be in writing and shall be either delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid or sent by common courier (e.g., Federal Express), addressed: (a) if to the Borrower, to the Borrower’s address set forth below; or (b) if to the Lender, at the Lender’s address set forth below, or as to any party, at such other address as shall be designated by such party by notice to the other party given in the manner set forth in this Section 19. Each such notice shall be effective: (i) if delivered personally, at the time of delivery to the address specified in this paragraph; or (ii) if given by mail or if sent by courier, on the day actually received.

 

(i) If to the Borrower:

 

Bonne Santé Group, Inc.

Darren Minton

10575 NW 37th Terrace

Doral, FL 33178

 

With a copy to:

 

Marko F. Cerenko, Esq.

Kluger, Kaplan, Silverman Katzen & Levine, P.L.

201 South Biscayne Blvd, Twenty Seventh Floor

Miami, FL 33131

 

If to the Lender:

 

Peah Capital, LLC

2650 Northwest 5th Avenue

Miami, FL 33127

Attn: Legal Department

Email:

 

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

 

Weiser Law Firm, PLLC

333 Pearsall Avenue Suite 110

Cedarhurst NY 11516

 

20. Further Assurances. Upon the request of the Lender, Borrower shall promptly execute and deliver such further instruments and do or cause to be done such further acts as may be necessary or advisable to carry out the intent and purposes of this Note and the Loan Documents.

 

[Signature Page to Follow]

 

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IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be properly executed as of the date first above written and has authorized this Promissory Note to be dated as of the day and year first above written.

 

  BORROWER:
   
  Bonne Santé Group, Inc.
  a Delaware corporation
   
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
   
  Bonne Santé Natural Manufacturing, Inc.
  a Florida corporation
   
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman

 

 

[Signature Page to Promissory Note]

 

 

 

Exhibit 10.28

 

SECOND AMENDED AND RESTATED PROMISSORY NOTE

 

$1,625,000.00 April 27, 2021

 

FOR VALUE RECEIVED, Bonne Santé Group, Inc., a Delaware corporation (“Group”), and Bonne Santé Natural Manufacturing, Inc., a Florida Corporation (“Manufacturing” and together with Group, collectively referred to as, “Borrower”), hereby unconditionally promises to pay to the order of PEAH CAPITAL, LLC, a Delaware limited liability company (together with any subsequent Lender of this Note, and their respective successors and assigns, “Lender”), at such address as Lender may from time to time designate in writing, the maximum principal sum of ONE MILLION SIX HUNDRED TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($1,625,000.00) (the “Loan Amount”), together with interest thereon and all other sums due and/or payable under any Loan Document (the “Loan”); such principal and other sums to be calculated and payable as provided in this Second Amended and Restated Promissory Note (this “Note”). This Note is being executed and delivered in connection with, and is entitled to the rights and benefits of, that certain Loan and Security Agreement of even date herewith (the “Loan Agreement”), that certain Warrant of even date herewith (the “Warrant”), those certain Factoring Agreements dated October 23, 2020, November 13, 2020 and December 11, 2020 between Borrower and Lender (collectively, the “Factoring”), that certain Corporate Guaranty of even date herewith between Group and Lender (the “Group Guaranty”), that certain Guaranty of Corporate Guaranty of even date herewith between Manufacturing and Lender (the “Manufacturing Guaranty” and together with the Group Guaranty, collectively referred to as the “Guaranty”), and that certain Pledge Agreement of even date herewith (the “Pledge”, and together with the Note, Loan Agreement, Warrant, Factoring, and Guaranty, collectively referred to as the “Loan Document(s)”). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Loan Documents.

 

This Note is given in renewal and substitution of that certain Promissory Note executed by Borrower in favor of Lender dated December 31, 2020 in the amount of ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($1,500,000.00) (the “Old Note”). This Note renews the obligations evidenced by the Old Note. The Old Note shall, in its entirety, be superseded, amended, and restated by this Note and payment of the indebtedness thereunder shall be governed by this Note. Borrower hereby renews and extends its covenant and agreement to pay the indebtedness evidenced by the Old Note, as amended and restated pursuant to this Note, and Borrower hereby renews and extends its covenant and agreement to perform, comply with, and be bound by each and every term and provisions of the Old Note, as amended and restated by the terms of this Note. Borrower confirms and agrees that this Note is, and shall continue to be, secured by the Security Documents (as defined in the Loan Agreement) and the Loan Documents and in no way acts as a release or relinquishment of the liens created by the Security Documents or Loan Documents. All of the provisions of the Security Documents and the Loan Documents now or heretofore executed by Borrower as heretofore or contemporaneously herewith modified are hereby ratified and affirmed in all respects. The liens securing payment of this Note are hereby modified, extended, renewed, carried forward, and confirmed by Borrower in all respects and shall remain in full force and effect until the obligations shall be fully and finally paid.

 

 

 

 

Borrower agrees to pay the Loan Amount of this Note together with interest thereon and all other sums due and/or payable under any Loan Document in accordance with the following terms and conditions:

 

1. Interpretation. For purposes of this Note (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Note as a whole. The definitions given for any defined terms in this Note shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. Unless the context otherwise requires, references herein to: (x) Schedules, Exhibits, and Sections mean the Schedules, Exhibits, and Sections of this Note; (y) an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (z) a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Note shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

2. Interest. Interest shall accrue on the Loan Amount at the Interest Rate (as defined below) commencing on the date of this Note. Interest shall be computed on the actual number of days elapsed based on a 360-day year. Interest shall be due and payable on every other Friday commencing on the first such date to occur after the execution of this Note. For purposes hereof, the following terms shall have the following respective meanings:

 

(a) “Interest Rate” means Seventeen and One-Half Percent (17.50%) per annum; provided, that while an Event of Default exists, the Interest Rate shall be the Default Rate (as defined below).

 

3. Payments; Maturity; Extension Option; Origination Fee.

 

(a) In accordance with Section 2 of the Loan Agreement, Borrower hereby promise to pay interest on the outstanding principal Loan Amount from the date advanced by Lender to Borrower until such Loan Amount is irrevocably paid in full in lawful currency of the United States of America, in immediately available funds. Borrower shall make the following payments to Lender:

 

(i) On December 18, 2020 and bi-weekly thereafter (each, a “Payment Date”) during the term of the Loan, through the Maturity Date (as defined below), Borrower shall pay to Lender (i) a bi-weekly payment of interest-only in an amount equal to interest on the unpaid principal Loan Amount at the Interest Rate and, (ii) twenty percent (20%) of all funds received by Borrower from all paid invoices, which such amounts shall be applied to the outstanding principal Loan Amount.

 

(b) The aggregate unpaid Loan Amount, all accrued and unpaid Interest, and all other amounts payable under this Note shall be due and payable on the earlier of: (i) Eighteen (18) Months from the date of this Note, or (ii) upon completion of Borrower’s anticipated Initial Public Offering (the “Maturity Date”), or (iii) on such earlier date resulting from acceleration of the Loan Amount by Lender. For purposes of making payments hereunder, if the Payment Date of a given month shall not be a Business Day, then the Payment Date for such month shall be the ensuing Business Day.

 

Promissory Note
Peah Capital, LLC 		2  

 

 

(c) Origination Fee. On the closing date of this Loan, Borrower shall pay to Lender, as a condition precedent to Lender entering into the Loan Documents, a fee equal to three- and three-quarter percent (3.75%) of the Loan Amount (the “Origination Fee”), which amount shall be paid directly to Lender from the Loan proceeds.

 

4. Event of Default; Default Interest.

 

(a) Upon the occurrence of an Event of Default, the Loan Amount shall (a) become due and payable, and (b) bear interest at a per annum interest rate of twenty-five percent (25%) per annum (the “Default Rate”). Borrower will also pay to Lender, after an Event of Default occurs, all reasonable costs of collecting, securing, or attempting to collect or secure this Note or any other Loan Document, including, without limitation, court costs and reasonable attorneys’ fees (including reasonable attorneys’ fees on any appeal by either Borrower or Lender and in any bankruptcy proceedings).

 

(b) Notice of Default and Cure Period. If Borrower fails to comply with any of its obligations, representations, and/or covenants under this Agreement or any other provision of this Agreement, Lender shall provide written notice of breach to Borrower (the “Breach Notice”) consistent with the notice requirements set forth in this section. Borrower shall then have five (5) business days from the date of receipt of the Breach Notice to cure the breach (the “Grace Period”) or provide written proof that no breach existed, the sufficiency of which shall be in Lender’s reasonable discretion. If Borrower fails to cure any such breach within the Grace Period or fails to provide proof that no claimed breach existed, then Borrower shall have all rights to proceed with its remedies as specified below.

 

(c) Acceleration; Events of Default. It is hereby expressly agreed that the entire unpaid principal balance of the Loan Amount, together with all interest and other sums of any nature whatsoever which may or shall become due to the Lender in accordance with the provisions of this Note or the other Loan Documents, shall, upon proper notice to the Borrower as specified in the preceding subsection, and failure of Borrower to cure within the Grace Period, become immediately due and payable without necessity for further presentment and demand for payment, further notice of protest, demand and dishonor or nonpayment of this Note, all of which are hereby expressly waived by the Borrower after the expiration of the Grace Period, upon any default by the Borrower in making any payment when due hereunder or any other default hereunder or upon any Default (as defined in any Loan Document) or upon the happening of any event by which, under the terms of the Loan Documents said unpaid balance may or shall become due and payable or upon the occurrence of any of the following events, circumstances or conditions (each an “Event of Default”):

 

(i) Any Interest and/or portion of the Loan Amount is not paid when due;

 

(ii) any certification, representation or warranty made by Borrower or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by Borrower or Guarantor in connection with any Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made;

 

Promissory Note
Peah Capital, LLC 		3  

 

 

(iii) Borrower, or Guarantor shall make an assignment for the benefit of creditors, or shall generally not be paying its debts as they become due;

 

(iv) a receiver, liquidator or trustee shall be appointed for Borrower or Guarantor; or Borrower or Guarantor shall be adjudicated bankrupt or insolvent; or any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or Guarantor, as the case may be; or any proceeding for the dissolution or liquidation of Borrower or Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or Guarantor, as the case may be, only upon the same not being discharged, stayed or dismissed within thirty (30) days;

 

(v) a default occurs under any term, covenant or provision set forth herein or in any other Loan Document which specifically contains a notice requirement and such notice has been given; and/or

 

(vi) a default shall be continuing under any of the other terms, covenants or conditions of this Note or any other Loan Document, for ten (10) days after notice to Borrower (and Guarantor, if applicable) from Lender, in the case of any default which can be cured by the payment of a sum of money, or for ten (10) days after notice from Lender in the case of any other default; provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within ten (10)-day period, and Borrower (or Guarantor, if applicable) shall have commenced to cure such default within such ten (10)-day period and thereafter diligently and expeditiously proceeds to cure the same, such ten (10)-day period shall be extended for an additional period of time as is reasonably necessary for Borrower (or Guarantor, if applicable) in the exercise of due diligence to cure such default.

 

(vii) Borrower or Guarantor shall not incur (i) any obligation outside the Ordinary Course of Business, (ii) any further debt, or encumbrance, including without limitation, through receiving financing, merchant cash advance, and/or alternative financing, of any kind, without the prior written approval of the Lender, subject to Article VII of the Loan Agreement.

 

5. Optional Prepayment.

 

(a) At any time during the term hereof, the Borrower shall have the privilege of prepaying the unpaid balance of the Loan Amount, in whole or in part on any Business Day (“Prepayment”), however, should the Borrower make a Prepayment during the first twelve (12) months of the Loan term, Borrower shall pay Lender a Prepayment premium equal to six percent (6%) of the total Loan Amount being prepaid. Any Prepayment shall be accompanied by all accrued and unpaid Interest on the amount prepaid to the date of Prepayment or other sums or charges, if any, then due and owing hereunder or under the other Loan Documents. Any payments of the Loan Amount received by the Lender pursuant to the terms of this Section 5 shall be applied in the order determined by the Lender.

 

Promissory Note
Peah Capital, LLC 		4  

 

 

(b) Borrower acknowledges that the provisions of this Section 5 were independently bargained for and constitute a specific material part of the consideration given by Borrower to Lender for the making of the Loan.

 

6. Method and Place of Payments; Application of Payments; Borrower Obligations Absolute.

 

(a) Except as otherwise specifically provided herein, all payments under this Note and the other Loan Documents shall be made to Lender not later than four (4) p.m., Eastern Standard Time, on the date when due, and shall be made in lawful money of the United States of America by wire transfer of immediately available funds to the Lender’s account at a bank specified by the Lender in writing to the Borrower from time to time, and any funds received by Lender after such time, for all purposes hereof, shall be deemed to have been paid on the next succeeding Business Day.

 

(b) All proceeds of payment, shall be applied to the Loan Amount in such order and in such manner as Lender shall elect at Lender’s discretion.

 

(c) Except as specifically set forth in any Loan Document, all sums payable by Borrower under any Loan Document shall be paid without notice, demand, counterclaim (other than mandatory counterclaims), setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction.

 

7. Security. The Borrower’s performance of its obligations hereunder is secured by, among other things, the Loan Agreement and Pledge granted in favor of Lender by Borrower and/or encumbering or affecting all of Borrower’s assets.

 

8. Waivers. With respect to the amounts due pursuant to this Note or any other Loan Document, Borrower waives the following: (a) all rights of exemption of property from levy or sale under execution or other process for the collection of debts under the Constitution or laws of the United States or any State thereof; and (b) any further receipt by Lender or acknowledgment by Lender of any collateral now or hereafter deposited as security for the Loan. In addition, Borrower agrees and acknowledges that no release of any security for the Loan or Loan Amount, or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, or the other Loan Documents made by agreement between Lender or any other person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, any guarantor, or any other person who may become liable for the payment of all or any part of the Loan or Loan Amount, under this Note, or the other Loan Documents unless in writing and signed by Borrower and Lender. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action as provided for in this Note, or the other Loan Documents.

 

9. Interest Rate Limitation. This Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Loan Amount at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate of interest designated by applicable laws relating to payment of interest and usury (the “Maximum Amount”). If, by the terms of this Note or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Loan Amount at a rate in excess of the Maximum Amount, the Interest Rate shall be deemed to be immediately reduced to the Maximum Amount and all previous payments in excess of the Maximum Amount shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder.

 

Promissory Note
Peah Capital, LLC 		5  

 

 

10. Modifications; Remedies Cumulative; Setoffs. Lender shall not by any act, delay, omission or otherwise be deemed to have modified, amended, waived, extended, discharged or terminated any of its rights or remedies, and no modification, amendment, waiver, extension, discharge or termination of any kind shall be valid unless in writing and signed by Lender and Borrower. All rights and remedies of Lender under the terms of this Note and applicable statutes or rules of law shall be cumulative, and may be exercised successively or concurrently. If Borrower is a partnership or limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership or limited liability company, and the term “Borrower,” as used herein, shall include any alternate or successor partnership or limited liability company, but any predecessor partnership or limited liability company and their partners or members shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term “Borrower” as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. Nothing in the foregoing two sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, limited liability company or corporation, as applicable, which may be set forth in any of the Loan Documents.

 

11. Severability. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under any applicable laws, but if any provision of this Note shall be prohibited by or invalid under any applicable laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

 

12. Release. Lender may, at its option, release any collateral given to secure the Loan Amount, and no such release shall impair the obligations of Borrower to Lender.

 

13. Governing Law; Submission to Jurisdiction. This Note and the Loan Documents shall be governed by and construed and enforced in accordance with the laws (without giving effect to the conflict of law principles thereof) of the State of Florida. Any legal action or proceeding with respect to this Note shall exclusively be brought in the in the appropriate county, state or federal courts located exclusively in Miami-Dade County, Florida, and, by execution and delivery hereof, the Borrower hereby accepts, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower and its heirs, successors, executors, administrators, and assigns, collectively and each of them individually, shall be jointly and severally responsible and liable for the performance of each and every term, covenant and condition on the part of the Borrower to be performed under this Note or any of the Loan Documents.

 

Promissory Note
Peah Capital, LLC 		6  

 

 

14. Waiver of Jury Trial. BORROWER AND LENDER TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER LOAN DOCUMENTS. EACH OF BORROWER AND LENDER AGREES THAT THE OTHER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF THE OTHER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

15. Sales and Assignments. Lender may assign, sell, securitize, participate, pledge and/or otherwise transfer all or any portion of Lender’s right, title and interest in, to and under this Note and/or the other Loan Documents in one or more transactions as set forth in the Loan Documents. Upon the transfer of this Note, Lender may deliver all the collateral Loan Agreement, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under legal requirements given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred.

 

16. Intentionally Omitted.

 

17. Representations and Warranties. The Borrower hereby represents and warrants to the Lender on the date hereof as follows:

 

(i) Existence; Power and Authority; Compliance with Laws. Manufacturing is a corporation duly organized, validly existing, and in good standing under the laws of the state of its jurisdiction of Florida. Group is a corporation duly organized, validly existing, and in good standing under the laws of the state of its jurisdiction of Delaware. Borrower (a) are both capable of entering into the Note and Loan Documents, and (b) has the requisite power and authority to execute and deliver this Note and the Loan Documents, and to perform its obligations hereunder.

 

(ii) Authorization; Execution and Delivery. The execution and delivery of this Note and the Loan Documents by the Borrower and the performance of its obligations hereunder and thereunder have been duly authorized by all necessary corporation action in accordance with all applicable laws. The Borrower has duly executed and delivered this Note and the Loan Documents.

 

(iii) No Approvals. No consent or authorization of, filing with, notice to, or other act by, or in respect of, any governmental authority or any other person is required in order for the Borrower to execute, deliver, or perform any of its obligations under this Note or the Loan Documents.

  

Promissory Note
Peah Capital, LLC 		7  

 

 

(iv) No Violations. The execution and delivery of this Note and the Loan Documents and the consummation by the Borrower of the transactions contemplated hereby and thereby do not and will not (a) violate any law applicable to the Borrower or by which any of its properties or assets may be bound; or (b) constitute a default under any material agreement or contract by which the Borrower may be bound.

 

(v) Enforceability. Each of the Loan Documents is a valid, legal, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

 

(vi) No Litigation. No action, suit, litigation, investigation, or proceeding of, or before, any arbitrator or governmental authority is pending or threatened by or against the Borrower or any of its property or assets (a) with respect to the Note or the Loan Documents or any of the transactions contemplated hereby or thereby or (b) that could be expected to materially adversely affect the Borrower’s financial condition or the ability of the Borrower to perform its obligations under the Note or the Loan Documents.

 

(vii) PATRIOT Act; Anti-Money Laundering. The Borrower is, and to the knowledge of the Borrower, officers, employees, and agents are, in compliance in all material respects with the PATRIOT Act, and any other applicable terrorism and money laundering laws, rules, regulations, and orders.

 

18. Intentionally Omitted.

 

19. Notice. Except as expressly provided herein, any notice to be given hereunder shall be in writing and shall be either delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid or sent by common courier (e.g., Federal Express), addressed: (a) if to the Borrower, to the Borrower’s address set forth below; or (b) if to the Lender, at the Lender’s address set forth below, or as to any party, at such other address as shall be designated by such party by notice to the other party given in the manner set forth in this Section 19. Each such notice shall be effective: (i) if delivered personally, at the time of delivery to the address specified in this paragraph; or (ii) if given by mail or if sent by courier, on the day actually received.

 

(i) If to the Borrower:
     

Bonne Santé Group, Inc.

Darren Minton

10575 NW 37th Terrace

Doral, FL 33178

 

With a copy to:

 

Marko F. Cerenko, Esq.

Kluger, Kaplan, Silverman Katzen & Levine, P.L.

201 South Biscayne Blvd, Twenty Seventh Floor

Miami, FL 33131

 

Promissory Note
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If to the Lender:

Peah Capital, LLC

2650 Northwest 5th Avenue

Miami, FL 33127

Attn: Legal Department

Email:

 

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

 

Weiser Law Firm, PLLC

333 Pearsall Avenue Suite 110

Cedarhurst NY 11516

 

20. Further Assurances. Upon the request of the Lender, Borrower shall promptly execute and deliver such further instruments and do or cause to be done such further acts as may be necessary or advisable to carry out the intent and purposes of this Note and the Loan Documents.

 

[Signature Page to Follow]

  

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IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be properly executed as of the date first above written and has authorized this Promissory Note to be dated as of the day and year first above written.

 

  BORROWER:
     
  Bonne Santé Group, Inc.
  a Delaware corporation
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Executive Chairman
     
  Bonne Santé Natural Manufacturing, Inc.
  a Florida corporation
     
  By: /s/ Alfonso J. Cervantes
  Name:  Alfonso J. Cervantes
  Title: Executive Chairman

 

[Signature Page to Promissory Note]

 

 

 

 

 

Exhibit 10.29

 

PLEDGE AND SECURITY AGREEMENT

 

This PLEDGE AND SECURITY AGREEMENT, dated as of December 18 , 2020 (as amended, restated and otherwise modified from time to time, this “Pledge Agreement”) is made by Bonne Santé Natural Manufacturing, Inc. f/k/a Millennium Natural Manufacturing Corp., a Florida corporation (“Bonne Santé Natural Manufacturing”), Bonne Santé Group, Inc., a Delaware corporation (“Bonne Sante”), Trilogy Capital Group LLC, a Delaware limited liability company (“Trilogy Capital”), Mesa Lane LLC, a New York limited liability company (“Mesa”), Darren Minton, an individual domiciled in the State of Florida (“Minton”), and Alfonso .J. Cervantes, an individual domiciled in the State of Florida (“Cervantes” and together with Bonne Santé Natural Manufacturing, Bonne Sante, Trilogy Capital, Mesa, and Minton collectively referred to as “Pledgor”), in favor of, PEAH CAPITAL, LLC, a Delaware limited liability company with an address 2650 NW 5th AVE, Miami, FL 33127 (together with its successors and assigns, “Lender”).

 

WHEREAS Bonne Santé Natural Manufacturing, and Bonne Sante (collectively, the “Borrowers”) have requested that Lender make a secured credit facility in the aggregate principal amount of One Million Five Hundred Thousand 00/100 DOLLARS ($1,500,000.00) (the “Loan”) to Borrowers, which Loan is evidenced by, amongst other documents, that certain Promissory Note, dated as of the date hereof, in the amount of Seven Hundred Thousand ($700,000.00) made by Borrowers in favor of Lender (as amended, restated and otherwise modified from time to time, the “Note”).

 

WHEREAS, as a condition precedent to the making of the Loan by Lender, Lender requires that Pledgor grant it the security interests contemplated by this Pledge Agreement; and

 

WHEREAS The Pledgor will receive substantial direct and indirect benefits from the execution, delivery and performance of the obligations under the Note and the other Loan Documents and is, therefore, willing to enter into this Pledge Agreement.

 

NOW, THEREFORE, in consideration of the making of the Loan by Lender and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, Pledgor, intending to be legally bound, hereby agrees with Lender, as follows:

 

Section 1. Definitions. All capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Loan Documents. As used in this Pledge Agreement, the following terms have the following meanings:

 

“Additional Interests” has the meaning specified in Section 3(g).

 

“Affiliate” means with respect to any specified Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such specified Person.

 

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“Bonne Santé Equity Interests” has the meaning specified in Section 3(a).

 

“Bonne Santé Pledged Assets” has the meaning specified in Section 3(a).

 

“Bonne Santé Natural Manufacturing Pledged Assets” has the meaning specified in Section 3(b)

 

“Business Day” means any day other than a Saturday, Sunday or any other day on which Lender is not open for business.

 

“Certificates” has the meaning specified in Section 5(b).

 

“Cervantes Equity Interests” has the meaning specified in Section 3 (f).

 

“Collateral” means (i) the Bonne Santé Pledged Assets, (ii) Bonne Santé Natural Manufacturing Pledged Assets, (iii) the Pledged Interests, and (iv) everything else contained in Section 3.

 

“Control” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise, and the terms.

 

“Controlled”, “Controlling” and “Common Control” shall have correlative meanings.

 

“Equity Interests” means, with respect to any Pledgor, all of the shares of capital stock of (or other ownership or profit interests in) such Pledgor, all of the warrants, options or other rights for the purchase or acquisition from such Pledgor of shares of capital stock of (or other ownership or profit interests in) such Pledgor, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Pledgor or warrants, rights or options for the purchase or acquisition from such Pledgor of such shares (or such other interests), and all of the other ownership or profit interests in such Pledgor (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

 

“Event of Default” has the meaning specified in Section 16.

 

“Governmental Authority” means any board, commission, department or body of any municipal, county, state or federal governmental unit, or any subdivision of any of them, that has or acquires jurisdiction over the Property or the Collateral or the use, operation or improvement of the Property.

 

“Law” or “Laws” means, as the context may require, any applicable treaty, federal, state or local statute, Law, rule, regulation, ordinance, order, code, policy or rule of common Law, now or hereafter in effect, and any judicial or administrative interpretation of any of the foregoing by a Governmental Authority or otherwise, together with any judicial or administrative order, consent decree, judgment or agreement with a Governmental Authority.

 

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“Lender” has the meaning specified in the Preamble hereto.

 

“Loan” has the meaning specified in the Recitals hereto.

 

“Loan Documents” means (i) the Note of even date herewith (defined above); (ii) the Loan and Security Agreement of even date herewith, between Pledgor, as borrower, and Lender as lender (the “LSA”); (iii) this Pledge Agreement; (iv) the Mortgage of even date herewith (the “Mortgage”); (v) the two UCC-1 financing statements identifying Lender as a Secured Party and Bonne Santé Natural Manufacturing, and Bonne Santé as Debtor, one filed in the State of Florida and the other in the State of Delaware (collectively, the “UCC-1”), (vi) the Corporate Guaranty of Bonne Santé Natural Manufacturing, and Corporate Guaranty of Bonne Santé of even date herewith (each a “Corporate Guaranty”), and (vii) the Bad Boy Guaranty of Cervantes (the “Bad Boy Guaranty”); (viii) the Warrant of even date herewith (the “Warrant”) and; the Future Equity Issuance Agreement (the “Future Equity Agreement”), and any and all other documents and resolutions executed in connection with, evidencing and/or securing the Loan from time to time, as each of the foregoing may from time to time be amended, modified, consolidated, extended, renewed or replaced.

 

“Losses” means any and all losses, costs and expenses incurred by Lender in respect of or as a result of any or all claims, suits, liabilities (including strict liabilities), actions, demands, proceedings, obligations, debts, damages (including punitive and consequential damages), trials, fines, penalties, charges, injury to a person, property or natural resource, fees, judgments, accounts, orders, adjudications, awards, liens, injunctive relief, causes of action or amounts paid in settlement of whatever kind or nature, including reasonable attorneys’ fees and consultants’ fees and disbursements and other cost of defense or otherwise related thereto.

 

“Mesa Equity Interests” has the meaning specified in Section 3(d).

 

“Minton Equity Interests” has the meaning specified in Section 3(e).

 

“Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to nature, scope, magnitude, quantity and frequency) that does not require any board of director or shareholder approval or any other separate or special authorization of any nature and in compliance with Applicable Law.

 

“Organizational Documents” means all documents and agreements providing for, or related to, the formation, organization and governance of Pledgor or Pledgor, as applicable, including their respective certificate of formation or certificate of incorporation and operating agreement or by-laws and or any comparable formation documents of any business entity (including but not limited to partnerships)

 

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“Person” means an individual, partnership, limited partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.

 

“Pledge Agreement” has the meaning specified in the Preamble hereto. “Pledgor” has the meaning specified in the Preamble hereto.

 

“Pledged Interests” means (i) Bonne Santé Equity Interests, (ii) Trilogy Capital Equity Interests, (iii) Mesa Equity Interests, (iv) Minton Equity Interests, and (v) Cervantes Equity Interests.

 

“Pledgor Obligations” means any and all present and future liabilities and obligations of Pledgor to Lender under the Note, and any and all of the other Loan Documents, together with all fees and expenses incurred in collecting any or all of the items specified in this definition of “Pledgor Obligations” or enforcing any rights under any of the documents executed in connection with any such liabilities and obligations, including all fees and expenses of Lender’s counsel and of any experts and agents which may be paid or incurred by Lender in collecting any such items or enforcing any such rights.

 

“Pledgor” has the meaning specified in the Recitals hereto.

 

“Proceeds” means all “proceeds” as such term is defined in Section 9-102(a)(64) of the Uniform Commercial Code in effect in the State of Florida on the date hereof and, in any event, shall include all dividends or other income from the Collateral and Additional Interests, collections thereon or distributions with respect thereto.

 

“Securities Act” has the meaning specified in Section 10(e).

 

“Trilogy Capital Equity Interests” has the meaning specified in Section 3(c).

 

“UCC” means the Uniform Commercial Codes of the States of Florida and Delaware, as in effect from time to time.

 

All terms defined in the UCC that are used in this Pledge Agreement shall have the meaning specified in the UCC. Pledgor hereby acknowledges receipt of a copy of the Note.

 

Section 2. Rules of Interpretation. When used in this Pledge Agreement: (a) “or” is not exclusive, (b) any pronouns used shall include the corresponding masculine, feminine or neuter forms, (c) the singular form of nouns shall include the plural and vice versa, (d) a reference to a Law includes any amendment or modification to such Law, (e) a reference to an agreement, instrument or document includes any amendment of modification of such agreement, instrument or document if and to the extent such amendment or modification is permitted under the applicable Loan Documents, and (f) all references in this Agreement to Sections are references to Sections of this Pledge Agreement unless otherwise specified. All references in this Pledge Agreement to Schedules and Exhibits are references to Schedules and Exhibits of this Pledge Agreement unless otherwise specified. In the event of any conflict between the definition or provisions of this Agreement and the provisions of the other Loan Documents, the provisions of the LSA shall govern.

 

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Section 3. Pledge. As collateral security for the payment and performance in full of all the Pledgor Obligations, Pledgor hereby pledges and grants to Lender, a continuing first priority security interest in and lien on all right, title and interest of Pledgor in and to each of the following items, whether now owned or hereafter acquired (collectively, “Collateral”):

 

(a) Pledge by Bonne Santé. Bonne Santé pledges all assets now owned or hereafter acquired and wherever located, including but not limited to, the following subcategories of assets (in each case as defined in the UCC): (i). Accounts; (ii). Chattel Paper; (iii). Inventory; (iv). Equipment; (v). Instruments including but not limited to, Promissory Notes; (vi). Investment Property; (vii). Documents; (viii). Deposit Accounts; (ix). Letter of Credit Rights; (x). General Intangibles; (xi). Payment Intangibles; (xii). Supporting Obligations; and (xiii). Proceeds and Products of the foregoing (the “Bonne Santé Pledged Assets”). Additionally, Bonne Santé pledges all of its equity interests and shares in Bonne Santé Natural Manufacturing, which as of the date of this Agreement, is 100% of the outstanding shares in Bonne Santé Natural Manufacturing (the “Bonne Santé Equity Interests”), and the certificates (if any) representing such Bonne Santé Equity Interests, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Bonne Santé Equity Interests, together with all voting rights, claims, powers, privileges, benefits, remedies, options and rights of any nature which now or hereafter exist with respect to or on account of such Bonne Santé Equity Interests, including all such items under or pursuant to the Organizational Documents of Bonne Santé Natural Manufacturing;

 

(b) Pledge by Bonne Santé Natural Manufacturing. Bonne Santé Natural Manufacturing pledges all assets now owned or hereafter acquired and wherever located, including but not limited to, the following subcategories of assets (in each case as defined in the UCC): (i). Accounts; (ii). Chattel Paper; (iii). Inventory; (iv). Equipment; (v). Instruments including but not limited to, Promissory Notes; (vi). Investment Property; (vii). Documents; (viii). Deposit Accounts; (ix). Letter of Credit Rights; (x). General Intangibles; (xi). Payment Intangibles; (xii). Supporting Obligations; and (xiii). Proceeds and Products of the foregoing (the “Bonne Santé Natural Manufacturing Pledged Assets”).

 

(c) Pledge by Trilogy Capital. Trilogy Capital pledges all of its equity interests and shares in Bonne Santé, which as of the date of this Agreement, is 54.4% of the outstanding shares in Bonne Santé (the “Trilogy Capital Equity Interests”), and the certificates (if any) representing such Trilogy Capital Equity Interests, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Trilogy Capital Equity Interests, together with all voting rights, claims, powers, privileges, benefits, remedies, options and rights of any nature which now or hereafter exist with respect to or on account of such Trilogy Capital Equity Interests, including all such items under or pursuant to the Organizational Documents of Bonne Santé;

 

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(d) Pledge by Mesa. Mesa pledges all of its equity interests and shares in Bonne Santé, which as of the date of this Agreement, is 7.7% of the outstanding shares in Bonne Santé (the “Mesa Equity Interests”), and the certificates (if any) representing such Mesa Equity Interests, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Mesa Equity Interests, together with all voting rights, claims, powers, privileges, benefits, remedies, options and rights of any nature which now or hereafter exist with respect to or on account of such Mesa Equity Interests, including all such items under or pursuant to the Organizational Documents of Bonne Santé;

 

(e) Pledge by Minton. Minton pledges all of his equity interests and shares in Bonne Santé, which as of the date of this Agreement, is 7.7% of the outstanding shares in Bonne Santé (the “Minton Equity Interests”), and the certificates (if any) representing such Minton Equity Interests, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Minton Equity Interests, together with all voting rights, claims, powers, privileges, benefits, remedies, options and rights of any nature which now or hereafter exist with respect to or on account of such Minton Equity Interests, including all such items under or pursuant to the Organizational Documents of Bonne Santé;

 

(f) Pledge by Cervantes. Cervantes pledges all of his equity interests and shares in Bonne Santé, which as of the date of this Agreement, is 13.4% of the outstanding shares in Bonne Santé (the “Cervantes Equity Interests”), and the certificates (if any) representing such Cervantes Equity Interests, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Cervantes Equity Interests, together with all voting rights, claims, powers, privileges, benefits, remedies, options and rights of any nature which now or hereafter exist with respect to or on account of such Cervantes Equity Interests, including all such items under or pursuant to the Organizational Documents of Bonne Santé;

 

(g) Additional Interests. All Additional Interests in Pledgor from time to time acquired by Pledgor in any manner (the “Additional Interests”), and the certificates (if any) representing such Additional Interests, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Additional Interests, together with all voting rights, claims, powers, privileges, benefits, remedies, options and rights of any nature which now or hereafter exist with respect to or on account of such Additional Interests, including all such items under or pursuant to the Organizational Documents of Pledgor;

 

(h) Intangibles. All “accounts”, “general intangibles”, “instruments” and “investment property” (in each case as defined in the UCC), and Equity Interests, in the name of and belonging to Pledgor constituting or relating to the foregoing; and

 

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(i) Proceeds. All Proceeds of any and all of the foregoing.

 

Section 4. Security for Obligations. The Collateral secures the prompt and complete payment when due of all Pledgor Obligations.

 

Section 5. Perfection of Security Interest.

 

(a) Pledgor shall make the appropriate notation in Pledgor’s books and records indicating that the Collateral is subject to the security interest granted pursuant to this Pledge Agreement. By execution of its acknowledgment, consent and agreement at the end of this Pledge Agreement, Pledgor hereby (i) consents to the security interest granted to Lender in the Collateral pursuant to this Pledge Agreement, and (ii) agrees to comply with any “instructions” (as defined in Section 8102(a)(12) of the UCC) with respect to the Collateral, including instructions regarding the transfer, redemption or other disposition of such Collateral and other Collateral or the proceeds of such Collateral, including any distributions with respect to such Collateral.

 

(b) Upon the written request of Lender, Pledgor will take any and all additional actions required to perfect the security interest of Lender in each and every item of Collateral. Without limiting the foregoing, upon written request of Lender, Pledgor shall cause the Pledged Interests and/or the Additional Interests to be represented by certificates or instruments in form and substance acceptable to Lender (the “Certificates”) and the Certificates to be delivered to and held by or on behalf of Lender as Collateral pursuant to this Pledge Agreement simultaneously with the execution hereof. Lender shall have the right, at any time in its discretion, (i) to exchange the Certificates or any other instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations and (ii) to register the Collateral in the name of Lender or its nominee. If any or all of the Collateral is an uncertificated security then, Pledgor will take all actions required by Lender, in its sole discretion, to register such security in the name of Lender and/or cause Pledgor to agree in writing that Pledgor will comply with the instructions from Lender without further consent of Pledgor.

 

(c) Pledgor hereby irrevocably authorizes Lender to prepare, execute at any time and from time to time to file in any relevant jurisdiction any financing statements, and any restatements, extensions, continuations, renewals or amendments thereof, in such form as Lender may require to perfect or continue the perfection of the security interest and liens created pursuant to this Pledge Agreement. Such financing statements may be described as the collateral covered thereby “all assets of the debtor, whether now owned or hereafter acquired or arising, and all proceeds and products thereof” or words to that effect. Lender shall pay all reasonable expenses incident to the preparation, execution, filing and/or recording of any of the foregoing. With respect to any of the Collateral in which a security interest is not perfected by the filing of a financing statement, Pledgor consents and agrees to undertake, and to cooperate fully with Lender to perfect the security interest hereby granted to Lender in the Collateral. Pledgor agrees to provide all necessary information related to such filings to Lender promptly upon request by the Lender.

 

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(d) Immediately upon its acquisition (directly or indirectly) of any and all new or additional Collateral, Pledgor will (i) notify Lender of the acquisition of such Collateral, (ii) take all steps required to pledge such Collateral under this Pledge Agreement, and (iii) take all actions required to perfect the security interest of Lender in such Collateral. If delivery of such new or additional Collateral is required under the prior sentence, then prior to such delivery, Pledgor agrees that all such Collateral will be held separate and apart from its other property and in express trust for Lender.

 

(e) Pledgor will not take any actions or fail to perform any of its duties or obligations under this Pledge Agreement so that after giving effect to such action or inaction Lender will then, or with the passage of time, cease to have a perfected first priority security interest in any of the Collateral. Pledgor agrees that from time to time, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, including but not limited to any and all of the actions specified above in this Section that may be necessary or desirable, or that Lender may request, in order to perfect and protect any security interest granted or purported to be granted under this Pledge Agreement or to enable Lender to exercise and enforce its rights and remedies under this Pledge Agreement with respect to any of the Collateral.

 

(f) Pledgor acknowledges and agrees that Pledgor has not “opted in” to Article 8 of the UCC with respect to the Pledged Interests.

 

(g) Pledgor will not, and Pledgor will not permit Pledgor to, (i) change the location of its chief executive office or principal place of business, (ii) change its name, identity, or structure, or (iii) reorganize under the Laws of another jurisdiction.

 

Section 6. Further Assurances. Pledgor shall take such further actions, and execute and/or deliver to the Lender such additional financing statements, amendments, assignments, agreements, supplements, powers and instruments, and will obtain such governmental consents and corporate approvals and will cause to be done all such other things, as the Lender may in its judgment deem necessary or appropriate in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted in the Collateral as provided herein and the rights and interests granted to the Lender hereunder, and enable the Lender to exercise and enforce its rights, powers and remedies hereunder with respect to any Collateral, including the filing of any financing statements, continuation statements and other documents under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interest created hereby, all in form satisfactory to the Lender and in such offices wherever required by law to perfect, continue and maintain the validity, enforceability and priority of the security interest in the Collateral as provided herein and to preserve the other rights and interests granted to the Lender hereunder, as against third parties, with respect to the Collateral. Where applicable, and with respect to, all Collateral of Pledgor over which the Lender may obtain "control" within the meaning of section 8-106 of the UCC, Pledgor shall take all actions as may be requested from time to time by the Lender so that control of such Collateral is obtained and at all times held by the Lender. Without limiting the generality of the foregoing, but subject to applicable law, Pledgor shall make, execute, endorse, acknowledge, file or refile and/or deliver to the Lender from time to time upon request by the Lender such lists, schedules, descriptions and designations of the Collateral, statements, confirmatory assignments, supplements, additional security agreements, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments as the Lender shall reasonably request. If an Event of Default has occurred and is continuing, the Lender may institute and maintain, in its own name or in the name of any Pledgor, such suits and proceedings as the Lender may deem or be advised by counsel to be necessary or expedient to prevent any impairment of the security interest in or the perfection thereof in the Collateral. All of the foregoing shall be at the sole cost and expense of the Pledgor.

 

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Section 7. Dividends and Distributions. As long as no Event of Default has occurred and/or such Event of Default been cured during the applicable cure period, Pledgor shall be entitled to receive and retain any and all cash dividends and distributions made in respect of the Collateral; provided, however, that any and all (a) dividends and distributions paid or payable, other than in cash, in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any such Collateral, (b) dividends and distributions paid or payable in cash in respect of any such Collateral in connection with a partial or total liquidation or dissolution, and (c) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any such Collateral, or as a result of a merger, consolidation, acquisition or other exchange of assets to which Pledgor is a party, shall be, and shall be forthwith delivered to Lender to hold as Collateral and shall, if received by Pledgor, be received in trust for the benefit of Lender, be segregated from the other funds of Pledgor, and be forthwith delivered to Lender as Collateral in the same form as so received (with any necessary endorsement).

 

From and after the occurrence of an Event of Default and if not remedied by Pledgor within any applicable grace or cure period, all rights of Pledgor to receive dividends and distributions which it would otherwise be authorized to receive and retain pursuant to this Section shall cease, and all such rights shall thereupon become vested in Lender, and Lender shall thereupon have the sole right to receive and hold as Collateral such dividends and distributions, and Pledgor will cause Pledgor to pay and deliver all such dividends and distributions directly to Lender. All dividends and distributions which are received by Pledgor contrary to the provisions of this Section shall be received in trust for the benefit of Lender, shall be segregated from other funds of Pledgor and shall be forthwith delivered to Lender as Collateral in the same form as so received (with any necessary endorsement).

 

Section 8. Voting Rights. As long as no Event of Default has occurred and/or such Event of Default been cured during the applicable cure period, Pledgor shall be entitled to exercise any and all management, voting and other consensual rights pertaining to any or all of the Collateral. Upon receipt of written notice from Lender that an Event of Default has occurred (and if not remedied by Pledgor within any applicable grace or cure period) and that Lender chooses to exercise the management, voting and consensual rights related to the Collateral, including all such rights under and pursuant to the terms of the Organizational Documents of Pledgor, all rights of Pledgor to exercise such management, voting and other consensual rights shall cease, and Lender shall then have the sole right to exercise such management, voting and other consensual rights. In exercising its management, voting or other consensual rights with respect to the Collateral, Pledgor agrees it will not agree to or vote for (a) any changes that contravene the terms of this Pledge Agreement, (b) any changes to the terms of any or all Organizational Documents of Pledgor or Pledgor, or (c) any changes which could impair the value of any or all of the Collateral.

 

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Section 9. Representations and Warranties. Pledgor represents and warrants to Lender as follows:

 

(a) Ownership of Collateral. Pledgor is the legal and beneficial owner of the Collateral and has good and marketable title to the Collateral. The Collateral is one hundred percent (100%) of the outstanding membership interests in Pledgor. The Collateral is not evidenced by a certificate or other instrument.

 

(b) Limitations on Collateral. None of the Collateral is subject to any agreement that (i) provides for the sale, assignment, transfer or other disposition of such Collateral, or (ii) limits or restricts the granting of a security interest in, or the sale of, such Collateral pursuant to this Pledge Agreement.

 

(c) Security Interest. This Pledge Agreement creates a valid security interest in the Collateral and such security interest secures the payment of all Pledgor Obligations. None of the Collateral is subject to a security interest, lien, charge or encumbrance, except for the security interest created by this Pledge Agreement. All actions necessary or desirable to perfect and protect such security interest have been duly taken or will be taken contemporaneously with the execution of this Pledge Agreement. Such security interest is a first priority security interest with respect to the Collateral.

 

(d) Collateral. Each item of Collateral has been duly authorized and validly issued and is fully paid and non-assessable. There are no outstanding agreements, options and contracts to sell all or any portion of the Collateral. There are no outstanding agreements limiting or restricting the granting of a security interest in, or the sale or transfer of, any or all of the Collateral other than those set forth in Article VII in the LSA. There are no unpaid expenses, capital contributions, costs, fees, charges, or other payments of any kind related to any or all of the Collateral required to be funded or contributed by Pledgor that have not been satisfied other than those in the Ordinary Course of Business and disclosed in writing to Lender.

 

(e) Information Regarding Perfection of Security Interest. The exact legal names and state of formation of each Pledgor is set forth in the Preamble to this Pledge Agreement. Pledgor has not been known by any other name during the past five (5) years.

 

(f) Formation, Good Standing, Power and Due Qualification. Trilogy Capital, Mesa, Bonne Santé Natural Manufacturing, and Bonne Sante each are (i) a limited liability company or corporation duly formed, validly existing, and in good standing under the Laws of the jurisdiction of its incorporation or formation, (ii) each has the limited liability company or corporate power and authority to own its assets and to transact the business in which it now engages or proposes to engage in, and (iii) each are duly qualified as a foreign limited liability company or foreign corporation and is in good standing under the Laws of each other jurisdiction in which such qualification is required.

 

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(g) Authority, No Contravention. The execution, delivery and performance by Trilogy Capital, Mesa, Bonne Santé Natural Manufacturing, and Bonne Sante of this Pledge Agreement are within its limited liability company or corporate powers, have been duly authorized by all necessary limited liability company or corporate action, and do not and will not (i) require any consent or approval of its members, managers, shareholders or directors which has not been obtained, or (ii) contravene Pledgor’s Organizational Documents. The execution, delivery and performance by Pledgor of this Pledge Agreement do not and will not (x) violate any provision of any Law, order, writ, judgment, injunction, decree, determination, or award presently in effect applicable to it, (y) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which it is a party or by which it or its properties may be bound or affected, or (z) result in, or require, the creation or imposition of any lien upon or with respect to any of the properties now owned or hereafter acquired by it.

 

(h) Governmental Authority. No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by Pledgor of this Pledge Agreement.

 

(i) Legally Enforceable Pledge Agreement. This Pledge Agreement is the legal, valid and binding obligation of Pledgor, enforceable against Pledgor in accordance with its terms, except to the extent that such enforcement may be limited by (i) applicable bankruptcy, insolvency, reorganization, receivership, and other similar Laws affecting creditors' rights generally, or (ii) general equitable principles (including specific performance and injunctive relief), regardless of whether the issue of enforceability is considered in a proceeding in equity or at Law.

 

(j) Subordination. The obligations of Pledgor under this Pledge Agreement are not subordinated in any way to any other obligations of Pledgor or to the rights of any other Person.

 

(k) Organizational Documents. Each of the Organizational Documents of Pledgor has been duly executed by all parties thereto and constitutes the legal, valid and binding obligations of each of the parties thereto, enforceable in accordance with its terms. Each of the Organizational Documents of Pledgor has been duly executed by all the parties thereto and constitutes the legal, valid and binding obligations of each of the parties thereto, enforceable in accordance with its terms. Copies of each of the Organizational Documents of Pledgor and Pledgor have been delivered to Lender, or shall be delivered to Lender upon written request, and such copies are true, correct and complete copies of such Organizational Documents in effect on the date of this Pledge Agreement.

 

(l) Interests are Securities. None of the Collateral is (i) held in a “securities account”, as defined under Article 8 of the UCC, (ii) dealt in or traded on a securities exchange or in a securities market, or (iii) an “investment company security”, as defined under Article 8 of the UCC. Upon receipt of written request by Lender, Pledgor shall cause Pledgor to amend its operating agreement to comply with the requirements set forth in this Section 8(l).

 

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Section 10. Covenants. Pledgor agrees that:

 

(a) Reporting Requirements. Pledgor shall promptly notify Lender if (i) any claim exceeding Fifty Thousand 00/100 DOLLARS ($50,000.00) is made against any or all of the Collateral, (ii) any representation and warranty included in this Pledge Agreement would no longer be true if made on such date, or (iii) there is a redemption or exchange of any or all of the Collateral. Pledgor will furnish to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may request, all in reasonable detail.

 

(b) Pledgor shall not incur (i) any obligation outside the Ordinary Course of Business, (ii) any further debt, or encumber the Collateral in any way, including without limitation, through receiving financing, merchant cash advance, and/or alternative financing, of any kind, without the prior written consent of the Lender, which may be withheld at Lender’s sole and absolute discretion, subject to Article VII of the LSA.

 

(c) Pledgor agrees that all existing debt and obligations is and shall be subordinate to the Note and all obligations arising out of the Loan Documents and that the subordination is for the benefit of and enforceable by the Lender.

 

(d) Defense of Ownership Rights. Pledgor will defend its ownership rights in the Collateral against all claims and demands of all parties claiming any ownership rights in any or all of the Collateral.

 

(e) Transfer of Collateral. Pledgor will at all times hereafter continue to be the legal and beneficial owner of one hundred percent (100%) of the membership interests of Pledgor. Pledgor shall not (i) sell, assign (by operation of Law or otherwise), transfer, encumber or otherwise dispose of any or all of the Collateral, (ii) enter into any agreement for the sale, assignment, transfer, encumbrance or other disposition of any or all of the Collateral, or (iii) enter into any agreement that limits or restricts the granting of a security interest in, or the sale of, any or all of the Collateral. Additionally, no transfer of any membership interests is permitted without Lender’s consent, which consent may be withheld in Lender’s sole and absolutely discretion.

 

(f) Issuance of Equity Interest. Pledgor will ensure that no additional equity interest is issued by Pledgor unless such equity interest is issued to Pledgor and is subject to a perfected first priority security interest in favor of Lender.

 

(g) Security Interest. Pledgor shall not grant or suffer to exist any security interest upon or with respect to any or all of the Collateral, except for the security interest granted under this Pledge Agreement. Pledgor will discharge or cause to be discharged all security interests on any or all of the Collateral, except for the security interest under this Pledge Agreement.

 

(h) Organizational Documents. Pledgor shall not amend, and shall not permit Pledgor to amend, any of their respective Organizational Documents. Pledgor will and will cause Pledgor to observe and enforce all the terms and provisions of their respective Organizational Documents.

 

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(i) Books and Records. Pledgor will, and will cause Pledgor to, keep true, complete and accurate books of record with regard to the Collateral.

 

Section 11. Rights and Remedies. If Pledgor fails to perform any agreement contained in this Pledge Agreement, Lender may itself perform or cause performance of such agreement. If any Event of Default shall have occurred and be continuing, the Lender may exercise, with notice pursuant to Section 18 (for the avoidance of doubt, email shall suffice), or demand upon Pledgor, in addition to the other rights and remedies provided for herein or in any other Loan Document or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral) and Pledgor agrees that each of the following rights, remedies and powers is commercially reasonable and that Lender may exercise or enforce the following:

 

(a) General Remedies. Lender may exercise in respect of any or all of the Collateral all the rights and remedies provided for in this Pledge Agreement, by Law, in equity or otherwise available to it.

 

(b) Remedies Before Sale. Pursuant and subject to Section 7 and Section 8 hereof, Lender may require Pledgor to make all payments and distributions on the Collateral directly to Lender.

 

(c) Sale of Collateral. Lender may, with written notice and right to cure as per Section 18 (for the avoidance of doubt, email shall suffice), and except as specified below, sell any and all of the Collateral at public or private sale, at any exchange, broker's board or at any of Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Lender may deem commercially reasonable. Pledgor agrees that, to the extent notice of sale shall be required by Law, at least ten (10) business days notice to Pledgor of the time and place of any public or private sale shall constitute reasonable notification. Lender shall not be obligated to make any sale of any or all of the Collateral after any notice of sale has been given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

(d) Proceeds. If any of the Collateral is sold by Lender upon credit or for future delivery, Lender shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Lender may resell the Collateral. In no event shall Pledgor be credited with any part of the proceeds of sale of any Collateral until and to the extent cash payment in respect thereof is actually received by Lender. To the extent any of the Pledgor Obligations are contingent cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Collateral, such proceeds may, in the discretion of Lender, be held by Lender as collateral for such contingent Pledgor Obligations. Any cash held by Lender as Collateral and all cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of Lender, be applied: (i) first, to pay all costs and expenses incurred by Lender in connection with or incident to the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any and all of the Collateral; (ii) second, to pay all matured and unpaid Pledgor Obligations; (iii) third, if and to the extent any of the Pledgor Obligations are unmatured or contingent, to provide cash collateral for all such Pledgor Obligations; and (iv) fourth, in accordance with applicable Law, to Pledgor or such other party that is entitled to such proceeds in accordance with applicable Law. If the proceeds of the sale of Collateral are insufficient to pay all of such Pledgor Obligations, Pledgor agrees to pay upon demand any deficiency to Lender.

 

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(e) Transfer of Interests. Upon the sale of the Collateral, Pledgor agrees to take all actions required to transfer its membership interests in Pledgor from Pledgor to the Person that purchased such membership interest.

 

(f) No Waiver and Cumulative Remedies. No failure on the part of the Lender to exercise, no course of dealing with respect to, and no delay on the part of the Lender in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, privilege or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy; nor shall the Lender be required to look first to, enforce or exhaust any other security, collateral or guaranties. Neither the Lender not any other secured party shall by any act delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.

 

Section 11. Appointment as Attorney-in-Fact. Pledgor hereby irrevocably appoints Lender attorney-in-fact and proxy, with full authority in the place and stead of Pledgor and in the name of Pledgor, Lender or otherwise, to (a) take any and all action and exercise all rights and remedies granted to Lender under this Pledge Agreement, and (b) execute any instrument which Lender may deem necessary or advisable to accomplish the purpose of this Pledge Agreement. Pledgor hereby ratifies and approves all acts of Lender as its attorney in-fact pursuant to this Section, and Lender, as its attorney in-fact, will not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or Law, other than those which result from Lender’s gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Pledge Agreement remains in effect.

 

Section 12. Duties and Reasonable Care. The powers conferred on Lender under this Pledge Agreement are solely to protect its interests in the Collateral and shall not impose any duty upon Lender to exercise any such powers. Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Lender accords its own property, it being understood that Lender shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Lender has or is deemed to have knowledge of such matters, (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral, or (c) the performance of any duties or obligations under the Collateral. Pledgor will remain liable under the Organizational Documents of Pledgor to perform all of Pledgor’s duties and obligations thereunder.

 

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Section 13. Indemnity and Expenses. Pledgor agrees to indemnify Lender and each of its directors, officers, employees, agents and affiliates from and against any and all Losses growing out of or resulting from this Pledge Agreement or the transactions contemplated by this Pledge Agreement, including enforcement of this Pledge Agreement. Pledgor will upon demand pay to Lender the amount of any and all reasonable expenses, including the fees and disbursements of its counsel and of any experts and agents, which Lender incurs in connection with (a) any amendment to this Pledge Agreement, (b) the administration of this Pledge Agreement, (c) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (d) the exercise or enforcement of any of the rights of Lender under this Pledge Agreement, or (e) the failure by Pledgor to perform or observe any of the provisions of this Pledge Agreement, (f) or otherwise protecting, enforcing or preserving any rights or remedies under this Pledge Agreement and the other Loan Documents to which Pledgor is a party, including the fees and other charges of counsel (including the allocated fees and expenses of internal counsel) to the Lender.

 

All amounts due under this Section 13 shall be payable not later than five (5) days after demand therefor, shall constitute Pledgor Obligations, and shall bear interest until paid at a rate per annum equal to the highest lawful rate per annum.

 

Without prejudice to the survival of any other agreement of Pledgor under this Agreement or any other Loan Documents, the agreements and obligations of Pledgor contained in this Section 13 shall survive termination of the Loan Documents and payment in full of Pledgor Obligations and all other amounts payable under this Pledge Agreement.

 

Section 14. Amendments. No amendment or waiver of any provision of this Pledge Agreement, nor consent to any departure by Pledgor from this Pledge Agreement, shall in any event be effective unless the same shall be in writing and signed by both Pledgor and Lender, and then such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given.

 

Section 15. Addresses for Notices. All notices and other communications provided for under this Pledge Agreement shall be in writing and, mailed (certified mail, return receipt requested) or delivered by messenger or overnight delivery service, addressed to the address specified below for the applicable party; or as to any such party at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section.

 

To Pledgor: Bonne Santé Group, Inc.

Darren Minton

900 Biscayne Blvd, Suite R107 Miami, FL 33132

Email:

 

To Lender: Peah Capital, LLC

2650 NW 5th AVE

Miami, FL 33127

Email:

 

Page 15 of 19

 

 

All such notices and other communications shall, shall be effective: (i) if delivered personally, at the time of delivery to the address specified in this paragraph; or (ii) when emailed, be effective one (1) day after being sent; or (iii) when sent by regular mail, be effective on the day delivered; or (iv) when delivered to a messenger or nationally recognized overnight delivery service, be effective on the day actually received.

 

Section 16. Events of Default. The occurrence of any of the following shall constitute an “Event of Default”:

 

(a) the failure of Pledgors to pay any principal, interest or other amounts required to be paid pursuant to the Note or any other Loan Document when due;

 

(b) the failure of Pledgor or any other Pledgor to perform or observe any term, covenant or agreement otherwise contained in this Pledge Agreement or any other Loan Documents on its part to be performed or observed beyond any applicable cure periods contained in such documents;

 

(c) the occurrence of an “Event of Default” as defined in and under the Note, the Loan Documents or any default under this Pledge Agreement or any of other Loan Documents beyond any applicable cure periods contained in such documents;

 

(d) any representation or warranty of Pledgor or any other Pledgor made herein or in any other Loan Document or in any certificate, report, financial statement or other instrument or agreement furnished to Lender shall be false or misleading in any material respect;

 

(e) if Pledgor attempts to place or does place a subordinate lien encumbering all or any part of the Collateral;

 

(f) if there are any changes to the terms or provisions of any of the Organizational Documents of Pledgor;

 

(g) if Pledgor issues additional equity interests or shares in Pledgor; or

 

(h) the Pledgor incurs any debt, obligation, or encumbers its equity or assets, including without limitation, through receiving financing, merchant cash advance, and/or alternative financing, of any kind, without the prior written consent of the Lender, which may be withheld at Lender’s sole and absolute discretion subject to the provisions of Article VII of the LSA.

 

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Section 17. Continuing Security Interest, Transfer of Secured Obligations.

 

This Pledge Agreement (a) shall create a continuing security interest in the Collateral and shall remain in full force and effect until payment and performance in full of the Pledgor Obligations or if terminated by a written agreement executed by Lender, (b) be binding upon Pledgor, its successors and assigns, and (c) inure to the benefit of Lender and its successors and assigns. Pledgor may not transfer or assign any of its duties or obligations under this Pledge Agreement, unless in writing and signed by both Pledgor and Lender, and then such assignment shall be effective only in the specific instance and for the specific purpose for which assigned. Upon payment and performance in full of the Pledgor Obligations, the security interests granted herein shall terminate and all rights to the Collateral shall revert to Pledgor. Upon such termination, Lender shall deliver to Pledgor, without any representations, warranties or recourse of any kind whatsoever, all Certificates, if any, held by Lender hereunder, and execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination. Lender may assign or otherwise transfer, after providing written notice to Pledgor, all or a portion of its rights or obligations with respect to the Pledgor Obligations to any other party, and such other party shall thereupon become vested with all the benefits in respect of this Pledge Agreement granted to Lender in this Pledge Agreement or otherwise.

 

Section 18. Notice of Breach and Cure Period. If Pledgor fails to comply with any of its obligations, representations, and/or covenants under this Agreement or any other provision of this Agreement, Lender shall provide written notice of breach to Pledgor (the “Breach Notice”) consistent with the requirements set forth in this section. Pledgor shall then have five (5) business days from the date of receipt of the Breach Notice to cure the breach (the “Grace Period”) or provide written proof that no breach existed, the sufficiency of which shall be in Lender’s reasonable discretion. If Pledgor fails to cure any such breach within the Grace Period or fails to provide proof that no claimed breach existed, then Lender shall have the right to proceed with its remedies as set forth in greater detail in this Agreement.

 

Section 19. Governing Law; Submission to Jurisdiction.

 

(a) THIS PLEDGE AGREEMENT WAS NEGOTIATED IN THE STATE OF FLORIDA, AND MADE BY LENDER AND ACCEPTED BY PLEDGOR IN THE STATE OF FLORIDA, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT THERETO WERE DISBURSED FROM THE STATE OF FLORIDA, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS CREATED PURSUANT TO THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED ACCORDING TO, THE LAW OF THE STATE OF FLORIDA, THE LAW OF THE STATE OF FLORIDA SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND THE LOAN. TO THE FULLEST EXTENT PERMITTED BY LAW, PLEDGOR HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA.

 

Page 17 of 19

 

 

(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR PLEDGOR ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN THE APPROPRIATE FEDERAL, STATE, OR COUNTY COURT LOCATED EXCLUSIVELY IN MIAMI-DADE COUNTY, FLORIDA AND PLEDGOR WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.

 

Section 20. Miscellaneous. This Pledge Agreement is in addition to and not in limitation of any other rights and remedies Lender may have by virtue of any other Loan Document or any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by Pledgor or any other party or by Law or otherwise. If any provision of this Pledge Agreement is contrary to applicable Law, such provision shall be deemed ineffective without invalidating the remaining provisions of this Pledge Agreement. Titles in this Pledge Agreement are for convenience of reference only and shall not affect the interpretation or construction of this Pledge Agreement. Lender shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies under this Pledge Agreement. A waiver by Lender of any right or remedy under this Pledge Agreement on any one occasion, shall not be construed as a bar or waiver of any such right or remedy which Lender would have had on any future occasion nor shall Lender be liable for exercising or failing to exercise any such right or remedy.

 

Section 21. WAIVER OF JURY TRIAL. PLEDGOR AND LENDER TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH OF PLEDGOR AND LENDER AGREES THAT THE OTHER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF THE OTHER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN PLEDGOR AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

Section 22. Resolution of Drafting Ambiguities. Pledgor acknowledges and agrees that it was represented by counsel in connection with the execution and delivery of this Pledge Agreement, that it and its counsel reviewed and participated in the preparation and negotiation of this Pledge Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Pledge Agreement.

 

[THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW]

 

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IN WITNESS WHEREOF, Pledgor has caused this Pledge Agreement to be duly executed by an officer thereunto duly authorized.

 

  PLEDGOR:
   
  BONNE SANTÉ NATURAL MANUFACTURING, INC.
  f/k/a Millennium Natural Manufacturing Corp., a Florida Corporation
     
  By: /s/ Darren Minton
  Name: Darren Minton
  Title: President
  Date: 12/18/20
     
  BONNE SANTÉ GROUP, INC., a Delaware corporation
   
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
  Date: 12/18/20
     
  TRILOGY CAPITAL GROUP LLC a Delaware limited liability company
   
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title:  Executive Chairman
  Date: 12/18/20
     
  ALFONSO J. CERVANTES
   
  By: /s/ Alfonso J. Cervantes
  Date: 12/18/20
     
  MESA LANE LLC, a New York limited liability company
   
  By: /s/ Ronald Altbach
  Name: Ronald Altbach
  Title: Manager
  Date: 12/18/20
     
  DARREN MINTON
     
  By: /s/ Darren Minton
  Date: 12/18/20

 

 

Page 19 of 19

 

Exhibit 10.30

 

CORPORATE GUARANTY

 

This GUARANTY (this “Guaranty”), dated as of December 18, 2020, is made by Bonne Santé Group, Inc., a Delaware corporation, with a business address located at 900 Biscayne Blvd, Suite R107, Miami, FL 33132 (“Guarantor”), in favor and for the benefit of PEAH CAPITAL, LLC, a Delaware limited liability company with a business address located at 2650 NW 5th AVE, FL 33129, (“Lender”).

 

Reference is made to the and that certain that certain Promissory Note from Borrower to Lender, of even date herewith, in the principal amount of SEVEN HUNDRED THOUSAND and 00/100 DOLLARS ($700,000.00) and all replacements, substitutions, modifications, renewals and extensions thereof (the “Note”). Reference is further made to the and that certain Loan Agreement from Borrower to Lender encumbering of even date herewith, and all modifications or amendments thereto or extensions thereof (the “Loan Agreement” and together with the Note the “Underlying Agreement”), by and between Guarantor and Bonne Santé Natural Manufacturing, Inc. f/k/a Millennium Natural Manufacturing Corp., a Florida corporation (collectively the “Borrower”) on the one hand, and Lender on the other hand.

 

Guarantor acknowledges that because of Guarantor’s relationship to Borrower, Guarantor will substantially benefit from the making of the loan from Lender to Borrower evidenced by the Note. Therefore, in consideration of the substantial direct and indirect benefits derived by Guarantor from the transactions under the Underlying Agreement, and in order to induce Lender to enter into the transaction contemplated by the Underlying Agreement, Guarantor hereby agrees as follows:

 

1. Guaranty. Guarantor absolutely, unconditionally and irrevocably guarantees, as primary Borrower and not merely as surety, the full and punctual payment and performance of all present and future obligations, liabilities, covenants and agreements required to be observed and performed or paid or reimbursed by Borrower under or relating to the Underlying Agreement, plus all costs, expenses and fees (including the reasonable fees and expenses of Lender’s counsel) in any way relating to the enforcement or protection of Lender’s rights hereunder (collectively, the “Obligations”).

 

2. Guaranty Absolute and Unconditional. Guarantor agrees that its Obligations under this Guaranty are irrevocable, continuing, absolute and unconditional and shall not be discharged or impaired or otherwise affected by, and Guarantor hereby irrevocably waives any defenses to enforcement it may have (now or in the future) by reason of:

 

(a) Any illegality, invalidity or unenforceability of any Obligation or the Underlying Agreement or any related agreement or instrument, or any law, regulation, decree or order of any jurisdiction or any other event affecting any term of the Obligations.

 

(b) Any change in the time, place or manner of payment or performance of, or in any other term of the Obligations, or any rescission, waiver, release, assignment, amendment or other modification of the Underlying Agreement.

 

 

 

 

(c) Any taking, exchange, substitution, release, impairment, amendment, waiver, modification or non-perfection of any collateral or any other guaranty for the Obligations, or any manner of sale, disposition or application of proceeds of any collateral or other assets to all or part of the Obligations.

 

(d) Any default, failure or delay, willful or otherwise, in the performance of the Obligations.

 

(e) Any change, restructuring or termination of the corporate structure, ownership or existence of Guarantor or Borrower or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Borrower or its assets or any resulting restructuring, release or discharge of any Obligations.

 

(f)   Any failure of Lender to disclose to Guarantor any material information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of Borrower now or hereafter known to Lender, Guarantor waiving any duty of Lender to disclose such information.

 

(g) The failure of any other guarantor or third party to execute or deliver this Guaranty or any other guaranty or agreement, or the release or reduction of liability of Guarantor or any other guarantor or surety with respect to the Obligations.

 

(h) The failure of Lender to assert any claim or demand or to exercise or enforce any right or remedy under the provisions of any Underlying Agreement or otherwise.

 

(i) The existence of any claim, set-off, counterclaim, recoupment or other rights that Guarantor or Borrower may have against Lender (other than a defense of payment or performance).

 

(j) Any other circumstance (including, without limitation, any statute of limitations), act, omission or manner of administering the Underlying Agreement or any existence of or reliance on any representation by Lender that might vary the risk of Guarantor or otherwise operate as a defense available to, or a legal or equitable discharge of, Guarantor.

 

3. Certain Waivers; Acknowledgments. Guarantor further acknowledges and agrees as follows:

 

(a) Guarantor hereby unconditionally and irrevocably waives any right to revoke this Guaranty and acknowledges that this Guaranty is continuing in nature and applies to all presently existing and future Obligations, until the complete, irrevocable and indefeasible payment and satisfaction in full of the Obligations.

 

(b) This Guaranty is a guaranty of payment and performance and not of collection. Lender shall not be obligated to enforce or exhaust its remedies against Borrower or under the Underlying Agreement before proceeding to enforce this Guaranty.

 

Page 2 of 5

 

 

(c) This Guaranty is a direct guaranty and independent of the obligations of Borrower under the Underlying Agreement. Lender may resort to Guarantor for payment and performance of the Obligations whether or not Lender shall have resorted to any collateral therefor or shall have proceeded against Borrower or any other guarantors with respect to the Obligations. Lender may, at Lender’s option, proceed against Guarantor and Borrower, jointly and severally, or against Guarantor only without having obtained a judgment against Borrower.

 

(d) Guarantor hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of non- performance, default, acceleration, protest or dishonor and any other notice with respect to any of the Obligations and this Guaranty and any requirement that Lender protect, secure, perfect or insure any lien or any property subject thereto.

 

(e) Guarantor agrees that its guaranty hereunder shall continue to be effective or be reinstated, as the case may be, if at any time all or part of any payment of any Obligation is voided, rescinded or recovered or must otherwise be returned by Lender upon the insolvency, bankruptcy or reorganization of Borrower.

 

4. Subrogation. Guarantor waives and shall not exercise any rights that it may acquire by way of subrogation, contribution, reimbursement or indemnification for payments made under this Guaranty until all Obligations shall have been indefeasibly paid and discharged in full.

 

5. Representations and Warranties. To induce Lender to enter into the Underlying Agreement, Guarantor represents and warrants that: (a) Guarantor is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its organization; (b) this Guaranty constitutes Guarantor’s valid and legally binding agreement in accordance with its terms; (c) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary action and will not violate any order, judgment or decree to which Guarantor or any of its assets may be subject; and (d) Guarantor is currently solvent and will not be rendered insolvent by providing this Guaranty.

 

6. Notices. All notices, requests, consents, demands and other communications hereunder (each, a “Notice”) shall be in writing and delivered to the parties at the addresses set forth herein or to such other address as may be designated by the receiving party in a Notice given in accordance with this section. All Notices shall be delivered by personal delivery, nationally recognized overnight courier, email, or certified or registered mail (return receipt requested, postage prepaid). Except as otherwise provided in this Guaranty, a Notice is effective only (a) with written confirmation of delivery or transmission; (b) upon receipt of the receiving party; and (c) if the party giving the Notice has complied with the requirements of this section. If Guarantor fails to comply with any of its Obligations under Section 3 or any other provision of this Agreement, Lender shall provide written notice of breach to Guarantor (the “Breach Notice”) consistent with the requirements set forth in this section. Guarantor shall then have five (5) business days from the date of receipt of the Breach Notice to cure the breach (the “Grace Period”) or provide written proof that no breach existed, the sufficiency of which shall be in Lender’s reasonable discretion. If Guarantor fails to cure any such breach within the Grace Period or fails to provide proof that no claimed breach existed, then Guarantor shall be deemed to be in default of this Guaranty.

 

Page 3 of 5

 

 

7. Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers or obligations hereunder. Lender may assign this Guaranty and its rights hereunder without the consent of Guarantor. Lender shall provide notice of any such assignment to Guarantor. Any attempted assignment by Guarantor in violation of this section shall be null and void.

 

8. Governing Law; Service of Process; Submission to Jurisdiction. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF FLORIDA, WITHOUT REFERENCE TO ANY CHOICE OF LAW DOCTRINE. EACH PARTY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 6 HEREOF AND AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR GUARANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EXCLUSIVELY INSTITUTED IN ANY FEDERAL OR STATE COURT IN MIAMI-DADE COUNTY, FLORIDA AND GUARNATOR WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.

 

9. Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OBLIGATIONS HEREUNDER.

 

10.   Cumulative Rights. Each right, remedy and power hereby granted to Lender or allowed it by applicable law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Lender at any time or from time to time.

 

11.   Severability. If any provision of this Guaranty is to any extent determined by final decision of a court of competent jurisdiction to be unenforceable, the remainder of this Guaranty shall not be affected thereby, and each provision of this Guaranty shall be valid and enforceable to the fullest extent permitted by law.

 

12.   Entire Agreement; Amendments; Headings; Effectiveness. This Guaranty constitutes the sole and entire agreement of Guarantor and Lender with respect to the subject matter hereof and supersedes all previous agreements or understandings, oral or written, with respect to such subject matter. No amendment or waiver of any provision of this Guaranty shall be valid and binding unless it is in writing and signed, in the case of an amendment, by both parties, or in the case of a waiver, by the party against which the waiver is to be effective. Section headings are for convenience of reference only and shall not define, modify, expand or limit any of the terms of this Guaranty. Delivery of this Guaranty by facsimile or in electronic (i.e., pdf or tif) format shall be effective as delivery of a manually executed original of this Guaranty.

 

[SIGNATURE PAGE FOLLOWS]

 

Page 4 of 5

 

 

IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day and year first above written.

 

  GUARANTOR:
  BONNE SANTÉ GROUP, INC.,
  a Delaware Company
   
  By : /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
  Date: 12/18/20

 

 

Page 5 of 5

 

Exhibit 10.31

 

CORPORATE GUARANTY

 

This GUARANTY (this “Guaranty”), dated as of December 18, 2020, is made by Bonne Santé Natural Manufacturing, Inc. f/k/a Millennium Natural Manufacturing Corp., a Florida corporation, with a business address located at 900 Biscayne Blvd, Suite R107, Miami, FL 33132 (“Guarantor”), in favor and for the benefit of PEAH CAPITAL, LLC, a Delaware limited liability company with a business address located at 2650 NW 5th AVE, FL 33129, (“Lender”).

 

Reference is made to the and that certain that certain Promissory Note from Borrower to Lender, of even date herewith, in the principal amount of SEVEN HUNDRED THOUSAND and 00/100 DOLLARS ($700,000.00) and all replacements, substitutions, modifications, renewals and extensions thereof (the “Note”). Reference is further made to the and that certain Loan Agreement from Borrower to Lender encumbering of even date herewith, and all modifications or amendments thereto or extensions thereof (the “Loan Agreement” and together with the Note the “Underlying Agreement”), by and between Guarantor and Bonne Santé Group Inc., a Delaware corporation (collectively the “Borrower”) on the one hand, and Lender on the other hand.

 

Guarantor acknowledges that because of Guarantor’s relationship to Borrower, Guarantor will substantially benefit from the making of the loan from Lender to Borrower evidenced by the Note. Therefore, in consideration of the substantial direct and indirect benefits derived by Guarantor from the transactions under the Underlying Agreement, and in order to induce Lender to enter into the transaction contemplated by the Underlying Agreement, Guarantor hereby agrees as follows:

 

1. Guaranty. Guarantor absolutely, unconditionally and irrevocably guarantees, as primary Borrower and not merely as surety, the full and punctual payment and performance of all present and future obligations, liabilities, covenants and agreements required to be observed and performed or paid or reimbursed by Borrower under or relating to the Underlying Agreement, plus all costs, expenses and fees (including the reasonable fees and expenses of Lender’s counsel) in any way relating to the enforcement or protection of Lender’s rights hereunder (collectively, the “Obligations”).

 

2. Guaranty Absolute and Unconditional. Guarantor agrees that its Obligations under this Guaranty are irrevocable, continuing, absolute and unconditional and shall not be discharged or impaired or otherwise affected by, and Guarantor hereby irrevocably waives any defenses to enforcement it may have (now or in the future) by reason of:

 

(a) Any illegality, invalidity or unenforceability of any Obligation or the Underlying Agreement or any related agreement or instrument, or any law, regulation, decree or order of any jurisdiction or any other event affecting any term of the Obligations.

 

(b) Any change in the time, place or manner of payment or performance of, or in any other term of the Obligations, or any rescission, waiver, release, assignment, amendment or other modification of the Underlying Agreement.

 

(c) Any taking, exchange, substitution, release, impairment, amendment, waiver, modification or non-perfection of any collateral or any other guaranty for the Obligations, or any manner of sale, disposition or application of proceeds of any collateral or other assets to all or part of the Obligations.

 

 

 

 

(d) Any default, failure or delay, willful or otherwise, in the performance of the Obligations.

 

(e) Any change, restructuring or termination of the corporate structure, ownership or existence of Guarantor or Borrower or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Borrower or its assets or any resulting restructuring, release or discharge of any Obligations.

 

(f) Any failure of Lender to disclose to Guarantor any material information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of Borrower now or hereafter known to Lender, Guarantor waiving any duty of Lender to disclose such information.

 

(g) The failure of any other guarantor or third party to execute or deliver this Guaranty or any other guaranty or agreement, or the release or reduction of liability of Guarantor or any other guarantor or surety with respect to the Obligations.

 

(h) The failure of Lender to assert any claim or demand or to exercise or enforce any right or remedy under the provisions of any Underlying Agreement or otherwise.

 

(i) The existence of any claim, set-off, counterclaim, recoupment or other rights that Guarantor or Borrower may have against Lender (other than a defense of payment or performance).

 

(j) Any other circumstance (including, without limitation, any statute of limitations), act, omission or manner of administering the Underlying Agreement or any existence of or reliance on any representation by Lender that might vary the risk of Guarantor or otherwise operate as a defense available to, or a legal or equitable discharge of, Guarantor.

 

3. Certain Waivers; Acknowledgments. Guarantor further acknowledges and agrees as follows:

 

(a) Guarantor hereby unconditionally and irrevocably waives any right to revoke this Guaranty and acknowledges that this Guaranty is continuing in nature and applies to all presently existing and future Obligations, until the complete, irrevocable and indefeasible payment and satisfaction in full of the Obligations.

 

(b) This Guaranty is a guaranty of payment and performance and not of collection. Lender shall not be obligated to enforce or exhaust its remedies against Borrower or under the Underlying Agreement before proceeding to enforce this Guaranty.

 

(c) This Guaranty is a direct guaranty and independent of the obligations of Borrower under the Underlying Agreement. Lender may resort to Guarantor for payment and performance of the Obligations whether or not Lender shall have resorted to any collateral therefor or shall have proceeded against Borrower or any other guarantors with respect to the Obligations. Lender may, at Lender’s option, proceed against Guarantor and Borrower, jointly and severally, or against Guarantor only without having obtained a judgment against Borrower.

 

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(d) Guarantor hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of non- performance, default, acceleration, protest or dishonor and any other notice with respect to any of the Obligations and this Guaranty and any requirement that Lender protect, secure, perfect or insure any lien or any property subject thereto.

 

(e) Guarantor agrees that its guaranty hereunder shall continue to be effective or be reinstated, as the case may be, if at any time all or part of any payment of any Obligation is voided, rescinded or recovered or must otherwise be returned by Lender upon the insolvency, bankruptcy or reorganization of Borrower.

 

4. Subrogation. Guarantor waives and shall not exercise any rights that it may acquire by way of subrogation, contribution, reimbursement or indemnification for payments made under this Guaranty until all Obligations shall have been indefeasibly paid and discharged in full.

 

5. Representations and Warranties. To induce Lender to enter into the Underlying Agreement, Guarantor represents and warrants that: (a) Guarantor is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its organization; (b) this Guaranty constitutes Guarantor’s valid and legally binding agreement in accordance with its terms; (c) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary action and will not violate any order, judgment or decree to which Guarantor or any of its assets may be subject; and (d) Guarantor is currently solvent and will not be rendered insolvent by providing this Guaranty.

 

6. Notices. All notices, requests, consents, demands and other communications hereunder (each, a “Notice”) shall be in writing and delivered to the parties at the addresses set forth herein or to such other address as may be designated by the receiving party in a Notice given in accordance with this section. All Notices shall be delivered by personal delivery, nationally recognized overnight courier, email, or certified or registered mail (return receipt requested, postage prepaid). Except as otherwise provided in this Guaranty, a Notice is effective only (a) with written confirmation of delivery or transmission; (b) upon receipt of the receiving party; and (c) if the party giving the Notice has complied with the requirements of this section. If Guarantor fails to comply with any of its Obligations under Section 3 or any other provision of this Agreement, Lender shall provide written notice of breach to Guarantor (the “Breach Notice”) consistent with the requirements set forth in this section. Guarantor shall then have five (5) business days from the date of receipt of the Breach Notice to cure the breach (the “Grace Period”) or provide written proof that no breach existed, the sufficiency of which shall be in Lender’s reasonable discretion. If Guarantor fails to cure any such breach within the Grace Period or fails to provide proof that no claimed breach existed, then Guarantor shall be deemed to be in default of this Guaranty.

 

7. Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers or obligations hereunder. Lender may assign this Guaranty and its rights hereunder without the consent of Guarantor. Lender shall provide notice of any such assignment to Guarantor. Any attempted assignment by Guarantor in violation of this section shall be null and void.

 

Page 3 of 5

 

 

8. Governing Law; Service of Process; Submission to Jurisdiction. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF FLORIDA, WITHOUT REFERENCE TO ANY CHOICE OF LAW DOCTRINE. EACH PARTY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 6 HEREOF AND AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR GUARANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EXCLUSIVELY INSTITUTED IN ANY FEDERAL OR STATE COURT IN MIAMI-DADE COUNTY, FLORIDA AND GUARANTOR WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.

 

9. Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OBLIGATIONS HEREUNDER.

 

10. Cumulative Rights. Each right, remedy and power hereby granted to Lender or allowed it by applicable law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Lender at any time or from time to time.

 

11. Severability. If any provision of this Guaranty is to any extent determined by final decision of a court of competent jurisdiction to be unenforceable, the remainder of this Guaranty shall not be affected thereby, and each provision of this Guaranty shall be valid and enforceable to the fullest extent permitted by law.

 

12. Entire Agreement; Amendments; Headings; Effectiveness. This Guaranty constitutes the sole and entire agreement of Guarantor and Lender with respect to the subject matter hereof and supersedes all previous agreements or understandings, oral or written, with respect to such subject matter. No amendment or waiver of any provision of this Guaranty shall be valid and binding unless it is in writing and signed, in the case of an amendment, by both parties, or in the case of a waiver, by the party against which the waiver is to be effective. Section headings are for convenience of reference only and shall not define, modify, expand or limit any of the terms of this Guaranty. Delivery of this Guaranty by facsimile or in electronic (i.e., pdf or tif) format shall be effective as delivery of a manually executed original of this Guaranty.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day and year first above written.

 

  GUARANTOR:
     
  BONNE SANTÉ NATURAL
  MANUFACTURING, INC., f/k/a Millennium
Natural Manufacturing Corp.,
  a Florida corporation.,
     
  By /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Executive Chairman
  Date: 12/18/20

 

 

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Exhibit 10.32

 

BONNE SANTE GROUP, INC

 

FUTURE EQUITY AGREEMENT

 

THIS FUTURE EQUITY AGREEMENT is made as of December 18, 2020 between Bonne Santé Group, Inc, a Delaware corporation (the “Company”), and Peah Capital, LLC (the “Lender”).

 

WHEREAS the Company and the Lender have entered into that certain lending facility dated December 18, 2020 (the “Credit Facility”); and

 

WHEREAS, as additional consideration for the extension of credit pursuant the Credit Facility, the Company desires to grant the Lender the right to receive shares of Company Common Stock in connection with the Company’s public offering, all on the terms set forth herein.

 

THEREFORE, the parties agree as follows:

 

1. Issuance of Stock. In connection with the extension of credit to the Company under the Credit Facility, the Company hereby agrees to issue, and the Lender hereby agrees to accept that number of shares of Common Stock as set forth below:

 

Number of shares of Common Stock to be issued to Lender equal to seventy five percent (75%) of all funds advanced to the Borrower pursuant to the Credit Facility divided by the final public offering price of the Company’s initial public offering pursuant to a form S1 registration statement (“Registration Statement”). By way of example for purposes of this Future Equity Agreement only, if the Borrower borrows one million dollars ($1,000,000) under the Credit Facility and the final price to public under the Registration Statement is $10.00 then the Lender would be eligible to receive 75,000 shares of Common Stock.

 

2. Payment of Purchase Price. All shares of Common Stock to be issued pursuant to this Agreement are deemed fully paid for as additional consideration for the extension of credit under the Credit Facility. All shares will be issued to Lender, or its assigns, either immediately prior to the filing of the registration statement and piggybacked onto the Registration Statement or will otherwise be available to issue from the Registration Statement, once effective.

 

3. Limitations. The Lender has also granted the Borrower a returnable warrant, which operates in lieu of the equity rights under this Agreement. In order for the Registration Statement to meet the requirements for the warrant to be returned, the Registration Statement must meet the following criteria: (i) the Registration Statement amount must be equal to or greater than $10,000,000 (ten million dollars), (ii) the offering must be led by an investment banker with a recorded history of consummating public offerings in amounts of $10,000,000 or greater and (iii) the Registration Statement must be declared effective within 17 months of the date of this Agreement

 

4. Investment Representations; Restrictions on Transfer. Upon the issuance of the Common Stock to the Lender, the Borrower will sign customary representations and warranties regarding, among other things, its non-affiliate status and its status as an accredited investor along with customary representations required in connection with the issuance of stock.

 

5. General Provisions.

 

(a) This Agreement shall be governed by the laws of the State of New York. This Agreement represents the entire agreement between the parties with respect to the future issuance of the Common Stock by the Lender and may only be modified or amended in writing signed by both parties.

 

 

 

 

(b) Any notice, demand or request required or permitted to be given by either the Company or the Lender pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid or via electronic mail, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing.

 

(c) The rights and benefits of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of the Lender under this Agreement may only be assigned with the prior written consent of the Company.

 

(d) Either party’s failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.

 

(e) Each party agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.

 

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first set forth above.

 

BONNE SANTA GROUP, INC   LENDER
a Delaware corporation   PEAH CAPITAL, LLC
         
By:  /s/ Alfonso Cervantes   By: /s/ Dan Arev
         
Title:  Alfonso Cervantes, Chairman   Title:  Dan Arev, Manager

 

 

 

 

Exhibit 10.33

 

LEASE-BUSINESS

 

THIS LEASE is made between O & B Properties, Inc., hereafter called “Lessor,” whose address for purposes of notice under this lease is 14250 SW 72nd Ave. Miami, Florida 33158, and Millenium Natural Health Products, Inc. hereafter called “Lessee,” whose address for purposes of notice under this lease is 10545 NW 37th Terr. Miami, Florida 33178.

 

The parties agree as follows:

 

1. AGREEMENT TO LEASE: DESCRIPTION OF THE PROPERTY. The Lessor leases to the Lessee, and the Lessee rents from the Lessor, the following described commercial space:

 

Warehouse building located at: 10545 N.W. 37th Terrace, Miami, Florida 33178

 

2. TERMS OF LEASE. The term of the lease is as follows:

 

The term of this lease shall be a period of thirty six months, commencing on July 1st, 2012, and ending at 12:00 midnight on June 30th, 2015. Lessee will have the Option to continue the Lease. Each Option shall be for a period of Three (3) years. (36 Months) if Lessee exercises the Option they must notify the Lessor 60 days before the end of the Lease. If the tenant chooses not to exercise the option, they must notify the Lessor 60 days prior to the expiration of the current lease.

 

3. RENTAL.

 

a. For the first year of this lease Lessee shall pay to Lessor as rent at the address set forth above, or at any other address that Lessor may designate, the minimum annual rent of $67,491.84 in lawful money of the United States of America, payable in twelve equal monthly installments of $5,624.32 plus applicable sales tax.

 

b. The minimum annual rent shall increase thereafter, on each anniversary date of this lease, in an amount equal to four percent (4%) over previous year’s rent, including renewal period if any.

 

c. All payments due from Lessee to Lessor under the terms of this lease, including but not limited to monthly rental payments, shall be paid promptly when due to Lessor at the place Lessor designates in writing. If Lessor does not receive any payment by 12:00 midnight on the 7th day following the day on which the payment is due, a late fee equal to 5% of the delinquent payment shall be due from Lessee to Lessor as additional rent.

 

4. TAXES. Landlord shall be responsible for all municipal, county, or state taxes assessed during the term of this lease on the leased real property and building insurance. However, the Tenant shall be responsible for all increases in said taxes and building insurance for the entire Lease term using the real estate taxes and building insurance’s paid by Landlord in 2011 as the base year.

 

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5. SECURITY DEPOSIT AND ADVANCE RENT. Concurrent with the execution of this lease, Lessee has deposited with Lessor the amount of $11,642.34, as payment for the first month and partial payment for last month rent. The receipt of which is acknowledged by Lessor for Lessee’s payment of the agreed rent. For the security deposit, Lessee shall pay Lessor a total of $5,624.32, also due upon execution of the lease agreement. lf, at any time Lessee defaults in any provision of this lease, Lessor will have the right to use the security deposit or as much of it as may be necessary to pay any rent in default, any expense incurred by Lessor in curing any default by Lessee, or any damages incurred by Lessor by reason of Lessee’s default. if the security deposit is not used for any such purpose, it shall be refunded to Lessee on the expiration of this lease. This sum shall be retained by Lessor as security for Leesee’s payment of the agreed rent. Lessee will not be entitled to interest on the security deposit. The Lessee acknowledges and understands that the Lessor will hold advance rent of $5,624.32 and shall be consider as payment in escrow for the last month rent.

 

6. SUBORDINATION. This lease and all rights of Lessee under it are and shall be subject to and subordinate to the rights of any mortgage holder now or hereafter having a security interest in the leased premises or any other encumbrances Lessor desires to place on the property.

 

7. LESSEE’S COVENANTS. Lessee further covenants and agrees as follows:

 

a. To pay the rent and every installment of it when it comes due; to use the premises in a careful and proper manner for the express purpose of operating assembly, manufacturingand distribution of health products and dietary supplements; to commit or permit no waste or damages to the premises; to conduct or permit no business or act that is a nuisance or may be in violation of any federal, state, or local law or ordinance; to surrender the premises on expiration or termination of this lease in clean condition and good repair, normal wear and tear excepted, provided, however, that all alterations, additions, and improvements permanently attached and made by Lessee, its successors, sublessees, and assigns (excepting movable furniture, equipment, supplies, inventory, or equipment installed by Lessee) shall become and remain the property of Lessor on the termination of Lessee’s occupancy of the premises.

 

b. To pay all costs of electricity, and all other utilities used on the building located at: 10545 NW 37th Terr. Lessee shall be responsible for providing for and paying the cost of all janitorial services, trash services and proportionate share of lawn and landscape services for the premises. In addition, Lessee shall be responsible for and pay the cost of all repairs and maintenance of the building interior, including, but not limited to: the replacement of any broken glass in windows and doors, HVAC, electrical, mechanical, security and plumbing systems. Lessee shall pay the amounts due for all such services provided to it by third parties within ten (10) days of becoming due.

 

c. To maintain at all times during the lease term, at Lessee’s cost, a comprehensive public liability insurance policy protecting Lessor against all claims or demands that may arise or be claimed on account of Lessee’s use of the premises, in an amount of at least $1,000,000.00 for injuries to persons in one accident, $1,000,000.00 for injuries to any one person, and $1,000,000.00 for damages to property. The insurance shall be written by a company or companies acceptable to Lessor, authorized to engage in the business of general liability insurance in the state of Florida. Lessee shall deliver to Lessor annual certificates demonstrating that insurance is paid up and copies of the insurance policies issued by the insurance companies. Lessee further agrees to maintain at all times during the lease term, at Lessee’s cost, broad-coverage fire and casualty insurance on its property (including inventory) and to provide Lessor with a copy of the policy and a certificate issued by the insurance company demonstrating that insurance is paid up. At its option, Lessor may request Lessee to obtain a certified statement by each insurance carrier containing a clause providing that the insurance carrier will give Lessor 30 days’ written notice before any cancellation shall be effective. The insurance policies shall be provided by Lessee and shall be for a period of at least one year. If Lessee fails to furnish policies or certificates showing policies to be paid in full as provided in this lease, Lessor may obtain the insurance, and the premiums on that insurance will be deemed additional rental to be paid by Lessee to Lessor on demand.

 

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d. To prohibit and refrain from engaging or in allowing any use of leased premises that will increase Lessor’s premiums for insurance on the building without the express written consent of Lessor.

 

e. To indemnify and hold harmless Lessor and the leased premises from all costs, losses, damages, liabilities, expenses, penalties, judgments, attorney’s fees and fines whatsoever that may arise from or be claimed against Lessor or the leased premises by any person or persons for any injury to person or property or damage of whatever kind or character arising from: the use or occupancy of the leased premises by Lessee; from any neglect or fault of Lessee or the agents and the employees of Lessee in using and occupying the premises; or from any failure by Lessee to comply and conform with all laws, statutes, ordinances, and regulations of any governmental body or subdivision now or hereafter in force. If any lawsuit or proceeding shall be brought against Lessor or the leased premises on account of any alleged violations or failure to comply and conform or on account of any damage, omission, neglect, or use of the premises by Lessee, the agents and employees of the Lessee, or any other person on the premises, Lessee agrees that Lessee or any other person on the premises will defend it, and pay whatever judgments may be recovered against Lessor or against the premises on account of it, and pay for all attorney’s fees in connection with it, including attorney’s fees on appeal.

 

f. In case of damage to glass in the leased premises, to replace it with glass of the same kind, size, and quality as quickly as possible at Lessee’s expense.

 

g. At Lessee’s expense, to perform all maintenance and repair required to keep the heating and air-conditioning equipment serving the leased premises in good operating condition during the term of this lease and any renewal term.

 

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h. To make no alterations in or additions or improvements to; install any equipment in; or maintain signs advertising its business on the premises without, in each case, obtaining the written consent of Lessor. If any alterations, additions, or improvements in or to the premises are made necessary by reason of the special use and occupancy of the premises by Lessee, Lessee agrees that it will make all such alterations, additions, and improvements in or to the premises at its own expense and in compliance with all building codes, ordinances, and governmental regulations pertaining to such work, use, or occupancy. Lessee agrees that it will hold Lessor harmless against all expenses, liens, claims, and damages to either property or person that may or might arise because any repairs, alterations, additions, or improvements are made.

 

i. To permit Lessor to enter, inspect, and make such repairs to the leased property as Lessor may reasonably desire, at all reasonable times, and to permit Lessor to put on the leased premises a notice that Lessee may not remove stating that the premises are for rent one month preceding the expiration of this lease.

 

j. Any repairs needed on the premises, interior or exterior, under $150.00 will be at Lessee’s expense.

 

k. Lessee shall incur the expenses of any initial modifications to the premises required by Lessee. A written notice must be submitted and approved by Lessor prior to commencement of work.

 

8. LESSOR’S COVENANTS. Lessor covenants and agrees as follows:

 

a. To warrant and defend Lessee in the enjoyment and peaceful possession of the premises during the aforesaid term.

 

b. If the premises are destroyed or so damaged by fire, casualty, or other disaster that they become untenantable, Lessor will have the right to render the premises tenantable by repairs within 90 days from the date of damage with reasonable additional time, if necessary, for Lessor to adjust the loss with insurance companies insuring the premises, or for any other delay occasioned by conditions beyond the control of Lessor. If the premises are not rendered tenantable within that time, either party will have the right to terminate this lease by written notice to the other. In the event of such termination, the rent shall be paid only to the date of the damage. If the lease is not terminated, rent nevertheless shall be abated during the period of time from the date of damage to the date of physical occupancy by Lessee or date of complete restoration, whichever occurs first.

 

9. DEFAULT IN PAYMENT OF RENT. If any rent required by this lease is not paid when due, Lessor will have the option to:

 

a. To Terminate this lease, resume possession of the property, and recover immediately from Lessee the difference between the rent specified in the lease and the fair rental value of the property for the remainder of the term, reduced to present worth; or

 

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b. Resume possession and release or rent the property for the remainder of the term for the account of Lessee and recover from Lessee at the end of the term or at the time each payment of rent comes due under this lease, whichever Lessor may choose, the difference between the rent specified in the lease and the rent received on the releasing or renting.

 

10. DEFAULTS OTHER THAN RENT. If either Lessor or Lessee fails to perform or breaches any agreement on this lease other than the agreement of Lessee to pay rent, and this failure or breach continues for ten days after a written notice specifying the required performance has been given to the party failing to perform, (a) the party giving notice may institute action in a court of competent jurisdiction to terminate this lease or to complete performance of the agreement, and the losing party in that litigation shall pay the prevailing party all expenses of the litigation, including reasonable attorneys’ fees; or (b) Lessor or Lessee may, after 30 days’ written notice to the other, comply therewith or correct any such breach, and the costs of that compliance shall be payable on demand.

 

11. INSOLVENCY, BANKRUPTCY, ETC., OF LESSEE. If Lessee is declared insolvent or adjudicated a bankrupt; if Lessee makes an assignment for the benefit of creditors; if Lessee’s leasehold interest is sold under execution or by a trustee in bankruptcy; or if a receiver is appointed for Lessee, Lessor, without prejudice to its rights hereunder and at its option, may terminate this lease and retake possession of the premises immediately and without notice to Lessee or any assignee, transferee, trustee, or any other person or persons, using force if necessary.

 

12. LESSOR TO HAVE LIEN. Lessor Will have a lien against all goods, equipment, furniture, and other personal property of Lessee brought, stored, or kept on the leased premises during the lease term, in the aggregate amount of all rent, damages, and other sums that may at any time be owed by Lessee to Lessor under the lease. In the event of any default by Lessee, Lessor may foreclose the lien in the same manner that a mortgage would be foreclosed and, in that event, Lessee shall be obligated for all court costs and reasonable attorneys’ fees.

 

13. ELECTION BY LESSOR NOT EXCLUSIVE. The exercise by Lessor of any right or remedy to collect rent or enforce its rights under this lease will not be a waiver or preclude the exercise of any other right or remedy afforded Lessor by this lease agreement or by statute or law. The failure of Lessor in one or more instances to insist on strict performance or observations of one or more of the covenants or conditions of this lease or to exercise any remedy, privilege, or option conferred by this lease on or reserved to Lessor shall not operate or be construed as a relinquishment or future waiver of the covenant or condition or the right to enforce it or to exercise that remedy, privilege, or option; that right shall continue in full force and effect. The receipt by Lessor of rent or any other payment or part of payment required to be made by the Lessee shall not act to waive any other additional rent or payment then due. Even with the knowledge of the breach of any covenant or condition of this lease, receipt will not operate as or be deemed to be a waiver of this breach, and no waiver by Lessor of any of the provisions of this lease, or any of Lessor’s rights, remedies, privileges, or options under this lease, will be deemed to have been made unless made by Lessor in writing.

 

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No surrender of the premises for the remainder of the term of this lease will be valid unless accepted by Lessor in writing. Lessee will not assign or sublet this lease without Lessor’s prior written consent. No assignment or sublease will relieve the assignor or sublessor of any obligation under this lease. Each assignee or sublessee, by assuming such status, will become obligated to perform every agreement of this lease to be performed by Lessee, except that a sublessee shall be obligated to perform such agreements only insofar as they relate to the subleased part of the property and the rent required by the sublease. Sublessee will be obligated to pay rent directly to Lessor only after Sublessor’s default in payment and written demand from Lessor to Sublessee to pay rent directly to Lessor.

 

14. ADDRESSES FOR PAYMENTS AND NOTICES. Rent payments and notices to Lessor shall be mailed or delivered to the address set forth on the first page of this lease, unless Lessor advises Lessee differently in writing.

 

Notices to Lessee may be mailed or delivered to the leased premises and proof of mailing or posting of those notices to the leased premises will be deemed the equivalent of personal service on Lessee. All notices to either party shall be sent by certified or registered mail, return receipt requested.

 

15. CAPTIONS. The captions and paragraphs or letters appearing in this lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of the sections or articles of this lease or affect this lease in any way.

 

16. FLORIDA LAW. This lease will be governed by the laws of the state of Florida, as to both interpretations and performance.

 

17. ENTIRE AGREEMENT. This lease sets forth all the promises, agreements, conditions, and understandings between Lessor and Lessee relative to the leased premises. There are no other promises, agreements, conditions, or understandings, either oral or written, between them. No subsequent alteration, amendment, change, or addition to this lease will be binding on Lessor or Lessee unless in writing and signed by them and made a part of this lease by direct reference.

 

18. TERMS INCLUSIVE. As used herein, the terms “Lessor” and “Lessee” include the plural whenever the context requires or admits.

 

19. REPRESENTATIVES BOUND HEREBY. The terms of this lease will be binding on the respective successors, representatives, and assigns of the parties.

 

20. BROKERS. Lessor and Lessee agree that the no real estate brokers are involved in this transaction. There will be no payment to any real estate broker.

 

21. RADON GAS. Radon Gas is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities may present health risks to persons who are exposed to it over time. Levels of Radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding Radon and Radon testing may be obtained from your county public health unit.

 

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22. WAIVER OF TRIAL BY JURY. LESSOR HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY LESSOR AGAINST LESSEE ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LEASE. Lessor further agrees that it shall not interpose any counterclaim or counterclaims (except compulsory counterclaims) in any summary proceeding or in any action based upon nonpayment of rent or any other payment required from Lessee.

 

23. SUBLEASING/ASSIGNMENT. The Lessee shall not sublease or assign the premises without the expressed written consent of the Landlord, which consent will not be unreasonably withheld.

 

24. ATTORNEYS’ FEE AND COSTS. Lessee agrees that if Lessor shall employ an attorney to present, enforce, or defend any or all of Lessor’s rights or remedies under the Lease, Lessee shall pay any reasonable attorneys’ fees and costs incurred by Lessor in such connection, whether such fees are incurred before or at trial or on appeal, provided that Lessor shall be successful in its enforcement or defense of the Lease, and further provided that Lessee shall have the reciprocal right to attorney’s fees and costs if it shall prevail in any litigation between Lessor and Lessee.

 

25 RIGHT OF FIRST REFUSAL TO RENT. Lessee shall have the right of first refusal to rent the neighboring warehouse space, 10505 NW 37 Terrace, Miami, Florida 33178, once the current lease agreement, made between Agrizzi Enterprises, Inc. and O & B Properties, Inc. is terminated.

 

26. RIGHT OF FIRST REFUSAL TO PURCHASE. If the current Lessor’s decide to sell in the future, Millenium Natural Health Products, Inc., will have the right of first refusal to purchase the leased premises, commonly known as 10545 NW 37 Terrace, Miami, Florida 33178.

 

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IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Lease Agreement on 3rd day of February 2012.

 

Signed, sealed, and delivered in our presence as

 

 

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EXTENSION OF LEASE TERM BY SUPPLEMENTAL AGREEMENT

 

10505 NW 37TH TERRACE

 

DORAL, FL 33178

 

THIS LEASE of premises described in the Business Lease, most recent extension having been executed by the parties on January 29th, 2015, which will terminate June 30th, 2017.

 

This lease is hereby extended for an additional period of Five (5) Years, commencing on July 1st, 2017 and terminating June 30th, 2022. The rental during this extension period of this lease shall procure a rental rate of $6,777.05 Dollars per month, exclusive of sales tax. This rental rate shall incur an annual increment of Three (3%) percent. All maintenance (i.e. janitorial, trash, landscape) shall be payable in the manner set forth in the original business lease.

 

This extension is granted on the conditions that (1) lessee has paid all rents, taxes, and other charges required by the provisions of the lease for all periods of the lease up to and including June 2017. (2) lessee shall pay all rental, taxes and other charges required by the lease during the entire period of the extension of the lease as the charges become due, and (3) All parties shall comply with all other terms and conditions of the lease, which are to remain in full force and effect, and not be modified, altered or amended in any manner hereby.

 

This supplemental agreement in conjunction with the original Business Lease, sets forth the entire agreement between the parties.

 

The Business Lease as extended and supplemented shall not be altered or modified hereafter except by a written memorandum signed by the parties.

 

IN WITNESS WHEREOF, the parties have executed this supplemental agreement to the Business Lease on June 6, 2017.

 

    LANDLORD:
    O & B Properties, Inc.
       
    By:  /s/ Beatriz Martinez
      Beatriz Martinez, President
       
Witness      
       
    Millenium Natural Health Products, Inc.:
       
    By: /s/ Ada L. de Quesada
      Ada L. de Quesada, President
       
Witness      

 

 

 

 

AMENDMENT TO LEASE AGREEMENT

 

LESSOR: O & B Properties, Inc. (a Florida Corporation)

 

LESSEE: Millenium Natural Health Products, Inc. (a Florida Corporation)

 

PREMISES: 10545 NW 37th Terrace, Miami, FL 33178

 

DATED: March 8, 2018

 

THIS AGREEMENT (the “Amendment”) amends and supplements a certain rental agreement signed and dated February 3, 2012 (the “Lease”) and a certain written “Extension of Lease Term by Supplemental Agreement (“2017 Extension”) signed and dated June 6, 2017, between Lessor and Lessee regarding the above referenced Premises. In exchange for good and adequate consideration, the receipt of which is hereby acknowledged, the terms and conditions of the Lease, 2017 Extension and any other agreements to which this Amendment is annexed are hereby modified by agreement of the parties and said modified terms and conditions shall prevail over any terms and conditions in the Lease, the 2017 Extension and any other agreement regarding the Premises which are to the contrary. The Lease, the 2017 Extension, any other agreement regarding the Premises and the Amendment may be sometimes collectively referred to as “Lease Agreement”.

 

1. OWNER: Lessor is the sole owner of the Premises.

 

2. CONSENT: Lessor acknowledges that Lessee contemplates one or more transactions that will change the ownership interests in Lessee and consents to and approves of said transactions to the extent that Lessor’s consent or approval may be necessary. Lessor consents to and approves of ay assignments of the leasehold interest that may be deemed necessary in connection with the transactions. Landlord will not unreasonably withhold consent or approval of any further assignments or subleases.

 

3. ESTOPPEL: Lessor certifies that the Lease Agreement is in full force and effect and that Lessee is not in default under the terms of the Lease Agreement. Lessor further certifies that Lessor is due the sum of $9,154.31, which includes all past due amounts, late fees, interest, rent for the month of March 2018 and any other money. Lessor is due no other money and no facts or circumstances exist that would cause either Lessee or the Lease to be in default.

 

4. LEASE TERM: The term of the Lease, including any extensions thereof, ends at 11:59 PM, Eastern Standard Time on June 30, 2022.

 

5. OPTION TO RENEW: Lessee shall have an option to renew the Lease Agreement for a term of five (5) years and five (5) months (continuously) by giving notice to Lessor of its intent to renew the Lease Agreement (60 DAYS) prior to the expiration of the then current term. Lessee’s option to renew shall be at Lessee’s sole discretion provided that no uncured default under the Lease Agreement exists on the renewal date which shall be 12:00 AM, Eastern Standard Time, on July 1, 2022 and run through 11:59 AM., Eastern Standard Time, on November 30, 2027

 

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6. SUBORDINATION: Lessor, for itself, its successors and assigns, waives and subordinates all present and future rights of lien, levy and distraint, arising out of any present or future provision of the Lease Agreement or applicable law, to any present or future lien or security interest held or sought to be held by any lender of Lessee with respect to any inventory, machinery, equipment, goods or other property of Lessee (“Encumbered Property”).

 

7. DISCLAIMER OF INTEREST: Lessor disclaims any interest in the Encumbered Property and agrees that it will not become part of the Premises regardless of the nature of the Encumbered Property or the manner in which it may become affixed to or incorporated in the Premises.

 

8. LESSEE’S TRADE FIXTURES AND EQUIPMENT: All trade fixtures, signs, equipment, furniture, or other personal property of whatever kind and nature kept or installed on the Premises by Lessee shall not become the property of Lessor or a part of the realty no matter how affixed to the Premises and may be removed by Lessee at any time and from time to time during the entire term and any extended term of the Lease Agreement and after its termination. Upon request of Lessee or its assignees or any subtenant, Lessor shall execute and deliver any consent or waiver forms submitted by Lessee or on behalf of Lessee by any vendors, lenders, lessors, chattel mortgagees, or holders or owners of any trade fixtures, signs, equipment, furniture, or other personal property of any kind and description kept or installed on the Premises setting forth that Lessor waives, in favor of Lessee or the vendor, lender, lessor, chattel mortgagee, or any holder or owner, any superior lien, claim, interest or other right therein. Lessor shall further acknowledge that property covered by the consent or waiver forms is personal property and is not to become a part of the realty no matter how affixed thereto, and that such property may be removed from the Premises by Lessee at any time or the vendor, lender, lessor, chattel mortgagee, owner, or holder at any time upon default in the terms of such chattel mortgage or other similar documents, free and clear of any claim or lien of Lessor.

 

9. LIENS OF LESSOR: If, because of any act or omission of Lessor, any lien, charge, or order for the payment of money is filed against Lessee’s Property, Lessor shall, at its expense, cause the lien or liens to be discharged of record or bonded within 90 days after Lessor receives written notice from Lessee of their filing. In that event, Lessor shall indemnify and save harmless Lessee against and from all costs, liabilities, suits, penalties, claims, and demands. If Lessor fails to cause the liens to be discharged or bonded within the required 90-day period, or if before that period expires Lessee’s quiet enjoyment of the property is affected or threatened as a result thereof, Lessee may cause the liens to be discharged. All payments by Lessee may be deducted from subsequent installments of rent payable under the Lease Agreement.

 

10. NON-DISTURBANCE: Any mortgage or other encumbrance placed upon the Premised shall provide that so long as there is not outstanding a continuing event of default by Lessee in any term, condition, covenant, or agreement of the Lease Agreement, (i) the leasehold estate of Lessee and Lessee’s peaceful and quiet possession of the Premises shall be undisturbed by any foreclosure of the mortgage or encumbrance, (ii) the net award will be made available for and necessary restoration, and (iii) the lien will be released if Lessee purchases the Premises and pays the purchase price to the mortgagee to the extent that a balance is due on the mortgage.

 

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11. SALE OF ENCUMBERED PROPERTY: The lender may use the Premises to conduct a sale of the Encumbered Property so long as rent is current.

 

12. NOTICE OF DEFAULT BY LESSEE TO LENDER: Should Lessee fail to make timely payment or otherwise fail to act under the Lease Agreement, Lessor shall give Lessee’s lenders (of which Lessor is aware) not less than seven (7) days written notice of same with a date certain that Lessor will declare Lessee in default if the payment is not received or the action is taken. Lessee’s lender shall be permitted, at its sole discretion, to cure any default during the notice period.

 

13. NOTICE OF TERMINATION BY LESSOR: Should Lessor intend to terminate the Lease Agreement or otherwise take any action which would, if successful, terminate or otherwise impair the rights of Lessee or Lessee’s lenders (of which Lessor is aware) in the Encumbered Property or the Premises, Lessor shall provide said parties with a copy of a 3 day notice simultaneously with having provided it to Lessee and allow rehabilitation of any default up through a writ of possession being served.

 

14. ASSIGNMENT TO OR BY LENDER: Notwithstanding other provisions of the Lease Agreement to the contrary, upon an uncured default by Lessee and with Lessee’s consent, at the lenders’ sole discretion and option, the lenders shall be permitted to cure all defaults and deficiencies of Lessee and assume the Lease Agreement or assign (with notice to Lessor) the Lease Agreement to another person or entity at any time up through and including the entry of judgment for eviction and any redemption period.

 

15. ASSIGNMENT, SUBLETTING:

 

a. Assignment and Sublease. Lessee may mortgage, pledge, or otherwise encumber its interest in the Lease Agreement or in any sublease of the Premises. Lessee may assign the Lease Agreement or sublet the Premises (with notice to Lessor), provided that the assignment or sublease is expressly subject to the provisions of the Lease Agreement, and that the assignment or sublease does not affect or reduce Lessee’s obligations hereunder, which shall continue in full effect as the obligations of a principal and not as a guarantor or surety, to the same extent as though no assignment or sublease had been made.

 

b. Performance. Any act required to be performed by Lessee under the Lease Agreement may be performed by its assignees or sublessees. Their performance shall be deemed to be that of Lessee and shall be acceptable as its act by Lessor. Sublessee must have general liability insurance. Landlord must be listed as additional insured

 

16. RIGHT TO CURE LESSOR DEFAULTS: If Lessor fails to pay any liens or encumbrances affecting the Premises and to which the Lease Agreement may be subordinate when any of them become due or otherwise fails to perform any of its covenants or agreements under the Lease Agreement, and the failure or default continues for 30 days after Lessee gives notice to Lessor (notwithstanding any delay or forbearance in giving notice), Lessee may pay the lien or encumbrance and cure the default. Lessee may further make all necessary payments in connection therewith, including, but not limited to, the payment of reasonable attorney’s fees, costs, and charges of or in connection with any pending legal action. Lessor shall immediately pay Lessee all amounts paid by Lessee, including interest thereon at the maximum legal rate, or, if no such rate is established, at 15 percent per annum. All sums charged to Lessor by Lessee hereunder shall be Lessor’s indebtedness to Lessee, payable on demand. If all of Lessor’s indebtedness is not fully paid within 30 days after demand, Lessee may (i) deduct such amount from rent and other obligations subsequently becoming due hereunder, (ii) terminate the Lease Agreement by giving 30 days notice to Lessor (unless Lessor cures the default), or (iii) extend the Lease Agreement on the same covenants and conditions until the indebtedness is fully paid by application to rents and other obligations that become due under the Lease Agreement.

 

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17. RIGHT OF FIRST REFUSAL: If at any time during the term of the Lease Agreement or any extended term of the Lease Agreement, Lessor receives and is willing to accept a bona fide offer from a third party to purchase the Premises or if Lessor offers to sell the Premises to a third party, Lessor shall, promptly transmit to Lessee its offer to sell the Premises to Lessee upon terms and conditions substantially similar to those offered by or to the third party, together with a true copy of such original offer. If Lessee does not accept such offer within 30 days after it is made, Lessor may, within 180 days after the 30-day period expires, sell the interest to a third party upon terms and conditions substantially similar to those offered to Lessee. If Lessee accepts such offer by notice to Lessor within the time permitted, the offer and acceptance shall constitute a contract for the sale by Lessor and the purchase by Lessee of the Premises at a closing to be held within 180 days following the receipt by Lessor of Lessee’s notice of acceptance. On the closing date of such purchase, Lessor shall convey marketable title to the Premises to Lessee against payment of the purchase price.

 

18. EVENTS OF DEFAULT, REMEDIES:

 

a. Default. Any of the following occurrences, conditions, or acts shall constitute an “Event of Default” under the Lease Agreement:

 

(a) if Lessee:

 

(i) defaults in making payment when due of any Rent or other monetary obligation to Lessor, and the default continues for 30 days after Lessor gives written notice to Lessee specifying the default and demanding that it be cured, or

 

(ii) defaults in the observance or performance of any other provision of the Lease Agreement, and the default continues for 60 days after Lessor gives written notice to Lessee specifying the default and demanding that it be cured.

 

(b) if the Premises is abandoned by Lessee for a period of 45 consecutive days;

 

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(c) if Lessee files a petition in bankruptcy or assignment of benefit to creditors, for reorganization or for an arrangement under the Bankruptcy law or any similar federal or state law, is adjudicated a bankrupt or becomes insolvent, is unable to meet Lessee’s obligations as they become due, or takes any corporate action in furtherance of any of the foregoing;

 

(d) if a petition or answer is filed proposing the adjudication of Lessee or the Guarantor, if any, as a bankrupt or the reorganization of Lessee under the Bankruptcy law or any similar federal or state law, and (i) Lessee consents to the filing thereof, or (ii) the petition or answer is not discharged or denied within 60 days after its filing;

 

(e) if a receiver, trustee, or liquidator (or other similar official) of Lessee, of all or substantially all of their respective businesses or assets, or of the estate or interest of Lessee in the Property is appointed and is not discharged within 60 days thereafter or if Lessee consents to or acquiesces in the appointment; or

 

(f) if Lessee’s estate or interest in the Premises is levied upon or attached in any proceeding and the process is not vacated or discharged within 60 days after the levy or attachment, unless the levy or attachment is being contested.

 

(g) Notwithstanding the provisions of subparagraphs (c), (d), and (e) above, if at any time during any term of the Lease Agreement, proceedings in bankruptcy, insolvency, or similar proceedings are instituted by or against Lessee, whether or not they result in an adjudication against Lessee, or if a receiver of Lessee’s business or assets is appointed, the proceedings or adjudications shall not affect the validity of the Lease Agreement so long as rent and additional rent reserved under it continues to be paid to Lessor and Lessee performs all its other terms, covenants, and conditions under the Lease Agreement. In that event, the Lease Agreement shall continue to remain in full force and in accordance with its terms.

 

b. Remedies. If there is any default, the following shall occur: (a) the rent shall immediately become due and be paid up to the time of reentry, expiration, and/or dispossess; (b) Lessor may relet the Premises or any part or parts of it, either in Lessor’s name or otherwise, for a term or terms which may, at Lessor’s option, be less than or exceed the then remaining term of the Lease Agreement; and (c) Lessee shall also pay to Lessor, as liquidated damages for Lessee’s failure to observe and perform its covenants under the Lease Agreement, any deficiency between the basic rent hereby reserved and/or agreed to be paid and the net amount, if any, of the rents collected on account of the Premises’ lease or leases for each month of the period which would otherwise have constituted the balance of the term of the Lease Agreement. However, any such deficiency shall be paid as the basic rent becomes due and payable in monthly installments. In computing the liquidated damages, there shall be added to the deficiency all reasonable expenses that Lessor may incur in connection with reletting, such as brokerage and preparation for reletting. Lessee shall pay any such liquidated damages in monthly installments on the rent payment dates specified in the Lease Agreement. Any suit brought to collect the deficiency for any month shall not prejudice in any way Lessor’s rights to collect the deficiency for any subsequent month by a similar proceeding. Lessor may make all alterations, repairs, replacements, and decorations in the Premises that it, in its sole judgment, considers advisable and necessary for the purpose of reletting the Premises. Such action by Lessor shall not operate or be construed to release Lessee from its liability under the Lease Agreement. Lessor shall use its best effort to mitigate all damages and to relet the Premises if there is any Event of Default by Lessee. Notwithstanding, Lessee’s obligation shall not exceed 180 days of rent.

 

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19. AMERICANS WITH DISABILITIES ACT: Lessor and Lessee acknowledge that the Americans with Disabilities Act of 1990 (42 U.S.C. ‘12101 et seq.) and regulations and guidelines promulgated thereunder, as all of the same may be amended and supplemented from time to time (collectively referred to herein as the “ADA”) establish requirements for business operations, accessibility and barrier removal, and that such requirements may or may not apply to the Premises on, among other things: (1) whether Lessee’s business is deemed a “public accommodation” or “commercial facility”, (2) whether such requirements are “readily achievable”, and (3) whether a given alteration affects a “primary function area” or triggers “path of travel requirements”. The parties agree that: (a) Lessor shall be responsible for ADA Title III compliance for the Premises and any common areas, except leasehold improvements or other work performed in the Premises under or in connection with the Lease Agreement by Lessee. The parties shall each be solely responsible for requirements under Title I of the ADA relating to their respective employees.

 

20. RELATIONSHIP OF PARTIES: Lessor and Lessee shall not be considered or deemed to be joint venturers or partners and neither shall have the power to bind or obligate the other except as set forth in the Lease Agreement.

 

21. PARTIES BOUND: This Addendum and the Lease Agreement shall bind and inure to the benefit of the undersigned parties, their successors and assigns.

 

22. NOTICE: All notices shall be delivered by certified, mail return receipt requested, or personal service to the respective addresses set forth below or to such other addresses of which the parties shall have given notice.

 

The above provisions are hereby agreed upon and expressly consented to by and between both Lessor and the Lessee who executed this Amendment at the place on the date first above written.

 

 

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Exhibit 10.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.35

 

COMMERCIAL LEASE

 

This Lease Agreement (this “Lease”) is dated as of September 1, 2018, by and between Scientific Real Estate Holdings LLC (“Landlord”) and Doctors Scientific Organica LLC (“Tenant”). The parties as follows:

 

PREMISES: Landlord, in consideration of the lease payments provided in this Lease, leases to Tenant Approx. 2200 sq. feet, on Riviera Beach (the “Premises”) located at 1210 W 13th St, Riviera Beach,FL 33404.

 

TERM: The lease term will begin on September 1, 2018 and end on August 31, 2023 with escalation period. Escalation will be 3% a year.

 

LEASE PAYMENTS: Tenant shall pay to Landlord monthly installments of $20,670.00, plus applicable taxes, payable in advance on the first day of each month. Lease payments shall be made to the Landlord at 1210 W 13th St, Riviera Beach,FL 33404.

 

The payment address may be changed from time to time by the Landlord.

 

POSSESSION: Tenant shall be entitled to possession on the first day of the term of this Lease, and shall yield possession to Landlord on the last day of the term of this Lease, unless otherwise agreed by both parties in writing. At the expiration of the term, Tenant shall remove its goods and effects and peaceably yield up the Premises to Landlord in as good a condition as when delivered to Tenant, ordinary wear and tear excepted.

 

USE OF PREMISES: Tenant may use the Premises only for manufacturing diet foods exclusive of weight loss services. The Premises may be used for any other purpose only with the prior written consent of Landlord, which shall not be unreasonably withheld. Tenant shall notify Landlord of any anticipated extended absence from the Premises not later than the first day of the extended absence.

 

PROPERTY INSURANCE: Landlord and Tenant shall each maintain appropriate insurance for their respective interests in the Premises and property located on the Premises. Landlord shall be named as an additional insured in such policies. Tenant shall deliver appropriate evidence to Landlord as proof that adequate insurance is in force issued by companies reasonably satisfactory to Landlord. Landlord shall receive advance written notice from the insurer prior to any termination of such insurance policies. Tenant Shall also maintain any other insurance which Landlord may reasonably require for the protection of Landlord’s interest in the Premises. Tenant is responsible for maintaining casualty insurance on its own property.

 

LIABILITY INSURANCE: Tenant shall maintain liability insurance on the Premises in a total aggregate sum of at least $1,000,000.00. Tenant shall deliver appropriate evidence to Landlord as proof that adequate insurance is in force issued by companies reasonably satisfactory to Landlord. Landlord shall receive advance written notice from the insurer prior to any termination of such insurance policies.

 

 

 

 

MAINTENACE:

 

Landlord’s obligations for maintenance shall include:

 

— the roof, outside walls, and other structural parts of the building.

 

— the parking lot, driveways, and other structural parts of the building.

 

— the sewer, water pipes, and other matters related to plumbing.

 

— the electrical wiring.

 

Tenant’s obligations for maintenance shall include:

 

— the air conditioning system.

 

— cleaning and customary up-keep of space.

 

— all other items of maintenance not specifically delegated to Landlord under this Lease.

 

UTILITIES AND SERVICES: Landlord shall be responsible for the following utilities and services in connection with the Premises:

 

SERVICES:

 

— Water and sewer.

 

— All taxes, and common area maintenance including gardening.

 

UTILITIES:

 

— Janitorial services.

 

Tenant acknowledges that Landlord has fully explained to Tenant the utility rates, charges and services for which Tenant will be required to pay to Landlord (if any), other than those to be paid directly to the third-party provider. Landlord shall have access to telephone and internet junction box at the back of Tenant space.

 

TAXES: Taxes attributable to the Premises or the use of the Premises shall be allocated as follows:

 

REAL ESTATE TAXES — Landlord shall pay all real estate taxes and assessments for the Premises.

 

TERMINATION UPON SALE OF PREMISES: Notwithstanding any other provision of this Lease, Landlord may terminate this lease upon 180 days’ written notice to Tenant that the Premises have been sold.

 

DESTRUCTION OR CONDEMNATION OF PREMISES: IF THE Premises are partially destroyed by fire or other casualty to an extent that prevents the conducting of Tenant’s use of the Premises in a normal manner, and if the damage is reasonably repairable within sixty days after the occurrence of the destruction, and if the cost of repair is less than $1,000,000.00, Landlord shall repair the Premises and a just proportion of the lease payments shall abate during the period of the repair according to the extent to which the Premises have been rendered untenantable. However, if the damage is not repairable within sixty days, or if the cost of repair is $1,000,000,00 or more, or if Landlord is prevented from repairing the damage by forces beyond Landlord’s control, or if the property is condemned, this Lease shall terminate upon twenty days’ written notice of such event or condition by either party and any unearned rent paid in advance by Tenant shall be apportioned or condition by either party and any unearned rent paid in advance by Tenant shall be apportioned and refunded to it. Tenant shall give Landlord immediate notice of any damage to the Premises.

 

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DEFAULTS: Tenant shall be in default of this Lease if Tenant fails to fulfill any lease obligation or term by which Tenant is bound. Subject to any governing provisions of law to the contrary if Tenant fails to cure any financial obligation within 5 days (or any other obligation within 10 days) after written notice of such default is provided by Landlord to Tenant, Landlord may take possession of the Premises without further notice (to the extent permitted by law), and without prejudicing Landlord’s rights to damages. In the alternative, Landlord may elect to cure any default and the cost of such action shall be added to Tenant’s financial obligations under this Lease. Tenant shall pay all costs, damages, and expenses (including reasonable attorney fees and expenses) suffered by Landlord by reason of Tenant’s defaults. All sums of money or charges required to be paid by Tenant under this Lease shall be additional rent, whether or not such sums or charges are designated as “additional rent”. The rights provided by this paragraph are cumulative in nature and are in addition to any other rights afforded by law.

 

LATE PAYMENTS: for each payment that is not paid within 3 days after its due date, Tenant shall pay a late fee of $50.00 per day, beginning with the day after the due date.

 

HOLDOVER: If Tenant maintains possession of the Premises for any period after the termination of this Lease (“Holdover Period”) Tenant shall pay to Landlord lease payment(s) during the Holdover Period at a rate equal to 200% of the normal payment rate set forth in the Renewal Terms paragraph.

 

CUMLATIVE RIGHTS: The rights of the parties under this Lease are cumulative, and shall not be construed as exclusive unless otherwise required by law.

 

NON-SUFFICIENT FUNDS: Tenant shall be charged $50.00 for each check that is returned to Landlord for lack of sufficient funds.

 

REMODELING OR STRUCTRUAL IMPROVEMENTS: Tenant shall have the obligation to conduct any construction or remodeling (at Tenant’s expense) that may be required to use the Premises as specified above, Tenant may also construct such fixtures on the Premises (at Tenant’s expense) that appropriately facilitate its use for such purposes. Such construction shall be undertaken and such fixtures may be erected only with the prior written consent of the Landlord which shall not be unreasonably withheld. Tenant shall not install awnings or advertisements on any part of the Premises without Landlord’s prior written consent. At the end of the lease term, Tenant restores the Premises to substantially the same conditions of the Premises at the commencement of this Lease.

 

ACCESS BY LANDLORD TO PREMISES: Subject to Tenant’s consent (which shall not be unreasonably withheld), Landlord shall have the right to enter the Premises to make inspections, provide necessary services, or show the unit to prospective buyers, mortgagees, tenants or workers. However, Landlord does not assume any liability for the care or supervision of the Premises. As provided by law, in the case of an emergency, Landlord may enter the premises without Tenant’s consent. Suring the last three months of this Lease, or any extension of this Lease, Landlord shall be allowed to display the usual “To Let” signs and show the Premises to prospective tenants.

 

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INDEMNITY REGARDING USE OF PREMISES: To the extent permitted by law, Tenant agrees to indemnify, hold harmless, and defend Landlord from and against any and all losses, claims, liabilities, and expenses, including reasonable attorney fees, if any, which Landlord may suffer or incur in connection with Tenant’s possession, use or misuse of the Premises, except Landlord’s act or negligence.

 

DANGEROUS MATERIALS: Tenant shall not keep or have on the Premises any article or thing of dangerous, flammable, or explosive character that might substantially increase the danger of fire on the Premises, or that might be considered hazardous by a responsible insurance company, unless the prior written consent of Landlord is obtained and proof of adequate insurance protection is provided by Tenant to Landlord.

 

COMPLIANCE WITH REGULATIONS: Tenant shall promptly comply with all laws, ordinances, requirements and regulations of the federal, state, county, municipal and other authorities, and the fire insurance underwriters. However, Tenant shall not by this provision be required to make alterations to the exterior of the building or alterations of a structural nature.

 

MECHANICS LIENS: Neither the Tenant nor anyone claiming through the Tenant shall have the right to file mechanics liens or any other kind of lien on the Premises and the filing of this Lease constitutes notice that such liens are invalid. Further, Tenant agrees to (1) give actual notice to any contractors, subcontractors or suppliers of goods, labor, or services that such liens will not be valid, and (2) take whatever additional steps that are necessary to keep the premises free of all liens resulting from construction done by nor for the Tenant.

 

DISPUTE RESOLUTION: The parties will attempt to resolve any dispute arising out of or relating to this Agreement through friendly negotiations amongst the parties. If the matter is not resolved by negotiation, the parties will resolve the dispute using the below Alternative Dispute Resolution (ADR) procedure.

 

Any controversies or disputes arising out of or relating to this Agreement will be submitted to mediation in accordance with any statutory rules of meditation. If mediation is not successful in resolving the entire dispute or is unavailable, any outstanding issues will be submitted to final and binding arbitration under the rules of the American Arbitration Association. The arbitrator’s award will be final, and judgement may be entered upon it by any court having proper jurisdiction.

 

SUBORDINATION OF LEASE: This Lease is subordinate to any mortgage that now exists, or may be given later by Landlord, with respect to the Premises.

 

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ASSIGNABILITY/SUBLETTING: Tenant may not assign or sublease any interest in the Premises, nor effect a change in the majority ownership of the Tenant) from the ownership existing at the inception of this lease), nor assign, mortgage or pledge this Lease, without the prior written consent of Landlord, which shall not be unreasonably withheld.

 

NOTICE: Notices under this Lease shall not be deemed valid unless given or served in writing and forwarded by mail, postage, prepaid, addressed as follows:

 

LANDLORD:

 

Scientific Real Estate Holdings LLC

1210 W l3th St

Riviera Beach, FL 33404

 

TENANT:

 

Doctors Scientific Organica LLC

1210 W 13th St

Riviera Beach, FL 33404

 

Such addresses may be changed from time to time by any party by providing notice as set forth above. Notices mailed in accordance with the above provisions shall be deemed received on the third day after posting.

 

GOVERNING LAW: This Lease shall be construed in accordance with the laws of the State of Florida.

 

ENTIRE AGREEMENT/AMENDMENT: This Lease Agreement contains the entire agreement of the parties and there are no other promises, conditions, understandings or other agreements, whether oral or written, relating to the subject matter of this Lease, This Lease may be modified or amended in writing, if the writing is signed by the party obligated under the amendment.

 

SEVERABILITY: If any portion of this Lease shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Lease is invalid or unenforceable, but that by limiting such provision, it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.

 

WAIVER: The failure of either party to enforce any provisions of this Lease shall not be construed as a waiver or limitation of that party’s right to subsequently enforce and compel strict compliance with every provision of this Lease.

 

BINDING EFFECT; The provisions of this Lease shall be binding upon and inure to the benefit of both parties and their respective legal representatives, successors and assigns.

 

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LANLORD:
Sicentific Real Estate Holdings LLC

 
     
By: /s/ Sasson Moulavi Date: 09/01/2018
  Sasson Moulavi, Managing Member  

 

TENANT:
Doctors Scientific Organica LLC

 
     
By: /s/ Sasson Moulavi Date: 09/01/2018
  Sasson Moulavi, CEO  

 

 

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Exhibit 10.36

 

 

MEMORANDUM OF AGREEMENT OF LEASE
(the “Lease”)

 

 

MADE AND ENTERED INTO AT THE CITY OF MONTREAL, PROVINCE OF QUEBEC, AS AT THE 30th DAY OF SEPTEMBER 2021.

 

BY AND BETWEEN:

THE LINGER CORPORATION

A corporation incorporated under the Canada Business Corporation Act, having its head office Place du Canada, 94 Sunnyside Ave, Westmount QC H3Y 1C8 Canada represented by Walter Bloom duly authorized as he so declares;

   
  Hereinafter called the “Lessor”;
AND:

 SMART FOR LIFE CANADA INC.

A corporation incorporated under the Canada Business Corporation Act having its head office at 6525 Décarie Blvd. Suite GR-3, herein represented by Ryan Zackon its, CEO and Alan Bergman its CFO, both duly authorized as they so declare;

   
  Hereinafter called the “Lessee”:

 

The Lessor and Lessee hereinafter collectively called the “Parties”.

 

WHEREAS the Lessor has agreed to lease to the Lessee and the Lessee agreed to lease from the Lessor the Premises hereinafter described upon the terms and conditions contained in this Lease.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein and the respective rights and obligations of the Lessor and the Lessee, the Parties agree as follows;

 

(1) DESCRIPTION Of: LEASED PREMISES

 

1.1 The LESSOR does hereby lease unto the LESSEE, hereto present and accepting, the following described premises, namely;

 

1.2 “Leased Premises” signifies the approximate boundaries of which are outlined in red on SCHEDULE “A”, are located on the ground floor of the buildings (“Building”) bearing civic number 6525 Décade Boulevard, in the City and District of Montreal, and are designated as suite number GR-3. The Leased Premises comprise a net area (“Net Area”) of approximately ONE THOUSAND FOUR HUNDRED AND EIGHTY-FIVE square feet (1,485 sq.ft.) measured from the outside of the common area walls and exterior walls and from the centre line of all demising walls separating the Leased Premises from adjacent premises; and comprise a gross area (“Gross Area”) of approximately ONE THOUSAND SIX HUNDRED THIRTY-THREE POINT FIVE (1,633.5) square feet, being the Net Area plus Lessee’s share of common and service areas. Common and service areas are calculated at ten percent (10%) of the Net Area.

 

1.3 “Land” signifies a certain emplacement situated in the City of Montreal, Province of Quebec, known and designated as being lot number TWO MILLION SIX HUNDRED FORTY-EIGHT THOUSAND THIRTY-SIX (2 648 036), of the Official Cadastre of Quebec, Registration division of Montreal, bearing civic address 6525-6565 Décade Boulevard, in the City and District of Montreal

 

(2) TERM

 

2.1 The term of the Lease (“Term”) shall commence on the First (1st) day of October 2021 and shall expire on the thirty-first (31st) day of September 2024.

 

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(3) RENT

 

3.1 The Lessee shall pay throughout the Term to the Lessor, as more fully set out in Lease, without deduction, diminution, abatement, and compensation or set-off:

 

(a) From the First (1st) day of October 2021 to the thirty-first (31st) of September 2024 an annual gross base rent, calculated on the basis of TWENTY-THREE DOLLARS ($23.00) per square foot equalling to a total of THIRTY SEVEN THOUSAND FIVE HUNDRED SEVENTY DOLLARS AND FIFTY CENTS ($37,570.50), plus GST and OST and payable in equal and consecutive monthly instalments of THREE THOUSAND ONE HUNDRED THIRTY DOLLARS AND EIGHTY-EIGHT CENTS ($3,130.88), plus GST and QST and payable in advance on the first day of each and every calendar month (the “Base Rent”);
     
(b) As “Additional Rent” to be paid by the Lessee within thirty (30) days of receipt of the invoice from the Lessor:

 

(i) Lessee’s “Proportionate Share” representing THREE POINT FIFTY- THREE PERCENT (3.53%) of all Real Estate Tax Increases in each Fiscal Tax Year over the Base Tax. “Base Tax” means School Taxes for the Fiscal Tax Year from July 1, 2021 to June 30, 2022 and Real Estate Taxes for Fiscal Tax Year 2021 imposed against the Building and its Land, including the portion of the Lessor’s Property Real Estate Tax account which was formerly assessed directly to the Lessee of the Leased Premises as business taxes in 2002 and a sum equal to that portion which was formerly charged to the Lessee as water taxes (charged to the Lessor), and any SURTAX ON NON-RESIDENTIAL IMMOVEABLE AND THE WATER AND SERVICES TAX ON NON-RESIDENTIAL IMMOVABLES WHICH SHALL BE PAID ACCORDING TO SECTION 7 HEREOF.
     
(ii) The Lessee’s Proportionate Share representing THREE POINT FIFTY-THREE PERCENT (3.53%) of all Operating Expense Increases (Increases of Operating Expenses compared to Operating Expenses in the Base Escalation Year), excluding the costs relating to heating and air conditioning, in each Lease Year over the Operating Expenses in the Base Escalation Year. Base Escalation Year is the calendar year expiring December 31st 2021;
     
(iii) Base Rent includes all costs and charges for heating, air conditioning, and electricity consumed in the Leased Premises:

 

3.2 The Parties understand and agree that the Lessee is a completely new entity that has no relationship with any previous tenant the Lessor may have had in the Premises. This Lease has no connection to the previous one entered with previous entity. Any financial relationship that Lessor may have with previous tenants should be handled with them at the close of the previous lease which shall end September 30th 2021 at the latest. For the purpose of this Lease, all Parties should acknowledge that the Lessee is and shall be treated as a new tenant coming into the Premises with no previous relationship.

 

(4) NO TACIT RENEWAL

 

4.1 Notwithstanding any present or future legislation to the contrary, including without limitation Article 1879 of the Civil Code of Quebec, neither this Lease nor the Term hereby granted will be subject to tacit renewal. Should the Lessee remain in possession of the Leased Premises after the expiry of the Term without the express written consent of Lessor, the Lessee shall be deemed to be occupying the Leased Premises as a Lessee from month to month, at a monthly rent payable in the advance of the first day of each month equal to one-twelfth (1/12th) of ONE HUNDRED AND TEN PERCENT (110%) of the aggregate of the Base Rent and Additional Rent payable in the last twelve-month period of the Term, the whole without prejudice to all other rights and recourses of the Lessor as a result of the Lessee’s failure to surrender the Leased Premises.

 

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(5) FREE BASE RENT

 

5.1 As the Lessee has accepted the Leased Premises in their present state and condition “AS IS” and as the Lessee will carry out all renovations and leasehold improvement in accordance with section 14 and notwithstanding the provisions of sections 2 and 3 hereinabove, there shall be no Base Rent or Additional Rent payable by Lessee for the months of October 2021, November 2021 and December 2021. However, Lessee shall be bound by all terms and conditions of this Lease during said rent-free months, the same as during rent-paying months of Term;

 

(6) INITIAL DEPOSIT

 

6.1 Lessee has deposited by cheque the total sum of THREE THOUSAND ONE HUNDRED THIRTY DOLLARS AND EIGHTY-EIGHT CENTS ($3,130.88) in payment of Base Rent, excluding GST and QST, payable under section 3 hereinabove, in the month of September 2021 (the “Initial Deposit”). The Parties hereby agree that the Initial Deposit shall be applicable towards the payments of Base Rent for month of January 2022 of the Term.

 

(7) WATER AND SERVICES TAX, SURTAX, BUSINESS AND SALES TAXES AND GST

 

7.1 In addition to the Base Rent, throughout the Term, the Lessee shall pay for its Proportionate Share of the municipal surtax (if any) and a sum equal to that portion of the Lessor’s property real estate tax account which was formerly assessed directly to the Lessee of the Leased Premises as business taxes in 2002 and a sum equal to that portion which was formerly charged to the Lessee as water taxes, it being the intention that the Lessee pay the Lessor upon demand for its Proportionate Share of such discontinued business and water taxes now included in the Lessor’s real estate taxes for the Building;

 

7.2 Should the manner of collection of any or all of the rates or taxes mentioned herein above be changed such that said rates or taxes are billed directly or indirectly to Lessor or to Building, Lessee shall save Lessor harmless from said new rates or taxes and shall reimburse Lessor for Lessee’s Proportion Share of said new rates or taxes;

 

(8) USE OF PROPERTY

 

8.1. The Premises shall be used for retail activities, consulting, office space and storage of inventory, and for no other purpose.

 

8.2 The Lessee shall not do, permit, store or install anything in the Leased Premises which would conflict with the rules of the Fire Underwriters Survey or with the rules, regulations, laws, by-laws, ordinances, or other requirements of any public or quasi-public authority having jurisdiction relative to the Leased Premises or in the activities carried on therein, nor shall the Lessee install or store in the Leased Premises any effects which would adversely affect the structural integrity or solidity of Building, or any part thereof. Furthermore, the Lessee shall not permit the introduction into the Leased Premises or the Building of any machine or mechanical device of any nature whatsoever which may be liable to cause objectionable noise or vibration or be injurious to the Leased Premises or Building.

 

(9) INSURANCE

 

9.1 The Lessee shall, during the Term, provide and keep in force, relative to the Leased Premises:

 

(a) Comprehensive general liability insurance with respect to the business carried on, in or from the Leased Premises and the use and occupancy thereof for bodily injury and damage to property of others, in an amount no less than TWO MILLION DOLLARS ($2,000,000.00) for each occurrence. Said comprehensive general liability insurance shall name the Lessor and the building management company A.I.Z. Realties Ltd. (Quebec Enterprise Number: 1143345909) (“A.I.Z.”) as insured and the Lessee must provide proof of said insurance on a yearly base;

 

(b) All risk insurance, including the perils of fire, extended coverage, leakage from sprinkler and other fire protective devices, earthquake, collapse and flood, in respect of furniture, equipment, inventory, stock-in-trade, fixtures and leasehold improvements located within the Leased Premises and in respect of such other property located in or forming part of the Leased Premises (including portions of any mechanical or electrical system of the Building installed by the Lessee in the Leased Premises) as the Lessor may reasonably require from time to time, and in amounts not less than Ninety Percent (90%) of the full replacement cost in each case:

 

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(c) The Lessee’s legal liability insurance in such amount as the Lessor shall reasonably require:

 

(i) All contracts of insurance required herein to be maintained by the Lessee shell be with a company or companies duly licensed to do business in the Province of Quebec and ordinarily engaged, inter alia, in the business of insuring against such risks and reasonably acceptable to the Lessor, the Lessee, and if required any creditor of the Lessor who may, from time to time, have hypothecary or other real rights in the Building with loss payable to the said parties as their respective interests may appear therein. Any such policies of insurance shall be in form and substance subject to the approval of the Lessor which said approval shall not be unreasonably withheld and shall contain provisions whereby the insurers shall not be subrogated in any rights which the Lessee may have against the Lessor in respect of the indemnities paid pursuant thereto so that, in the event of loss, the insurer or insurers shall have no recourse of any nature whatsoever against either the Lessor or the Lessee. The policies of insurance may not be cancelled or permitted to lapse unless the insurer notifies the Lessor in writing at least Thirty (30) days prior to the date of cancellation or lapse and shall name the Lessor and A.I.Z. as insured and the Lessee must provide proof of said insurance on a yearly base:

 

(ii) The Lessee agrees that if the Lessee fails to take out or keep in force such insurance as is required under the provisions of this Section, the Lessor will have the right to do so and to pay the premium therefor and, in such event, the Lessee shall repay the Lessor the amount paid as premium, together with interest thereon at the rate herein stipulated, which repayment shall be collectible as Additional Rent payable on the first day of the next month following the said payment by the Lessor:
     
(iii) The Lessee shall pay all extra premiums of insurance that any company or companies with which the Building or the contents thereof may be insured, would reasonably exact by reason of anything carried into the Leased Premises or stored therein by the Lessee or any activity carried on therein by the Lessee:
     
(iv) Concurrent with the commencement of the Term and thereafter prior to the expiry of any insurance policy maintained by the Lessee pursuant to the terms of the present Section, the Lessee shall deliver to the Lessor, without demand, copies of all policies of insurance maintained by it as herein required. If the Lessee fails to deliver such policies as aforesaid, it shall be presumed not to have taken out or maintained in force the appropriate insurance as herein required;
     
(v) The Lessee shall not do or commit any act upon the Leased Premises or bring into or keep upon the Leased Premises any article which will affect the fire risk or increase the rate of fire insurance or other insurance on the Building;
     
(vi) The Lessee shall comply with the rules and regulations of the Canadian Underwriter’s Survey or any successor body, and with the requirements of all insurance companies having policies of any kind whatsoever in effect covering the Building, including policies insuring against tort or dialectal liability;

 

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9.2 During the Term the Lessor shall obtain and maintain in full force and effect during the Term such insurance for such occurrences, and in such amounts and on such terms and conditions and with such deductibles that are reasonable for an immovable similar to the Building. Said insurance shall include:

 

(a) insurance on the Building, including improvements and equipment contained in the Building owned or leased by the Lessor or which the Lessor desires to insure in an amount not less than the full replacement cost thereof against loss or damage by fire and other risks contained in fire insurance policies with endorsements generally known as extended coverage (including without limitation flood and earthquake coverage) and riot, vandalism and malicious acts endorsement or at the Lessor’s option “all risks” insurance;

 

(b) broad boiler, machinery and unfired pressure vessel insurance, including repair or replacement coverages in an amount as the Lessor may from time to time determine:

 

(c) public liability insurance for bodily injury and property damage in such amount as the Lessor may from time to time determine:
     
(d) rental income insurance covering such occurrences, in such form and with such period of indemnity as the Lessor may determine:
     
(e) such other insurance in such amounts and on such terms as the Lessor, in its discretion, may determine or a mortgagee may require.

 

(10) OPERATING EXPENSES

 

10.1 “Operating Expenses” means all expenses actually incurred by the Lessor in connection with the operation, maintenance, administration, ownership, repair and replacement of the Building. By way of example and without restricting the generality of the foregoing, the term “Operating Expenses” shall include:

 

(a) The cost of all necessary maintenance, painting, repairs, and replacements of those parts of the Building which are not, under the terms hereof the exclusive responsibility of the Lessee including, without restriction, the repair, replacement, rebuilding or reconstruction of the same as a reasonable and careful owner would normally do including, but without limiting the generality of the foregoing, the cost of all necessary repairs, replacements and reconstructions, as are normally considered to be of a structural nature or “grosses réparations” and any alterations to the Building rendered necessary by any requirement of any public or quasi-public authority having jurisdiction therein, (including, without restriction, the company or companies with which the Building or any part thereof is insured and the Fire Underwriter’s Survey);
     
(b) All forms of insurance in such amounts and subject to such terms and conditions Lessor or its secured lender considers advisable, including without limitation, comprehensive general liability insurance for the Lessor’s operation of the Building for bodily injury or death and damage to property of others; fire and extended paralyse (or at the Lessor’s option on “all-risks” basis), leakage from sprinklers and other fire protection devices for the Building and all property and systems not to be insured by any tenant; boiler and pressure vessel insurance; insurable gross profits including loss of rentals.

 

(c) Cleaning, snow and ice removal, gardening, landscaping, garbage and waste collection and disposal;
     
(d) All utilities in or for the Building not chargeable to any specific premises including, without limitation, electricity, fuel, water and sewer;
     
(e) Rental of any equipment and signs, and the cost of building supplies used in the operation, maintenance, repair and replacement of any portion of the Building or the Land;
     
(f) Salaries, wages, medical, surgical and general welfare benefits (including group life insurance and pension payments) for all personnel to the level of building manager engaged by the Lessor or by any corporation acting on behalf of the Lessor in the operation, maintenance, repair, or replacement of the Land and/or the Building as well as employer taxes and contributions, workmen’s compensation insurance and unemployment insurance contributions on behalf of all personnel engaged by the Lessor or by any corporation acting on behalf of the Lessor in the operation, maintenance, repair or replacement of the Land and/or the building;

 

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(g) Service contracts with independent contractors for performing any services, the costs of which are included within Operating Expenses;
     
(h) Operating, maintenance, repair and replacement of the parking facilities and elevators of the Building;

 

(i) Any modification or addition to the Building and/or the machinery and equipment therein and thereon where in the reasonable opinion of the Lessor such expenditure may reduce Operating Expenses, or any additional equipment or improvements required by law or in the Lessor’s reasonable opinion is for the benefit or safety of Building users;

 

(j) Periodic depreciation calculated in accordance with generally accepted accounting principles of the cost of any repair, maintenance, renovation or replacement as determined by Lessor’s auditors, together with interest on the undepreciated capital cost thereof at a rate equal to two percentage points per annum in excess of the rate of interest from time to time charged to Lessor by its principal banker at the beginning of each Fiscal period on the undepreciated capital cost of all such items being depreciated from time to time;

 

(k) Telephone, telegraph, stationery, audit and accounting fees, legal costs and expenses, water and business tax, licenses and fees, interest expense and finance charges upon the Land and/or Building;

 

(l) All management fees payable to a corporation engaged by the Lessor to manage the Building and Land on its behalf.

 

(m) All Operating Expenses are included in the fee charged for Base Rent

 

(11) ASSIGNMENT SUBLET AND SHARES POSSESSION

 

11.1 Except to associated corporations or non-arm’s-length persons as defined in Section 251 of the Income Tax Act (Canada). as amended Lessee’s rights under this Lease may not be transferred or assigned to any person, firm or corporation without the Lessor’s prior written consent, which consent shall not be unreasonably withheld. In the event of any purported transfer or assignment of such rights, except as above noted, the Security Deposit shall be forfeited to the Lessor as partial payment of the damages the Lessor will suffer due to the Lessee’s default, the whole without prejudice to the Lessor’s other recourses, including, without limitation, the annulment of this Lease, except if such transfer or assignment is approved by the Lessor;

 

11.2 The Lessee will not sublet the Leased Premises or any part thereof, or assign the Lease without the prior written consent of the Lessor, which consent shall not be unreasonably or arbitrarily withheld, provided, however, that at all times the Lessee shall remain jointly and severally liable with the assignee or sub-lessee, without novation or benefit of discussion or division, for the payment of Base Rent and the performance of all the other Lessee’s obligations under this lease. Notwithstanding the preceding sentence, in preference to the Lessee’s granting or refusing consent to the proposed assignment of sublet, the Lessor may elect to terminate the Lease. In the event that the Lessor elects to terminate the Lease. the Lessee may advise the Lessor that the Lessee wishes to remain in the Leased Premises, in which case the Lease shall remain in full force for the balance of the Term;

 

(12) INSPECTION AND REPAIRS

 

12.1 The Lessee shall, at all times during the Term, at its own cost and expense, promptly affect all requisite Lessee’s repairs and replacements and maintain such in first-class order and condition. The Lessee shall give the Lessor prompt written notice of any accident to or defect in the water pipes, steam pipes, heating and, electrical light, wires or other services, upon discovery of same by the Lessee, of any portion of the Leased Premises;

 

12.2 The Lessor or any employee, servant or agent of the Lessor shall be entitled at any time and from time to time to enter and examine the state of the maintenance, repairs, decoration and order of the Leased Premises and otherwise ascertain whether the Lessee is adequately fulfilling its obligations under the terms of the present Section. The Lessor may give notice to the Lessee requiring that the Lessee perform such maintenance or effect such repairs or replacements as may be found necessary pursuant to such examination but the failure of the Lessor to give such notice shall not, however, relieve the Lessee from any of the obligations assumed by it hereunder;

 

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12.3 If the Lessee fails to make any such repairs or replacements or effect any maintenance within thirty (30) days after written notice from the Lessor requesting the Lessee to do so, provided that such repairs, replacements or maintenance, may reasonably be made within the said period, the Lessor may, without prejudice to any other rights or remedies he may have, make such repairs, replacements or effect any maintenance, and charge the cost thereof to the Lesser. Any costs chargeable by the Lessee hereunder, or in virtue of any other clause of these presents, shall be payable forthwith on demand as Additional Rent and shall bear interest at the rate specified hereunder. Nothing herein shall be construed to obligate or require the Lessor to make any repairs, replacements or affect any maintenance to the Leased Premises but the Lessor shall have the right, at any time, to make urgent repairs without notice to the Lessee and charge the costs thereof to the Lessee, unless the Lessee is able to make said urgent repairs in the same timely manner that the Lessor is intending to. Control and possession of the Leased Premises (subject to the rights of the Lessor as herein provided) and the rights enjoyed by the Lessor under the terms of the present paragraph are exclusively with a view to allowing the Lessor to be informed as to whether or not the Lessee is fulfilling the obligations incumbent upon it hereunder;

 

12.4 The Lessor shall, at all times during the Term, at its own cost and expense:

 

(a) Maintain the common areas of the Building in good condition and shall, regularly, clean the common areas with reasonable diligence;

 

(b) Ensure that the Building is accessible at all times. Furthermore, the Lessor shall provide heating, ventilation and air conditioning for the Leased Premises and the Building so that the temperature inside the Leased Premises, the installations and the Building are maintained at an acceptable and comparable level to that of a building of the same category during all hours the Lessee operates its business (usually 7am to 6pm Monday to Friday, 9ap to noon on Saturday, and Sunday on a per need basis);

 

(c) Ensure that the following services are executed: snow and ice removal, gardening, landscaping, garbage and waste collection;

 

(d) Do all things that a landlord acting reasonably and within its control to ensure that the other tenants of the Building do not create any disturbances which would result in the Lessee, its employees and/or its customers to not reasonably enjoy the use of the Leased Premises;

 

(e) Ensure the delivery of the electric current to the Leased Premises and all of common areas for the lighting and energy requirements of the Lessee to properly run its business. The Lessor hereby authorizes the Lessee to use all the electrical outlets but Lessor does not warrant all outlets are in working order as it did not install them in the Premises but does however warrant the working order of the electrical system installed on the Building;

 

(f) Ensure the delivery of water to the Leased Premises and all of common areas for the Lessee to properly run its business but Lessor does not warrant all outlets are in working order as it did not install them in the Premises but does however warrant the working order of the water system installed on the Building;

 

(g) Do all things that a landlord acting reasonably and within its control would do in order to guarantee the peaceable enjoyment of the Leased Premises by the Lessee.

 

(13) DAMAGE

 

13.1 If at any time during the Term, the Leased Premises or other portions of the Building are wholly or partly destroyed or damaged by hazards insured against by the Lessor (whether or not the Leased Premises are damaged or destroyed), then subject to immediately preceding Section 12.3 and notwithstanding the Civil Code of Quebec or any other legislation to the contrary, this Lease shall remain in full force and effect. In such event, there will be no abatement or diminution of any Rent, unless the Leased Premises are damaged in whole or in part, in which event Base Rent and all other Rent Payable on a monthly basis will abate in the same proportion that the floor area of the Leased Premises damaged or destroyed, bears to the Net Area. However, should the damaged or destroyed area of the Leased Premises be greater than X square feet OR X % of the Net Area, all Base Rent and Additional Rent shall be fully abated until the earlier of the date that the damaged portions of the Leased Premises are substantially repaired or the date that the rental income insurance proceed attributable to the Rent being abated cease to be paid by the Lessor’s rental income insurers. Any abatement will occur from the date of the damage or destruction until the earlier of the date that the damaged portions of the Leased Premises are substantially repaired or the date that the rental income insurance proceed attributable to the Rent being abated cease to be paid by the Lessor’s rental income insurers.

 

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13.2 Subject to Section 13.4, if the Leased Premises are damaged or destroyed in whole or in part, the Lessor will commence and proceed diligently to reconstruct, rebuild or repair the Leased Premises, which may be modified by the Lessor to be consistent with the plans, specifications and design criteria chosen by the Lessor at the relevant time. Subject to Section 13.3, if other portions of the Building are damaged or destroyed, the Lessor will commence and proceed with reasonable diligence to repair such damaged portions to the extent only of the Lessor’s obligations pursuant to the leases then in force with the tenants occupying such damaged portions, including the Lessee as the case may be, which may be modified by the Lessor to be consistent with the plans, specifications and design criteria chosen by the Lessor at the relevant time.

 

13.3 The Lessor will be under no obligation to restore the Leased Premises or the Building to exactly the same condition and state as they existed before any damage or destruction, and under no circumstances will the Lessor be liable to the Lessee for any loss or damage occasioned by such fire or other cause, nor to pay any allowance to the Lessee in the event of rebuilding.

 

13.4 Notwithstanding anything contained in this Lease to the contrary and specifically, notwithstanding the provisions of Sections 13.1 or 13.2, if the Building is totally or partially damaged or destroyed (whether the Leased Premises are affected or not), and:

 

(a) In the Lessor’s reasonable opinion, the damaged or destroyed portions cannot reasonably be repaired, restored or rebuilt within twelve (12) months following the occurrence; or

 

(b) The costs as estimated by the Lessor, of repairing, restoring or rebuilding the damaged or destroyed portions will exceed the proceeds of insurance available for repairing, restoring or rebuilding such portions,

 

Then in any of the above cases, the Lessor may, at its option (to be exercised by written notice to the Lessee within ninety (90) days following any such occurrence elect to terminate this Lease.

 

13.5 If the Lessor elects to terminate this Lease, then the following will occur:

 

(a) If the Leased Premises have been rendered wholly un-tenantable, the termination will take effect from the date of the damage or destruction and all Base Rent and Additional Rent will be adjusted to that date without prejudice to any pre-existing claims of the Parties.
     
(b) If the Leased Premises have been rendered only partly un-tenantable and the Lessee has occupied or has been reasonably capable of occupying any part of the Leased Premises since the date of the damage or destruction, the Lease will terminate ten (10) days from receipt of the Lessor’s notice. All unabated Base Rent and Additional Rent and other items of Rent will be adjusted to that date, and only the Base Rent and such items of Rent as are covered by the Lessor’s rental insurance policy will abate from the date of the damage or destruction until the date of termination in the proportion that the floor area of that portion of the Leased Premises rendered un-tenantable bears to the Net Area, without prejudice to any pre-existing claims of the Parties.
     
(c) If any damage or destruction contemplated by this Article 13 is caused by the fault, neglect or want of skill of the Lessee, its officers, agents, employees, contractors, sub-contractors, servants, visitors, customers, invitees or licensees or those under its care and control, then without prejudice to the rights of subrogation of the Lessor’s insurers, the Lessee shall be liable for all costs and damages to the Lessor and other tenants of the Building as a result of such damage, all of which damage may be repaired by the Lessor at the Lessee’s expense. In no event shall there be any abatement of diminution of Rent if this Section 13.5 (c) applies.

 

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(14) IMPROVEMENTS AND ALTERATIONS

 

14.1 The Leased Premises shall be delivered by Lessor to Lessee in their present state and condition “As Is” with the exception of those portions of SCHEDULE “B” hereto designated as being “Lessee’s Work”.

 

14.2 All other improvements and decorations required by the Lessee shall be executed in accordance with good building practices and shall be done by a licensed contractor in accordance with detailed drawings and specifications prepared by a duly qualified architect or licensed designer at the Lessee’s expense, which detailed drawings and specifications must be submitted to and approved in writing by the Lessor prior to the commencement of such work, which consent of the Lessor shall not be unreasonable withheld or unduly delayed. The Lessor allows the Lessee to begin improvements on September 27 2021, in advance of the effectiveness of this lease.

 

14.3 The Lessee shall not make or perform any alterations, additions or improvements, whether of a structural or non-structural nature, in the Leased Premises unless the plans and specifications therefore shall have been submitted to the Lessor prior to the commencement of such alterations, additions or improvements and the latter shall have given its prior written consent thereto which consent shall not be unreasonably withheld or unduly delayed. All such alterations, additions or improvements made by the Lessee under the terms of the present section shall be promptly executed by contractors or subcontractors reasonably acceptable to the Lessor (without the Lessor thereby being in any way liable for any damage or other loss or deficiency arising from or through such work) in accordance with the approved plans and specifications and all applicable laws, by-laws, regulations and ordinances or all public and quasi-public authorities having jurisdiction relative to the Building, including, without restriction, and any company or companies which the Building may, at the time, be insured by and the Lessee shall be responsible for all costs incurred in connection with such alterations and improvements the whole to the entire exoneration of the Lessor. The Lessor hereby undertakes that there shall be no conflict caused with any union or other contract to which the Lessor, its contractor, contractors or any subcontractors may be a party, and, in the event of any such conflict, the Lessee shall forthwith have removed from the Building, the Lessee’s conflicting contractor or contractors and their employees. The Lessee shall Maintain adequate general liability insurance for the protection of the Lessor and the Lessee as the Lessor may reasonably require. Nothing herein contained may be so interpreted as to permit the Lessee to perform any act, retain any service, purchase any materials or cause to be performed any works which would give rise to a legal hypothec on the Building;

 

14.4 Notwithstanding the foregoing, the value of the Leased Premises shall not, as a result of any work proposed to be carried out by the Lessee, be less than the value of the Leased Premises before the commencement of such work and the Lessor shall the sole judge of such value. If the cost of any work shall be in excess of FIFTEEN THOUSAND DOLLARS ($15,000.00) as reasonably estimated by the Lessor, the Lessor may require the Lessee to furnish security satisfactory to the Lessor guaranteeing the completion of the work and the payment of the cost thereof free and clear of all conditional bills of sale, pledges, privileges, workmen’s and suppliers’ liens and legal hypothecs. All work, when completed, shall be comprised in and form part of the Leased Premises and shall be subject to all the provisions of this Lease. Any connection of apparatus to the electrical system other than a connection to an existing base receptacle, any connection of apparatus to the plumbing lines, or any connection to the heating and/or air-conditioning system, shall be deemed to be an addition or improvement for the purposes of this Section;

 

14.5 In the event that the Lessee shall elect to perform any alterations, additions or improvements to the Leased Premises in accordance with the terms of this Section hereof, all such alterations and improvements may be performed only under the general supervision of the Lessor;

 

14.6 At the expiry of the Term, the Lessee, shall, at the option of the Lessor, either remove all or any specified portion of the Lessee’s Work and alterations, additions or improvements performed or constructed by the Lessee or by the Lessor on the Lessee’s behalf and restore the Leased Premises to substantially the same condition in which the same were found prior to the performance or constriction of any such Lessee’s Work, alterations, additions or improvements (save for such Lessee’s Work, alterations, additions or improvements as the Lessor permits to remain). With the exception of any improvements or renovations to the space constituting office area which the Lessee shall not remove and shall remain on the Leased Premises, or abandon the Leased Premises and surrender ownership and possession of the Lessee’s Work and such alterations, additions and improvements to the Lessor. In neither case will the Lessee be entitled to receive any compensation or indemnity in respect of such the Lessee’s Work and such alterations, additions or improvements or in respect of the removal thereof;

 

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14.7 Any legal hypothec filed against the Leased Premises or the Building for work claimed to have been done or materials furnished to the Lessee shall be discharged by the Lessee within Ten (10) days thereafter at the Lessee’s expense. In the event that the Lessee shall fail to cause any such legal hypothec to be discharged forthwith after being notified of the filing thereof, then, in addition to any other right or remedy of the Lessor, the Lessor may, but shall not be obliged to discharge the same by paying the amount claimed to be due plus any necessary amount on account of costs into Court or direct to such privileged claimant, and the amounts so paid by the Lessor and all costs and expenses, including judicial and extra-judicial fees incurred by the Lessor in procuring the discharge and obtaining radiation of the legal hypothec shall be due and payable immediately by the Lessee to the Lessor, on demand, such failure to radiate or discharge any such legal hypothec within the aforesaid delay shall constitute a default under this Lease. Furthermore, should action, suit or proceeding be brought upon such hypothec for the enforcement of same, the Lessee agrees, at its own cost and expense, to defend the Lessor therein, by counsel satisfactory to the Lessor, and to pay any damages and satisfy and discharge any judgement entered therein against the Lessor, as well as all costs and expenses, including judicial and extra-judicial costs incurred by the Lessee;

 

(15) EXPIRATION OF LEASE

 

15.1 The Lessee shall, at the expiration or sooner termination of the Term of this Lease, peaceably surrender and yield up unto the Lessor the Leased Premises, together with all additions, alterations, changes or erections (unless the Lessor has elected otherwise pursuant to Section 14 which at any time during the Term hereof shall be made therein or thereon, in good repair and condition subject to reasonable wear and tear only;

 

15.2 Notwithstanding the foregoing, the Lessee may, subject to the provisions of Section 14 at or prior to the expiration of the term hereof, remove its equipment and machinery, or other articles belonging to or brought upon the Leased Premises by the Lessee, provided that notwithstanding anything to the contrary herein contained, the Lessee at or after the termination of the Lease shall not remove from the Leased Premises any fixed partitions, plumbing equipment, heating equipment, air-conditioning equipment, local wiring including floor ducts, or telephone conduits, and no compensation shall be allowed to the Lessee for the same. Should the Lessor desire the Lessee to remove any of the foregoing items for his own reasons and purposes, he shall so notify the Lessee and the Lessee shall do so at the Lessee’s own expense and the Lessee will restore the Leased Premises to their original state, subject only to reasonable wear and tear. Should it be necessary for the Lessor to restore the Leased Premises to their original condition at his own expense, or should the Lessor be required to repair any damage caused by the removal of the aforementioned items, then any amount so spent by the Lessor shall be chargeable to the Lessee and payable by the latter as one of the obligations of the Lease;

 

15.3 The present Lease shall terminate ipso facto and without notice or demand on the date herein stated and any continued occupation of the said Leased Premises by the Lessee shall not have the effect of extending the period or of renewing the present Lease for any period of time and the Lessee shall be presumed to occupy the said Leased Premises against the will of the Lessor who shall thereupon be entitled to make use of any and all remedies by law provided for the expulsion of the Lessee for damages; provided, however. that the Lessor shall have the right at his option, in the event of such continued occupation by the Lessee, to give to the Lessee at any time written notice that the Lessee may continue to occupy the Leased Premises under a tenancy from month to month in consideration of a Guaranteed Minimum Monthly Rental equivalent to twice the rent payable per month as hereinabove set forth in Section 4.1 hereof;

 

(16) COMPLIANCE WITH LAWS AND REGULATIONS

 

16.1 The Lessee shall, at its own expense, promptly comply with the requirements of every applicable statute, law and ordinance, and with every applicable lawful regulation or order, with respect to the removal of any encroachment, or to the condition, maintenance, use or occupation of the Leased Premises, whether or not such alteration be required on account of any particular use to which the Premises, or part thereof, may be put, and whether or not such requirements, regulation or order be of a kind now existing or not; and shall comply with any applicable regulation or order of the Canadian Fire Underwriters’ Survey, or anybody having similar functions, or of any liability or fire insurance company by which the Lessor and/or the Lessee may be insured;

 

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16.2 The Lessee will not do, nor permit anything to be done on or about the Leased Premises or the Building which may injure, annoy or obstruct the rights of the Lessor, or of other tenants of the Building, or owners or occupants of adjacent or contiguous property, or do anything which is a nuisance;

 

(17) FAILURE OF LESSEE TO PERFORM

 

17.1 If the Lessee fails to pay any taxes, insurance premiums or charges which it has herein covenanted to pay. the Lessor may pay the same and shall be entitled to charge the sums so paid to the Lessee who shall pay them forthwith on demand, as Additional Rent and the Lessor, in addition to any other rights, shall have the same remedies and may take the same steps for the recovery of all such sums as it might have and take for the recovery of rent in arrears under the terms of this Lease; all arrears of rent and any monies due to the Lessor hereunder shall bear interest at the rate of Four Percent (4%) per annum over the prime lending rate of the bank of Lessor calculated monthly from the time such arrears become due until paid to the Lessor. For all amounts required to be paid by the Lessee other than the monthly rental, the above- mentioned interest shall commence to run five (5) days from the postmark of the notice or delivery of same to the Lessee;

 

(18) DEFAULT OF THE LESSEE

 

18.1 Each of the following events hereinafter called an (“Event of Default”) shall be a default hereunder by the Lessee and a breach of this Lease:

 

(a) If the Lessee shall violate any covenant or agreement providing for the payment of rent and such violation shall continue for Ten (10) days (Three (3) days for default in rent payment) after written notice to the Lessee by the Lessor:

 

(b) If the Lessee shall assign, transfer, encumber, sublet or permit the use of the Leased Premises by others except in the manner herein permitted;

 

(c) If the Lessee shall be adjudged as bankrupt or make any general assignment for the benefit of creditors or take or attempt to take the benefit of any insolvency or bankruptcy legislation:

 

(d) If a receiver or trustee shall be appointed for the property of the Lessee or any part thereof:

 

(e) If any execution be issued pursuant to a judgement rendered against the Lessee; which execution is not contested by the Lessee within Fifteen (15) days;

 

(f) If any person other than the Lessee has or exercises the right to manage or control the Leased Premises or any part thereof, or any of the business carried on therein other than subject to the direct and full supervision and control of the Lessee, otherwise than in conformity with these presents:

 

(g) If the Lessee fails to take possession of or abandons the Leased Premises;

 

(h) If the Lessee makes a bulk sale of its assets other than a bulk sale in connection with an assignment, transfer or sub-lease of the Leased Premises authorized by the Lessor or in accordance with the terms of the Lease;

 

(i) If any steps are taken or any action or proceedings are instituted by any person for the dissolution, winding-up or liquidation of the Lessee or its assets, and which are not contested within the legal delays;

 

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(j) If the Lessee shall be in default in fulfilling any of the other covenants and conditions of the Lease and such default is not rectified within the earlier of:

 

(i)

Twenty-One (21) days after written notice given by the Lessor to the Lessee stating with reasonable particularity the nature of such default: or

 

(ii) Any delay stipulated in any specific provision of this Lease;

 

18.2 In the event that the Leased Premises shall be deserted or vacated, the Lessor shall be entitled, if he sees fit, to enter the same as the agent of the Lessee either by force or otherwise, without being liable for prosecution therefore and to reflect the same as the agent of and at the risk of the Lessee and to receive any rental therefor, the whole on account of any sums payable by the Lessee to the Lessor hereunder;

 

18.3 In the event that the Lessee is in default to fully, faithfully and punctually perform all of the obligations incumbent upon it hereunder, and the Lessor shall have instituted proceedings to cancel the present Lease, notwithstanding any law or custom to the contrary, the Lessee shall not have any right to prevent such cancellation or annulment by remedying its default or defaults, subsequent to the institution of such legal proceedings;

 

18.4 In the event that the Lessee becomes bankrupt or insolvent or makes an assignment or proposal under the provisions of the Bankruptcy Act, the Winding-Up Act, or other insolvency legislation in force at the time, this Lease, shall, at the option of the Lessor, terminate either forthwith, or at the end of the then current month or at the end of the then current year, the whole without prejudice to any rights, recourses or remedies which the Lessor may enjoy against the Lessee in damages or otherwise. Under the circumstances, and without prejudice to any other rights, recourses or remedies enjoyed by the Lessor, the Lessor shall be entitled to claim, by preference. six (6) months’ damages or accelerated Base Rent, which, for the purposes of the present Section shall be deemed to be six (6) times the aggregate of the monthly instalments of Rental then payable by the Lessee to the Lessor pursuant to the provisions of the Lease;

 

18.5 Reimbursement of attorney’s fees and disbursements (judicial and extra-judicial) to the extent of 20% of the amounts otherwise payable by the Lessee to the Lessor; if the default has not occurred in respect of monetary obligation, the amount of such compensation shall be the greater of $5,000 or $5.00 per square foot of the Gross Rentable Area of the Leased Premises.

 

(20) SUBORDINATION

 

20.1 The Lessor declares that it may assign its rights under this Lease to a lending institution as collateral security for a loan to the Lessor and in the event that such an assignment is given and executed by the Lessor and notification thereof is given to the Lessee by or on behalf of the Lessor, it is expressly agreed between the Parties that Lease shall not be cancelled or modified for any reason whatsoever without the consent in writing of such lending institution;

 

20.2 The Lessee hereby covenants and agrees that it will, if and whenever reasonably required by the Lessor and at the Lessor’s expense, consent to and become a party to any instrument or instruments permitting a mortgage, trust deed, or hypothec to be placed on the Leased Premises hereinabove described or any part thereof of which the Leased Premises are a part. as security for any indebtedness covered by the said trust deed, mortgage or hypothec, and subordinating this Lease to the said trust deed, mortgage or hypothec;

 

(21) LIABILITY AND INDEMNIFICATION

 

21.1 The Lessor shall not, be responsible for any damages suffered by the Lessee or any other person by reason of the ownership of, original defect in or want of repair of the Building or any part thereof and, without restricting the generality of the foregoing, there shall be no abatement from or reduction of rentals due hereunder nor shall the Lessee be entitled to damages, costs, losses or disbursements from the Lessor regardless of the cause or reason therefor on account of partial or total failure of, damage caused by lessening of supply of or stoppage of heat, air-conditioning, electric light, power, water, plumbing, sewage or any other service, nor on account of anything coming through or leaking from the roof skylights, trap doors, windows or otherwise or any defect or break in any pipes, tanks, fixtures or otherwise whereby steam, water, snow, smoke or gas, leak, issue or flow into the Leased Premises nor on account of any damage or annoyance occasioned by the condition or arrangements of any electric or other wiring, nor on account of any damage or annoyance arising from any acts, omissions or negligence of other tenants of the Building or the owners or occupants of adjacent or contiguous properties, nor on account of the making of any repairs, alterations, improvements, additions or structural changes to the Building or any part thereof or any property adjacent to the Building. In addition, the Lessor shall not be liable for any other damage to or loss, theft or destruction of property or death of or injury to any person or persons, including the Lessee at any time, in, on or about the Building, howsoever occurring:

 

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21.2 The Lessor shall not be excluded from liability hereunder in the circumstances where such damage has been caused by the fault, the negligence or wilful misconduct of the Lessor or its directors, officers, agents, employees, contractors, sub-contractors, servants, visitors, customers, invitees or licensees;

 

21.3 The Lessee does hereby agree to indemnify and save harmless the Lessor from and against any and all liabilities, damages, suits and actions (including judicial and extra-judicial fees and disbursements) arising out of:

 

(a) Damage to the property of the Lessee, any sub-lessee or licensee of the Lessee, and all persons claiming through or under it, or any of them, or damage to any other property howsoever occasioned by the use or occupation of the Building or any part thereof:

 

(b) Any breach, violation or non-performance of any covenant, condition or agreement set forth in the present Lease and contained on the part of the Lessee to be fulfilled, kept, observed or performed;

 

(c) Any injury to any person or persons including death at any time resulting therefrom occurring in or about the Building;

 

(d) Failure by the Lessee to fully, faithfully and punctually comply with all of the legitimate requirements of any public or quasi-public authority having jurisdiction relative to the the Building or any requirements of any insurance company or companies with which the Building or any contents thereof is insured or the Fire Underwriters’ Survey; unless caused by the fault, negligence or wilful misconduct of the Lessor or its directors, officers, agents, employees, contractors, sub-contractors, servants, visitors, customers, invitees or licensees;

 

21.4. The indemnification contemplated under the terms of the present Section, as well as all other indemnifications herein provided, shall survive the termination of this Lease in respect of claims the origin or cause of which arose during the Term hereof. Without in any manner limiting anything else contained herein, in the event that the Lessor or the Lessee, as the case may be, is made a party to any claim, action, suit or proceeding from and against which the Lessee or Lessor, as the case may be, has undertaken to indemnify and save the Lessor or the Lessee harmless, as the case may be, the Lessee or the Lessor, as the case may be, shall pay such claim or, at its own cost and expense defend in the Lessor’s or in the Lessee’s name, as the case may be, by an attorney or counsel named by the Lessor or the Lessee, as the case may be, such action, suit or proceedings as well as satisfy any condemnation or judgement against the Lessor or against the Lessee, as the case may be, in principal, interest and costs, the whole to the entire exoneration of the Lessor or the Lessee, as the case may be, or, in the alternative, shall furnish the Lessor or the Lessee as the case may be, with money to pay such claim;

 

(22) NOTICES OF ACCIDENTS

 

22.1 The Lessee shall give to the Lessor prompt written notice of any accident to or defects which may be the responsibility of the Lessor, in the pipes, air-conditioning equipment, electric wires, elevators, heating apparatus or other services, but if any such accident or defects have been caused by the negligence or fault of the Lessee, its officers, servants, or employees, the cost of repairing any damage caused and of repairing the defects or damage, shall be chargeable to and payable forthwith by the Lessee to the Lessor upon the rendering of an account;

 

(23) PLATE GLASS AND DOOR SIGNS

 

23.1 Any breakage of glass or plate glass or doors in or about the Leased Premises, and any damage to signs on Lessee’s doors, except breakage or damage caused by negligence of the Lessor or of its employees, servants or agents, shall be charged to and payable by the Lessee;

 

(24) OBSTRUCTIONS

 

24.1 The sidewalks, entries, passage corridors, elevators, and stairways shall not be obstructed by the Lessee, its officers, agents, servants, employees, or customers or used for any other purposes than for ingress and egress to or from the Leased Premises, and the Lessee shall save the Lessor harm from damages to persons or property because of any articles thrown by the Lessee, its officers, agents, servants, or employees out of the windows or doors, or down the passage or elevator shafts of the Building;

 

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(25) SERVICES

 

25.1 HEATING: The Leased Premises will be heated by the Lessor, at the Lessor’s expense, during all hours the Lessee operates its business, at any time of the year when heating is reasonably required. All heating costs form part of and are included in Base Rent.

 

25.2 CLEANING: The Lessee will be responsible for cleaning the Leased Premises at the Lessee’s expense.

 

25.3 AIR CONDITIONING: The Lessor shall provide air conditioning service at the Lessor’s expense, during all hours the Lessee operates its business, at any time of the year when air conditioning is reasonably required. All air conditioning costs form part of and are included in Base Rent.

 

25.4 GARBAGE REMOVAL: The Lessee shall remove the Lessee’s garbage and placing it in to the container on the rear or parking area or such other areas designated by the Lessor. No garbage of any kind shall be stored or otherwise left by the Lessee in common and service areas of Building.

 

(26) WAIVER

 

26.1 The failure of the Lessor or the Lessee to insist upon a strict performance of any of the agreements, terms, covenants and conditions hereof shall not be deemed a waiver of any rights or remedies that the Lessor or the Lessee may have and shall not be deemed a waiver of any subsequent breach or default in any of such agreements, terms covenants and conditions;

 

(27) NOTICE AND DEMANDS

 

27.1 Any notice or demand given by the Lessor to the Lessee shall be deemed to be duly given when served upon the Lessee personally or when mailed to the Lessee at the address of the Leased Premises. A copy shall be served or mailed by registered mail to:

 

Derhy Law Inc.

c/o Me Eva Derhy

200-1100 Sherbrooke W.

Montreal, Quebec, H3A 1G7

 

27.2 The Lessee elects domicile at the Leased Premises for the purpose of service of all notices, writs of summons or other legal documents in any suit at law, action or preceding which the Lessor may take under this Lease;

 

27.3 Any notice or demand given by the Lessee to the Lessor shall he deemed to be duly given when served upon the Lessor personally or when mailed to the Lessor at the address designated by the Lessor for purposes of payment of rent hereunder. A copy shall be served or mailed by registered mail to:

 

Fuller Landau LLP

c/o Michael Newton

Place du Canada,

300-1010 West rue de la Gauchetière,

Montreal, Quebec, H3B 2N2

 

And

 

AIZ Realties Ltd.

6525 Decarie Blvd, Suite 210,
Montreal, Quebec, H3W 3E3

 

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(28) ODOURS

 

28.1 The Lessee warrants that no obnoxious odours or dust or noise will emanate from the Leased Premises as a result of the operations conducted by the Lessee therein. Accordingly, the Lessee agrees that should such obnoxious odour or dust or noise condition exist, it will at its own cost and expense take such steps as may be necessary to rectify the same provided further that if the Lessee shall fail to commence to do so within seven (7) days and complete the same within a reasonable time after notice addressed to the Lessee by the Lessor, then the Lessor may proceed forthwith to take reasonable Measures to correct the situation and the Lessor shall be entitled to recover the cost thereof from the Lessee forthwith upon demand, such cost to be considered as Additional Rent hereunder;

 

(29) ADDITIONAL PROVISIONS

 

29.1 The Lessor shall cooperate with the Lessee in order to allow the Lessee to execute such reasonable documentation as will allow the Lessee to register this Lease in the land register, in compliance with the provisions of the Civil Code of Quebec. It is understood that said documentation will only contain reference to the Parties, the Leased Premises, the Land, the Commencement Date and the expiry date of the Term, together with any options or special rights granted to the Lessee. Under no circumstances will any reference will be made to any Base Rent or Additional Rent or other monetary considerations payable under this Lease.

 

29.2 Within thirty (30) days following the expiration of the Term or sooner termination of this Lease,the Lessee will cause the notice pursuant to Article 2999.1 of the Québec Civil Code to be radiated at the Lessee’s expense, failing which the Lessor will have the right to cause the said notice to be radiated at the Lessee’s expense. This obligation will survive the expiration of the Term or sooner termination of this Lease.

 

29.3 There is a Schedule of Rules and Regulation annexed hereto as SCHEDULE C and Lessee agrees to be bound by same. Any default thereunder shall be constituted a default hereunder. Furthermore, the Lessor reserves the right to make such other and further rules and regulations as in its judgement may, from time to time, be needful for the safety, care and cleanliness of the Building, and the comfort and convenience of the occupants thereof, provided. however, such other and further rules shall not be inconsistent with the proper enjoyment of the Lessee of the Leased Premises and the Lessee binds and obliges itself to abide by and follow such rules and regulations provided any future changes are communicated to it in writing, a default of same to be constituted a default hereunder;

 

(30) PARKING

 

30.1 The Lessee,’its employees and staff shall use the street parking at all times so as not to tie up the parking at the rear of the Building;

 

30.2 It is understood that the rear parking behind the Building shall be used for short term visitor parking for a maximum of sixty (60) minutes only and shall not be used by the Lessee and/or its employees or staff.

 

(31) LESSEE’S CONTRIBUTION AS ADDITIONAL RENT

 

31.1 All of the Lessee’s contributions, whether for repairs, insurance premiums, taxes, or otherwise, as hereinabove set forth, are Additional Rent, and any and all sanctions applicable for the non-payment of rental are applicable for the non-payment of such Additional Rent;

 

(32) DESCRIPTIVE HEADINGS

 

32.1 The descriptive headings of this Lease are inserted for convenience, for reference purposes only and do not constitute a part of this Lease;

 

(33) SECURITY DEPOSIT

 

33.1 The Lessor Acknowledges that it presently is holding a Security Deposit. In order to guarantee the performance of Lessee’s obligations under this Lease in an amount equal to of THREE THOUSAND THREE HUNDRED EIGHTY-SIX DOLLARS AND TWENTY-FIVE CENTS ($3,386.25) including GST and OST (the “Security Deposit”) to be applied against all amounts payable by Lessee to Lessor pursuant to this Lease, in the manner set forth in this Lease;

 

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33.2 Subject to the Lessor’s rights to confiscate and/or appropriate and apply all or part of the Security Deposit pursuant to this Lease, the Security Deposit will be held by the Lessor in the manner set forth in this Lease until thirty (30) days following the surrender of the Leased Premises to Lessor in conformity with the Lease;

 

(34) RELOCATION

 

34.1 The Lessor shall have the right, at the Lessor’s full expense at any time, notwithstanding anything contained herein, to relocate the Lessee to other premises within the Building, provided that the Lessor gives the Lessee four (4) months prior written notice of the date of relocation, that the Lessor pay the Lessee an indemnity equal to four (4) months of Base Rent and Additional Rent for the relevant calendar year(s) accompanied with said notice, that the Lessor pay all expenses incurred by the Lessee for the relocation, and that the new premises have a net area similar to Net Area, and Base Rent on a per square footage basis, remains unchanged. It is expressly agreed and understood that the relocation of the Lessee shall not affect any of the other provisions of this Lease, nor shall such relocation render these presents absolutely or relatively null.

 

(35) CREDIT VERIFIATION OF LESSEE

 

35.1 The Lessor’s acceptance of this Lease was conditional upon the Lessor’s being satisfied (at its sole discretion) with the results of a credit verification of the Lessee completed by Lessor prior to the execution of this Lease. The Lessee agrees to provide to the Lessor, upon request such information concerning its affairs as the Lessor may require.

 

(36) BROKERAGE COMMISSION

 

36.1 The Lessee warrants that save and except for A.I.Z., the present Lease was not negotiated through any broker or agent, and undertakes to hold the Lessor harmless from any commission or fee claimed.

 

36.2 The Lessor agrees, at his sole expense, to pay A.I.Z. a commission of FIVE PERCENT (5%) based on the Total Gross Lease Value for years one, two and three, which commission shall be due and payable upon acceptance of this Lease and undertakes to hold the Lessee harmless from any commission or fee claimed.

 

36.3 Furthermore, the Lessor agrees to pay commissions to A.I.Z. for any additional space leased to the Lessee, or for any extension or renewal of Lease, based on the rates hereinabove, payable when such additional space is leased to the Lessee or when Lease with the Lessee is extended or renewed, and undertakes to hold the Lessee harmless from any commission or fee claimed.

 

(37) UNDERSTANDING THIS LEASE

 

37.1 The Lessee recognizes that the essential stipulations of this Lease were negotiable and that he understands all of its stipulations and that the Lessor gave it adequate explanations with respect to the terms and conditions of this Lease.

 

(38) SIGNAGE

 

28.1 Lessee shall have the right to install, at Lessee’s cost, a sign above the front of the Décarie Boulevard entrance door to the Leased Premises. It is understood that the sign must meet with Lessor’s approval, which shall not be unreasonably withheld, and Lessee must conform to all applicable laws, regulations, by-laws, ordinances or requirements of any competent authority, and obtain all necessary permits therefore.

 

(39) LANGUAGE

 

39.1 The parties hereto have requested that these presents be made in English. Les parties ont requis que les présentes soient écrites en langue anglaise;

 

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AND THE PARTIES HAVE SIGNED AT THE PLACE AND ON THE DATE FIRST ABOVE WRITTEN:

 

SIGNED BY LESSEE   SIGNED BY LESSOR
         
SMART FOR LIFE CANADA INC.   THE LINGER CORPORATION
         
PER: /s/ Ryan Zackon   PER: /s/ Walter Bloom
  Ryan Zackon     Walter Bloom
         
PER: /s/ Alan Bergman      
  Alan Bergman      

 

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SCHEDULE “A” OF THE LEASE

 

LESSOR: THE LINGER CORPORATION
LESSEE: SMART FOR LIFE CANADA INC
DATE: THIS 30TH DAY OF SEPTEMBER 2021
PREMISES: 6525, DECARIE, GR-3, MONTREAL, QC.

 

 

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SCHEDULE “B” OF THE LEASE

 

LESSOR: THE LINGER CORPORATION
LESSEE: SMART FOR LIFE CANADA INC
DATE: THIS 30th DAY OF SEPTEMBER 2021
ADDRESS: 6525 DECARIE BLVD. Buite GR-3

 

The Lessee has examined the Leased Premises and accepts them in their present state and condition “As is”. The Lessee shall carryout the following work in the Leased Premises requested and paid for by the Lessee referred to as “Lessee’s Work” in accordance with the building’s standards of material and workmanship:

 

1) Patch walls and Repaint interior
2) New carpet in office spaces
3) Remove 3 non-supporting walls between office spaces - This would create two front offices and one rear additional storage room which is already partially shelved.
4) Remove dark tint and remove residue from inside of front facing window

 

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SCHEDULE “C” OF THE LEASE

 

RULES AND REGULATIONS

SCHEDULE ANNEXED TO LEASE

 

(1) This is a Schedule of Rules and Regulation annexed hereto and the Lessee agrees to be bound by same. Any default thereunder shall be constituted a default hereunder. Furthermore, the Lessor reserves the right to make such other and further rules and regulations as in its judgement may, from time to time, be needful for the safety, care and cleanliness of the Building, and the comfort and convenience of the occupants thereof, provided, however, such other and further rules shall not be inconsistent with the proper enjoyment of the Lessee of the Leased Premises and the Lessee binds and obliges itself to abide by and follow such rules and regulations provided any future changes are communicated to it in writing, a default of same to be constituted a default hereunder;

 

(2) The Lessor shall have the exclusive right to prescribe the weight and proper positions of metal safes or machinery as well as the right to prescribe the weight and position of any floor load. All damage done to the Building or Leased Premises by moving or using heavy equipment of any description or furniture contrary to the Lessor’s prescriptions shall be repaired at the expense of the Lessee. No such equipment or furniture shall be moved unless a time therefor has been arranged with and consented to by the Lessee;

 

(3) The Lessee shall not permit the introduction into the Leased Premises or the Building of any machine or mechanical device of any nature whatsoever which may be liable to cause objectionable noise or vibration or be injurious to the Leased Premises or the Building;

 

(4) Canvassing, soliciting and peddling in the Building are prohibited;

 

(5) The Lessor shall not permit any cooking in the Leased Premises without the written consent of the Lessor;

 

(6) Furniture, bulky articles and construction materials which the Lessee may require from time to time for the construction of internal partitions or for the purpose of effecting alterations or improvements shall be carried to the Leases Premises at such hour and in such manner as the Lessor may designate. Any damage which may be caused to the Building or the Leased Premises by the carrying of such furniture, bulky articles or construction materials to or from the Leased Premises shall be at the responsibility and cost of the Lessee;

 

(7) Any hand trucks, carryalls, or similar appliances used for the delivery or receipt of merchandise or equipment shall be equipped with rubber tires, side guards and such other safeguards as the Lessor shall require;

 

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(8) If any apparatus used or installed by the Lessee requires a permit as a condition for its installation, the Lessee must file a copy of such permit the Lessor;

 

(9) The Lessee shall not permit or allow any employees or other person to conduct any business or enterprise of any kind in or from the premises other than that specifically provided for in the present Lease;

 

(10) No animals or birds shall be brought or kept in or about the Leased Premises or the Building;

 

(11) No auction sales shall be allowed in the Leased Premises or the Building;

 

(12) The Lessee shall be responsible for the cleaning of any drapes and/or curtains that may be installed by the Lessee in the Leased Premises;

 

(13) The water closets and other water apparatus shall not be used for any purposes but those for which they are constructed, and no sweepings, rubbish, rags, ashes, chemicals or other substances shall be thrown therein;

 

(14) The Lessee will not do anything not permit anything to be done on the Leased Premises or in the said Building which may be injurious or annoying to the Lessor or to any person lawfully on the Leased Premises of the Lessor, or anything which the Lessor may deem to be a nuisance, or which may be calculated to damage the business or reputation of the Lessor, or the satisfactory operation of the Building, and the Lessee shall not do or permit anything to be done in or upon the Leased Premises or the Building which will in any way obstruct or interfere with the rights of any tenants or persons having business with them, or permit any employees to smoke or congregate in the halls of the said Building;

 

(15) The Lessee, when closing the premises, during the day or evening, shall have all windows closed, to avoid possible damage from fire, storms, rain or freezing, and will not shut off the radiators when the premises are locked.

 

 

Page 21 of 21

 

Exhibit 10.38

 

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “Employment Agreement”), dated as of July 1, 2020, is entered into between Bonne Santé Group, Inc. a Delaware corporation (the “Company” or “BSG”), and Alfonso J. Cervantes, an individual (“Executive”).

 

BACKGROUND

 

WHEREAS, the Company wishes to secure the services of Executive as Executive Chairman of the Company (with such duties and/or other offices in the Company or its affiliates as may be assigned by the Company or its Board of Directors and agreed to by Executive ) upon the terms and conditions hereinafter set forth, and Executive wishes to render such services to the Company upon the terms and conditions hereinafter set forth.

 

WHEREAS, Executive is highly experienced in the capital markets with deep M&A, securities law, corporate governance and public company experience.

 

WHEREAS, the Company is being positioned for a prospective public offering pursuant to an S-1 registration with a concurrent listing on Nasdaq or NYSE following multiple acquisitions and Executive has a unique background and experience to support the Company’s business initiatives.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

1. Employment by the Company. The Company agrees to employ Executive in the position of Executive Chairman of the Company, having such duties and responsibilities as are reasonably and customarily assigned to individuals serving in such position and such other duties as are consistent with Executive’s title (with such other duties and/or offices in the Company and its affiliates as may be assigned from time to time by the Company, its Board of Directors, and as agreed to by Executive ). Executive accepts such employment and agrees to perform such duties. Executive agrees to devote the necessary customary business time and energies to the business of the Company and/or its affiliates to perform his duties hereunder on a full time, non-exclusive basis. Full time is defined as a minimum of 35 hours per week. Executive is free to pursue other activities during his non-business time as long as they do not conflict or compete with the business of the Company.

 

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2. Term of Employment. The term of this Employment Agreement (the “Term”) shall be for a period of five years, commencing on July 1, 2020 and terminating on June 30, 2025, unless sooner terminated as provided in Section 6.

 

3. Compensation. As full compensation for all services to be rendered by Executive to the Company and/or its affiliates in all capacities during the Term, Executive shall receive the following compensation and benefits:

 

(a) Base Salary. An annual base salary of $200,000 (the “Base Salary”) payable in accordance with the customary payroll practices for senior management of the Company currently on a bi-weekly basis.

 

(b) Increase of Base Salary. Commencing on the first day of the first calendar month after the completion of: (i) the first bonafide acquisition by the Company during the Term, the Base Salary will be increased to $250,000 per year, and (ii) the second bonafide acquisition during the Term, the Base Salary will be increased to $300,000.

 

(c)   Option Pool. Participation in any option pool created by the Company on a pro rata basis, allocated by Base Salary, with other senior executives.

 

(d) Participation in Executive Benefit Plans; Other Benefits. Executive shall be permitted during the Term, if and to the extent eligible, to participate in all benefit plans, policies and practices now or hereafter maintained by or on behalf of the Company available to Company executives. Nothing in this Employment Agreement shall preclude the Company from terminating or amending any such plans or coverage so as to eliminate, reduce or otherwise change any benefit payable thereunder, as long as any such change similarly affects all Company executives. In the event that the Company maintains a life insurance policy on Executive, Executive can take over and retain that policy following termination or resignation. In the event Executive chooses to retain his own medical insurance in lieu of participating in any Company plan, Company will reimburse 100% of those costs. The Company will reimburse any Medicare costs.

 

(e) Expenses. The Company shall pay or reimburse Executive for all reasonable and necessary expenses actually incurred or paid by Executive during the Term in the performance of Executive’s duties under this Employment Agreement upon submission and approval of expense statements, vouchers or other supporting information in accordance with the then customary practices of the Company.

 

(f) Automobile. The Company shall provide Executive with the use of a late model luxury automobile of Executive’s choice at Company expense, including insurance, fuel and maintenance.

 

(g) Vacation. Executive shall be entitled to four weeks of paid vacation per year in accordance with Company policy.

 

(h) Withholding of Taxes. The Company may withhold from any benefits payable under this Employment Agreement all federal, state, city and other taxes as shall be required pursuant to any law or governmental regulation or ruling.

 

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(i) Bonus. In addition to the Base Salary, Executive shall be entitled to an annual incentive bonus of up to 20% of Executive’s base salary to the extent the Company achieves certain milestones which shall be established by the Board of Directors of the Company.

 

(j) Acquisitions Bonus. Executive shall be entitled to a $100,000 bonus on the successful completion of each bonafide acquisition.

 

(k) Public Listing Bonus. Executive shall be entitled to a $250,000 bonus on the successful completion of the Company’s Initial Public Offering in an amount of no less than $10 million.

 

(l) Deferred and Accrued Compensation. Executive shall be entitled to payment of deferred and accrued compensation when the Company has the liquid funds to do so.

 

4. Member of the Board of Directors. As a condition of Executive’s employment as the Founder and Executive Chairman, Executive will be entitled to a position of director on the Company’s Board of Directors.

 

5. Place of Employment. The Company cannot change Executive’s place of employment by more than ten miles without Executive’s written consent.

 

6. Termination.

 

(a) Termination upon Death. If Executive dies during the Term, this Employment Agreement shall terminate as of the date of his death.

 

(b) Termination upon Disability. If during the Term Executive becomes physically or mentally disabled, whether totally or partially, so that Executive is unable to perform his essential job functions hereunder for a period aggregating 90 days during any twelve-month period, and it is determined by a physician acceptable to both the Company and Executive that, by reason of such physical or mental disability, Executive shall be unable to perform the essential job functions required of him hereunder for such period or periods, the Company may, by written notice to Executive, terminate this Employment Agreement, in which event the Term shall terminate 30 days after the date upon which the Company shall have given notice to Executive of its intention to terminate this Employment Agreement because of disability.

 

(c) Termination for Cause. The Company may at any time by written notice to Executive terminate this Employment Agreement immediately and, except as provided in Section 7 hereof, Executive shall have no right to receive any compensation or benefit hereunder on and after the date of such notice, in the event that an event of “Cause” occurs. For purposes of this Employment Agreement “Cause” shall mean:

 

(i) any willful breach by Executive of any material term of this Employment Agreement, if Executive fails to reasonably cure such breach within 30 days after the receipt of written notice from the Board of such breach, which notice shall state in reasonable detail the facts and circumstances claimed to be a failure or willful breach and of the intent of the Company to terminate Executive’s employment upon in the event of failure of Executive to reasonably cure such failure or breach; or

 

(ii)   Executive has been convicted of an intentional felonious act of fraud, misappropriation, embezzlement, or theft or an intentional breach of fiduciary duty involving personal profit; or

 

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(iii) Executive is indicted for any criminal offense constituting a felony or a crime involving moral turpitude (except that Executive shall continue to be entitled to all compensation until a conviction of such offense); or

 

(iv) Executive intentionally breaches the provisions of Section 8 of this Agreement.

 

For purposes of this Employment Agreement, an act, or a failure to act, shall not be deemed willful or intentional, as those terms are used herein, unless it is done, or admitted to be done, by Executive in bad faith or without a reasonable belief that Executive’s action or omission was in the interest of the Company.

 

Termination without Cause. The Company may terminate this Employment Agreement at any time, without cause, upon 30 days’ written notice by the Company to Executive and, except as provided in Section 7 hereof, Executive shall have no right to receive any compensation or benefit hereunder not already accrued after such date of termination.

 

7. Payments Upon Termination. If during the Term the Company terminates this Employment Agreement pursuant to Sections 6(b) (Termination for Disability) or 8 (Termination without Cause) hereof, all compensation payable to Executive shall cease as of the date of termination specified in the Company’s notice (the “Termination Date”), and the Company shall pay to Executive the following sums: (i) Executive’s then-current Base Salary through the Termination Date for all periods not yet paid; (ii) benefits under group health and life insurance plans in which Executive participated through the Termination Date; (iii) all previously earned, accrued, and unpaid benefits from the Company and its executive benefit plans, including any such benefits under the Company’s pension, disability, and life insurance plans, policies, and programs; (iv) any bonuses accrued or agreed between the Company and Executive but not yet paid; and (v) twelve (12) months of severance pay equal to the Base Salary of the current year paid on a bi-weekly schedule.

 

8. Certain Covenants of Executive.

 

(a) Covenants Against Competition. Executive acknowledges that: (i) Executive is one of the limited number of persons who will assist with developing the Company’s business and the business of its portfolio companies (the “Company’s Business”); (ii) the Company conducts its business out of offices in the state of Florida and may conduct its business nationwide; (iii) Executive’s work for the Company will bring Executive into close contact with confidential information not readily available to the public; and (iv) the covenants contained in this Section 8 will not involve a substantial hardship upon Executive’s future livelihood. In order to induce the Company to enter into this Employment Agreement, Executive covenants and agrees that:

 

(i) Non-Compete. During the Term (the “Restricted Period”), Executive shall not, in those states in the United States of America in which either the Company or any of its subsidiaries or affiliates then operates, directly or indirectly, (i) in any manner whatsoever engage in any capacity with any business competitive with the Company’s business for Executive’s own benefit or for the benefit of any person or entity other than the Company or affiliate of the Company; or (ii) have any interest as owner, sole proprietor, shareholder, partner, lender, director, officer, manager, Executive, consultant, agent or otherwise in any business competitive with the Company’s business; provided, however, that Executive may hold, directly or indirectly, solely as an investment, not more than two percent (2%) of the outstanding securities of any person or entity which are listed on any national securities exchange or regularly traded in the over-the- counter market notwithstanding the fact that such person or entity is engaged in a business competitive with the Company’s business. It is expressly understood, however, that Executive may invest in or be an employee, officer and/or director of any company not competitive of the Company’s business.

 

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(ii)   Confidential Information. During his employment with the Company as well as the Restricted Period, Executive shall not, directly or indirectly, disclose to any person or entity who is not authorized by the Company or any subsidiary or affiliate to receive such information, or use or appropriate for his own benefit or for the benefit of any person or entity other than the Company or any subsidiary or affiliate, any documents or other papers relating to the Company’s business or the customers of the Company or any subsidiary or affiliate, including, without limitation, files, business relationships and accounts, pricing policies, customer lists, computer software and hardware, or any other materials relating to the Company’s business or the customers of the Company or any affiliate of the Company or any trade secrets or confidential information, including, without limitation, any business or operational methods, drawings, sketches, designs or product concepts, know-how, marketing plans or strategies, product development techniques or plans, business acquisition plans, financial or other performance data, personnel and other policies of the Company or any affiliate of the Company, whether generated by Executive or by any other person, except as required in the course of performing Executive’s duties hereunder or with the express written consent of the Company; provided, however, that the confidential information shall not include any information readily ascertainable from public or published information, or trade sources or independent third parties (other than as a direct or indirect result of unauthorized disclosure by Executive ).

 

(iii) Executives of and Consultants to the Company. During the Restricted Period, Executive shall not, directly or indirectly (other than in furtherance of the business of the Company), initiate communications with, solicit, persuade, entice, induce or encourage any individual who is then an executive of or consultant to the Company or any of its affiliates to terminate employment with, or a consulting relationship with, the Company or such affiliate, as the case may be, or to become employed by or enter into a contract or other agreement with any other person, and Executive shall not approach any such executive or consultant for any such purpose or authorize or knowingly approve the taking of any such actions by any other person.

 

(iv) Solicitation of Customers. During the Restricted Period, Executive shall not, directly or indirectly, initiate communications with, solicit, persuade, entice, induce, encourage (or assist in connection with any of the foregoing) any person who is then or has been within the preceding 12-month period a customer or account of the Company or its affiliates, or any actual customer leads whose identity Executive learned during the course of his employment with the Company, to terminate or to adversely alter its contractual or other relationship with the Company or its affiliates.

 

(b) Rights and Remedies Upon Breach. If Executive breaches any of the provisions of Section 8(a) hereof (collectively, the “Restrictive Covenants”), the Company and its affiliates shall, in addition to the rights set forth in Section 8(a) hereof, have the right and remedy to seek from any court of competent jurisdiction specific performance of the Restrictive Covenants or injunctive relief against any act which would violate any of the Restrictive Covenants, it being acknowledged and agreed that any such breach may cause irreparable injury to the Company and its affiliates and that money damages will not provide an adequate remedy to the Company and its affiliates.

 

(c)   Severability of Covenants. If any of the Restrictive Covenants, or any part thereof, is held by a court of competent jurisdiction or any foreign, federal, state, county or local government or other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the Restrictive Covenants shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and such court, government, agency or authority shall be empowered to substitute, to the extent enforceable, provisions similar thereto or other provisions so as to provide to the Company and its affiliates, to the fullest extent permitted by applicable law, the benefits intended by such provisions.

 

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(d) Enforceability in Jurisdictions. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants under the laws of the State of Florida.

 

9. Other Provisions.

 

(a) Notices. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, or sent by overnight delivery service with proof of delivery, to the parties at the addresses specified on the signature page hereto, or at such other addresses as shall be specified by the parties by like notice, and shall be deemed given as long as such provides a receipt of delivery, when so delivered. A copy of all notices shall be sent by email.

 

(b) Entire Agreement. This Employment Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior contracts and other agreements, written or oral, with respect thereto.

 

(c)   Waivers and Amendments. This Employment Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

 

(d) Governing Law. This Employment Agreement shall be governed by, and construed in accordance with and subject to, the laws of the State of Delaware applicable to agreements made and to be performed entirely within such state.

 

(e) Binding Effect; Benefit. This Employment Agreement shall inure to the benefit of and be binding upon the parties hereto and any successors and assigns permitted or required by Section 9(f) hereof. Nothing in this Employment Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or such successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Employment Agreement.

 

(f) Assignment. This Employment Agreement, and Executive’s rights and obligations hereunder, may not be assigned by Executive. The Company may assign this Employment Agreement and its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its assets or business, whether by merger, consolidation or otherwise.

 

(g) Counterparts. This Employment Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Facsimiles and electronic signatures may be used.

 

(h) Headings. The headings in this Employment Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement.

 

(i) Attorneys’ Fees. In the event of the bringing of any action, suit or proceeding by any party hereto against any other party hereto by reason of a breach of this Agreement or any portion thereof, then the prevailing party in such action or suit shall be entitled to have and recover all costs and expenses of suit, including reasonable attorneys’ fees, as well as all costs and expenses, including reasonable attorneys’ fees.

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first above written.

 

  COMPANY:
   
  Bonne Santé Group, Inc.
     
  By: /s/ Darren Minton                   
    Name: Darren Minton             
    Title: President
    Address:   10575 NW 37th Terrace
    Miami, FL 33178
     
    Email:  

 

  EXECUTIVE:
     
  Name:  Alfonso J. Cervantes
     
    Alfonso J. Cervantes
     
    Address:
     
  Email:  

 

 

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Exhibit 10.39

 

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “Employment Agreement”), dated as of November 15, 2020, is entered into between Bonne Santé Group, Inc. a Delaware corporation (the “Company” or “BSG”), and Ryan Zackon, an individual (the “Employee”).

 

BACKGROUND

 

WHEREAS, the Company wishes to secure the services of Employee as Chief Executive Officer of the Company (with such duties and/or other offices in the Company or its affiliates as may be assigned by the Company, its Employee Chairman or its Board of Directors and agreed to by Employee) upon the terms and conditions hereinafter set forth, and Employee wishes to render such services to the Company upon the terms and conditions hereinafter set forth.

 

WHEREAS, Employee is highly experienced in the nutraceutical industry with deep operational experience.

 

WHEREAS, the Company is being positioned for a prospective public offering pursuant to an S-1 registration with a concurrent listing on Nasdaq or NYSE and employee has a unique background and experience to support the Company’s business initiatives.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

1. Employment by the Company. The Company agrees to employ Employee in the position of Chief Executive Officer of the Company, having such duties and responsibilities as are reasonably and customarily assigned to individuals serving in such position and such other duties as are consistent with Employee ’s title (with such other duties and/or offices in the Company and its affiliates as may be assigned from time to time by the Company, its Board of Directors, and as agreed to by Employee), and the Employee accepts such employment and agrees to perform such duties. The Employee agrees to devote the necessary customary business time and energies to the business of the Company and/or its affiliates to perform his duties hereunder.

 

2. Term of Employment. The term of this Employment Agreement (the “Term”) shall be from the period commencing as of the Commencement Date, as defined in Section 5, until Termination as defined in Section 6.

 

3. Compensation. As full compensation for all services to be rendered by Employee to the Company and/or its affiliates in all capacities during the Term, Employee shall receive the following compensation and benefits:

 

(a) Base Salary. An annual base salary of $250,000 (the “Base Salary”) payable in accordance with the customary payroll practices for senior management of the Company currently on a bi-weekly basis.

 

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(b) Increase of Base Salary. After the first year of employment, year two base salary will be $300,000 and year three will be $350,000.

 

(c) Restricted Common Stock. As an additional inducement for employment, the Company shall issue to the Employee Two Hundred Fifty Thousand (250,000) shares of common stock. Such shares shall be subject to forfeiture until vested. Such shares shall vest as follows: one-third of the shares shall vest on the first anniversary of the Commencement Date (as defined below) and the remaining shares shall vest at a rate of 1/24 a month thereafter in each case, so long as the Employee remains in continuous services with the Company.

 

(d) Participation in Employee Benefit Plans; Other Benefits. The Employee shall be permitted during the Term, if and to the extent eligible, to participate in all employee benefit plans, policies and practices now or hereafter maintained by or on behalf of the Company commensurate with the Employee’s position with the Company. Nothing in this Employment Agreement shall preclude the Company from terminating or amending any such plans or coverage so as to eliminate, reduce or otherwise change any benefit payable thereunder, so long as any such change similarly affects all Company employees.

 

(e) Expenses. The Company shall pay or reimburse Employee for all reasonable and necessary expenses actually incurred or paid by Employee during the Term in the performance of Employee's duties under this Employment Agreement, upon submission and approval of expense statements, vouchers or other supporting information in accordance with the then customary practices of the Company.

 

(f) Vacation. Employee shall be entitled to three weeks of paid vacation per year in accordance with company policy.

 

(g) Withholding of Taxes. The Company may withhold from any benefits payable under this Employment Agreement all federal, state, city and other taxes as shall be required pursuant to any law or governmental regulation or ruling.

 

(h) Bonus. In addition to the Base Salary, the Employee shall be entitled to an annual incentive bonus in an amount between 10% and 20% the Employee’s base salary to the extent the Company achieves certain milestones which shall be established by the Board of Directors of the Company and commensurate with such other executives and employees of the Company.

 

4. Member of the Board of Directors. As a condition of Employee’s employment as Chief Executive Officer, Employee will be entitled to a position of director on the Company’s Board of Directors.

 

5. Date of Commencement. The Term shall commence on November 15, 2020 (the “Commencement Date”).

 

6. Termination.

 

(a) Termination upon Death. If the Employee dies during the Term, this Employment Agreement shall terminate as of the date of his death.

 

(b) Termination upon Disability. If during the Term the Employee becomes physically or mentally disabled, whether totally or partially, so that the Employee is unable to perform his essential job functions hereunder for a period aggregating 30 days during any twelve-month period, and it is determined by a physician acceptable to both the Company and the Employee that, by reason of such physical or mental disability, the Employee shall be unable to perform the essential job functions required of him hereunder for such period or periods, the Company may, by written notice to the Employee, terminate this Employment Agreement, in which event the Term shall terminate 10 days after the date upon which the Company shall have given notice to the Employee of its intention to terminate this Employment Agreement because of disability.

 

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(c) Termination for Cause. The Company may at any time by written notice to the Employee terminate this Employment Agreement immediately and, except as provided in Section 7 hereof, Employee shall have no right to receive any compensation or benefit hereunder on and after the date of such notice, in the event that an event of “Cause” occurs. For purposes of this Employment Agreement “Cause” shall mean:

 

(i) any willful breach by the Employee of any material term of this Employment Agreement, if the Employee fails to reasonably cure such breach within 30 days after the receipt of written notice from the Board of such breach, which notice shall state in reasonable detail the facts and circumstances claimed to be a failure or willful breach and of the intent of the Company to terminate the Employee's employment upon in the event of failure of the Employee to reasonably cure such failure or breach; or

 

(ii) Employee has committed an intentional felonious act of fraud, misappropriation, embezzlement, or theft or an intentional breach of fiduciary duty involving personal profit; or

 

(iii) the Employee is indicted for any criminal offense constituting a felony or a crime involving moral turpitude (except that the Employee shall continue to be entitled to all compensation until a conviction of such offense); or

 

(iv) the Employee intentionally breaches the provisions of Section 8 of this Agreement.

 

For purposes of this Employment Agreement, an act, or a failure to act, shall not be deemed willful or intentional, as those terms are used herein, unless it is done, or admitted to be done, by Employee in bad faith or without a reasonable belief that Employee’s action or omission was in the interest of the Company.

 

Termination without Cause. The Company may terminate this Employment Agreement at any time, without cause, upon 30 days' written notice by the Company to the Employee and, except as provided in Section 7 hereof, the Employee shall have no right to receive any compensation or benefit hereunder not already accrued after such date of termination.

 

7. Payments Upon Termination. If the Company terminates this Employment Agreement pursuant to Sections 6(b) (Termination for Disability) or 6(d) (Termination without Cause) hereof, all compensation payable to Employee shall cease as of the date of termination specified in the Company's notice (the “Termination Date”), and the Company shall pay to the Employee, subject to Section 8 hereof, the following sums: (i) the Base Salary through the Termination Date for all periods not yet paid; (ii) benefits under group health and life insurance plans in which the Employee participated through the Termination Date; (iii) all previously earned, accrued, and unpaid benefits from the Company and its employee benefit plans, including any such benefits under the Company's pension, disability, and life insurance plans, policies, and programs; (iv) any bonuses accrued or agreed between the Company and the Employee but not yet paid; and (v) six (6) months of severance pay equal to the Base Salary of the current year paid on a bi-weekly schedule (the “Severance”). It is the understanding of the Company and Employee that the Severance shall be paid in the event Company terminates this Agreement prior to the Commencement Date. Notwithstanding the foregoing, the Employee shall not be entitled to receive the payment described in clause 7(v) unless and until the Employee signs a release of liability in form and substance reasonably satisfactory to the Company.

 

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8. Certain Covenants of Employee.

 

(a) Covenants Against Competition. The Employee acknowledges that: (i) the Employee is one of the limited number of persons who will assist with developing the Company’s business and the business of its portfolio companies (the “Company's Business”); (ii) the Company conducts its business out of offices in the state of Florida and may conduct its business nationwide; (iii) Employee’s work for the Company will bring Employee into close contact with confidential information not readily available to the public; and (iv) the covenants contained in this Section 8 will not involve a substantial hardship upon Employee ’s future livelihood. In order to induce the Company to enter into this Employment Agreement, Employee covenants and agrees that:

 

(i) Non-Compete. During the Term (the “Restricted Period”), Employee shall not, in those states in the United States of America in which either the Company or any of its subsidiaries or affiliates then operates, directly or indirectly, (i) any manner whatsoever engage in any capacity with any business competitive with the Company's Business for the Employee's own benefit or for the benefit of any person or entity other than the Company or affiliate of the Company; or (ii} have any interest as owner, sole proprietor, shareholder, partner, lender, director, officer, manager, employee, consultant, agent or otherwise in any business competitive with the Company's Business; provided, however, that the Employee may hold, directly or indirectly, solely as an investment, not more than two percent (2%} of the outstanding securities of any person or entity which are listed on any national securities exchange or regularly traded in the over-the-counter market notwithstanding the fact that such person or entity is engaged in a business competitive with the Company's Business. In addition, during the Restricted Period, the Employee shall not develop any property for use in the Company's Business on behalf of any person or entity other than the Company, its subsidiaries and affiliates.

 

(ii) Confidential Information. During the Restricted Period, the Employee shall not, directly or indirectly, disclose to any person or entity who is not authorized by the Company or any subsidiary or affiliate to receive such information, or use or appropriate for his own benefit or for the benefit of any person or entity other than the Company or any subsidiary or affiliate, any documents or other papers relating to the Company's Business or the customers of the Company or any subsidiary or affiliate, including, without limitation, files, business relationships and accounts, pricing policies, customer lists, computer software and hardware, or any other materials relating to the Company's Business or the customers of the Company or any affiliate of the Company or any trade secrets or confidential information, including, without limitation, ·any business or operational methods, drawings, sketches, designs or product concepts, know-how, marketing plans or strategies, product development techniques or plans, business acquisition plans, financial or other performance data, personnel and other policies of the Company or any affiliate of the Company, whether generated by the Employee or by any other person, except as required in the course of performing Employee's duties hereunder or with the express written consent of the Company; provided, however, that the confidential information shall not include any information readily ascertainable from public or published information, or trade sources or independent third parties (other than as a direct or indirect result of unauthorized disclosure by the Employee).

 

(iii) Executives of and Consultants to the Company. During the Restricted Period, the Employee shall not, directly or indirectly (other than in furtherance of the business of the Company), initiate communications with, solicit, persuade, entice, induce or encourage any individual who is then or who has been within the preceding 12-month period, an employee of or consultant to the Company or any of its affiliates to terminate employment with, or a consulting relationship with, the Company or such affiliate, as the case may be, or to become employed by or enter into a contract or other agreement with any other person, and the Employee shall not approach any such employee or consultant for any such purpose or authorize or knowingly approve the taking of any such actions by any other person.

 

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(iv) Solicitation of Customers. During the Restricted Period, the Employee shall not, directly or indirectly, initiate communications with, solicit, persuade, entice, induce, encourage (or assist in connection with any of the foregoing) any person who is then or has been within the preceding 12-month period a customer or account of the Company or its affiliates, or any actual customer leads whose identity the Employee learned during the course of his employment with the Company, to terminate or to adversely alter its contractual or other relationship with the Company or its affiliates.

 

(b) Rights and Remedies Upon Breach. If the Employee breaches any of the provisions of Section 8(a) hereof (collectively, the "Restrictive Covenants"), the Company and its affiliates shall, in addition to the rights set forth in Section 8(a) hereof, have the right and remedy to seek from any court of competent jurisdiction specific performance of the Restrictive Covenants or injunctive relief against any act which would violate any of the Restrictive Covenants, it being acknowledged and agreed that any such breach may cause irreparable injury to the Company and its affiliates and that money damages will not provide an adequate remedy to the Company and its affiliates.

 

(c) Severability of Covenants. If any of the Restrictive Covenants, or any part thereof, is held by a court of competent jurisdiction or any foreign, federal, state, county or local government or other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the Restrictive Covenants shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and such court, government, agency or authority shall be empowered to substitute, to the extent enforceable, provisions similar thereto or other provisions so as to provide to the Company and its affiliates, to the fullest extent permitted by applicable law, !He benefits intended by such provisions.

 

(d) Enforceability in Jurisdictions. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the state and/or federal courts of Miami- Dade County, Florida.

 

9. Other Provisions.

 

(a) Notices. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, telecopied, telegraphed or telexed, or sent by certified, registered or express mail, postage prepaid, to the parties at the addresses specified on the signature page hereto, or at such other addresses as shall be specified by the parties by like notice, and shall be deemed given so long as such provides a receipt of delivery, when so delivered personally, telecopied, telegraphed or telexed, or mailed.

 

(b) Entire Agreement. This Employment Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior contracts and other agreements, written or oral, with respect thereto.

 

(c) Waivers and Amendments. This Employment Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

 

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(d) Governing Law. This Employment Agreement shall be governed by, and construed in accordance with and subject to, the laws of the State of Florida applicable to agreements made and to be performed entirely within such state. The Parties agree that all disputes, legal actions, suits and proceedings arising out of or relating to this Agreement, must be brought exclusively in any Florida state or federal court located in Palm Beach County, Florida (collectively the "Designated Courts"). Each Party hereby consents and submits to the exclusive jurisdiction of the Designated Courts. No legal action, suit or proceeding with respect to this Agreement may be brought in any other forum. Each Party hereby irrevocably waives all claims of immunity from jurisdiction and any objection which such Party may now or hereafter have to the laying of venue of any suit, action or proceeding in any designated court, including any right to object on the basis that any dispute, action, suit or proceeding brought in the Designated Courts has been brought in an improper or inconvenient forum or venue.

 

(e) Binding Effect; Benefit. This Employment Agreement shall inure to the benefit of and be binding upon the parties hereto and any successors and assigns permitted or required by Section 9(f) hereof. Nothing in this Employment Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or such successors and a signs, any rights, remedies, obligations or liabilities under or by reason of this Employment Agreement.

 

(f) Assignment. This Employment Agreement, and the Employee's rights and obligations hereunder, may not be assigned by Employee. The Company may assign this Employment Agreement and its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its assets or business, whether by merger, consolidation or otherwise.

 

(g) Counterparts. This Employment Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

(h) Headings. The headings in this Employment Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement.

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first above written.

 

  COMPANY:
     
  Bonne Santé Group, Inc.
         
  By: /s/ Alfonso J. Cervantes
  Name: Alfonso J. Cervantes
  Title: Employee Chairman
  Address: 10575 NW 37th Terrace
      Miami, FL 33178
       
  EMPLOYEE:
   
  /s/ Ryan Zackon
       
    Address:

 

 

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Exhibit 10.40

 

 

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “Employment Agreement”), dated as of July 1, 2020, is entered into between Bonne Santé Group, Inc. a Delaware corporation (the “Company” or “BSG”), and Darren C. Minton, an individual (“Executive”).

 

BACKGROUND

 

WHEREAS, the Company wishes to secure the services of Executive as President of the Company (with such duties and/or other offices in the Company or its affiliates as may be assigned by the Company or its Board of Directors and agreed to by Executive) upon the terms and conditions hereinafter set forth, and Executive wishes to render such services to the Company upon the terms and conditions hereinafter set forth.

 

WHEREAS, Executive is highly experienced in the capital markets with deep M&A, securities law, corporate governance and public company experience. In addition, Executive has extensive operational experience.

 

WHEREAS, the Company is being positioned for a prospective public offering pursuant to an S-1 registration with a concurrent listing on Nasdaq or NYSE following multiple acquisitions and Executive has a unique background and experience to support the Company’s business initiatives as well as provide operational expertise to the Company’s prospective acquisitions.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

1. Employment by the Company. The Company agrees to employ Executive in the position of President of the Company, having such duties and responsibilities as are reasonably and customarily assigned to individuals serving in such position and such other duties as are consistent with Executive ’s title (with such other duties and/or offices in the Company and its affiliates as may be assigned from time to time by the Company, its Board of Directors, and as agreed to by Executive ). Executive accepts such employment and agrees to perform such duties. Executive agrees to devote the necessary customary business time and energies to the business of the Company and/or its affiliates to perform his duties hereunder on a full time, non-exclusive basis. Full time is defined as a minimum of 35 hours per week. Executive is free to pursue other activities during his non-business time as long as they do not conflict or compete with the business of the Company.

 

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2. Term of Employment. The term of this Employment Agreement (the “Term”) shall be for a period of three years, commencing on July 1, 2020 and terminating on June 30, 2023, unless sooner terminated as provided in Section 6.

 

3. Compensation. As full compensation for all services to be rendered by Executive to the Company and/or its affiliates in all capacities during the Term, Executive shall receive the following compensation and benefits:

 

(a) Base Salary. An annual base salary of $200,000 (the “Base Salary”) payable in accordance with the customary payroll practices for senior management of the Company currently on a bi-weekly basis.

 

(b) Increase of Base Salary. Commencing on the first day of the first calendar month after the completion of: (i) the first bonafide acquisition by the Company during the Term, the Base Salary will be increased to $250,000 per year.

 

(c) Option Pool. Participation in any option pool created by the Company on a pro rata basis, allocated by Base Salary, with other senior executives.

 

(d) Participation in Executive Benefit Plans; Other Benefits. Executive shall be permitted during the Term, if and to the extent eligible, to participate in all benefit plans, policies and practices now or hereafter maintained by or on behalf of the Company available to Company executives. Nothing in this Employment Agreement shall preclude the Company from terminating or amending any such plans or coverage so as to eliminate, reduce or otherwise change any benefit payable thereunder, as long as any such change similarly affects all Company executives. In the event that the Company maintains a life insurance policy on Executive, Executive can take over and retain that policy following termination or resignation. In the event Executive chooses to retain his own medical insurance in lieu of participating in any Company plan, Company will reimburse 100% of those costs. The Company will reimburse any Medicare costs.

 

(e) Expenses. The Company shall pay or reimburse Executive for all reasonable and necessary expenses actually incurred or paid by Executive during the Term in the performance of Executive’s duties under this Employment Agreement upon submission and approval of expense statements, vouchers or other supporting information in accordance with the then customary practices of the Company.

 

(f) Automobile. The Company shall provide Executive with the use of a late model luxury automobile of Executive’s choice at Company expense, including insurance, fuel and maintenance.

 

(g) Vacation. Executive shall be entitled to three weeks of paid vacation per year in accordance with Company policy.

 

(h) Withholding of Taxes. The Company may withhold from any benefits payable under this Employment Agreement all federal, state, city and other taxes as shall be required pursuant to any law or governmental regulation or ruling.

 

(i) Bonus. In addition to the Base Salary, Executive shall be entitled to an annual incentive bonus of up to 20% of Executive ’s base salary to the extent the Company achieves certain milestones which shall be established by the Board of Directors of the Company.

 

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(j) Deferred and Accrued Compensation. Executive shall be entitled to payment of deferred and accrued compensation when the Company has the liquid funds to do so.

 

(k) Acquisitions Bonus. Executive shall be entitled to a $25,000 bonus on the successful completion of the Company’s next two bonafide acquisitions following the Commencement date of this Agreement.

 

(l) Public Listing Bonus. Executive shall be entitled to a $50,000 bonus on the successful completion of the Company’s Initial Public Offering in an amount of no less than $10 million.

 

4. Member of the Board of Directors. As a condition of Executive’s employment as the President, Executive will be entitled to a position of director on the Company’s Board of Directors.

 

5. Place of Employment. The Company cannot change Executive’s place of employment by more than twenty miles without Executive’s written consent.

 

6. Termination.

 

(a) Termination upon Death. If Executive dies during the Term, this Employment Agreement shall terminate as of the date of his death.

 

(b) Termination upon Disability. If during the Term Executive becomes physically or mentally disabled, whether totally or partially, so that Executive is unable to perform his essential job functions hereunder for a period aggregating 90 days during any twelve-month period, and it is determined by a physician acceptable to both the Company and Executive that, by reason of such physical or mental disability, Executive shall be unable to perform the essential job functions required of him hereunder for such period or periods, the Company may, by written notice to Executive, terminate this Employment Agreement, in which event the Term shall terminate 30 days after the date upon which the Company shall have given notice to Executive of its intention to terminate this Employment Agreement because of disability.

 

(c) Termination for Cause. The Company may at any time by written notice to Executive terminate this Employment Agreement immediately and, except as provided in Section 7 hereof, Executive shall have no right to receive any compensation or benefit hereunder on and after the date of such notice, in the event that an event of “Cause” occurs. For purposes of this Employment Agreement “Cause” shall mean:

 

(i) any willful breach by Executive of any material term of this Employment Agreement, if Executive fails to reasonably cure such breach within 30 days after the receipt of written notice from the Board of such breach, which notice shall state in reasonable detail the facts and circumstances claimed to be a failure or willful breach and of the intent of the Company to terminate Executive’s employment upon in the event of failure of Executive to reasonably cure such failure or breach; or

 

(ii) Executive has been convicted of an intentional felonious act of fraud, misappropriation, embezzlement, or theft or an intentional breach of fiduciary duty involving personal profit; or

 

(iii) Executive is indicted for any criminal offense constituting a felony or a crime involving moral turpitude (except that Executive shall continue to be entitled to all compensation until a conviction of such offense); or

 

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(iv) Executive intentionally breaches the provisions of Section 8 of this Agreement.

 

For purposes of this Employment Agreement, an act, or a failure to act, shall not be deemed willful or intentional, as those terms are used herein, unless it is done, or admitted to be done, by Executive in bad faith or without a reasonable belief that Executive’s action or omission was in the interest of the Company.

 

Termination without Cause. The Company may terminate this Employment Agreement at any time, without cause, upon 30 days’ written notice by the Company to Executive and, except as provided in Section 7 hereof, Executive shall have no right to receive any compensation or benefit hereunder not already accrued after such date of termination.

 

7. Payments Upon Termination. If during the Term the Company terminates this Employment Agreement pursuant to Sections 6(b) (Termination for Disability) or 8 (Termination without Cause) hereof, all compensation payable to Executive shall cease as of the date of termination specified in the Company’s notice (the “Termination Date”), and the Company shall pay to Executive the following sums: (i) Executive’s then-current Base Salary through the Termination Date for all periods not yet paid; (ii) benefits under group health and life insurance plans in which Executive participated through the Termination Date; (iii) all previously earned, accrued, and unpaid benefits from the Company and its executive benefit plans, including any such benefits under the Company’s pension, disability, and life insurance plans, policies, and programs; (iv) any bonuses accrued or agreed between the Company and Executive but not yet paid; and (v) six (6) months of severance pay equal to the Base Salary of the current year paid on a bi-weekly schedule.

 

8. Certain Covenants of Executive.

 

(a) Covenants Against Competition. Executive acknowledges that: (i) Executive is one of the limited number of persons who will assist with developing the Company’s business and the business of its portfolio companies (the “Company’s Business”); (ii) the Company conducts its business out of offices in the state of Florida and may conduct its business nationwide; (iii) Executive’s work for the Company will bring Executive into close contact with confidential information not readily available to the public; and (iv) the covenants contained in this Section 8 will not involve a substantial hardship upon Executive ’s future livelihood. In order to induce the Company to enter into this Employment Agreement, Executive covenants and agrees that:

 

(i) Non-Compete. During the Term (the “Restricted Period”), Executive shall not, in those states in the United States of America in which either the Company or any of its subsidiaries or affiliates then operates, directly or indirectly, (i) in any manner whatsoever engage in any capacity with any business competitive with the Company’s business for Executive ’s own benefit or for the benefit of any person or entity other than the Company or affiliate of the Company; or (ii) have any interest as owner, sole proprietor, shareholder, partner, lender, director, officer, manager, Executive, consultant, agent or otherwise in any business competitive with the Company’s business; provided, however, that Executive may hold, directly or indirectly, solely as an investment, not more than two percent (2%) of the outstanding securities of any person or entity which are listed on any national securities exchange or regularly traded in the over-the- counter market notwithstanding the fact that such person or entity is engaged in a business competitive with the Company’s business. It is expressly understood, however, that Executive may invest in or be an employee, officer and/or director of any company not competitive of the Company’s business.

 

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(ii) Confidential Information. During his employment with the Company as well as the Restricted Period, Executive shall not, directly or indirectly, disclose to any person or entity who is not authorized by the Company or any subsidiary or affiliate to receive such information, or use or appropriate for his own benefit or for the benefit of any person or entity other than the Company or any subsidiary or affiliate, any documents or other papers relating to the Company’s business or the customers of the Company or any subsidiary or affiliate, including, without limitation, files, business relationships and accounts, pricing policies, customer lists, computer software and hardware, or any other materials relating to the Company’s business or the customers of the Company or any affiliate of the Company or any trade secrets or confidential information, including, without limitation, any business or operational methods, drawings, sketches, designs or product concepts, know-how, marketing plans or strategies, product development techniques or plans, business acquisition plans, financial or other performance data, personnel and other policies of the Company or any affiliate of the Company, whether generated by Executive or by any other person, except as required in the course of performing Executive ’s duties hereunder or with the express written consent of the Company; provided, however, that the confidential information shall not include any information readily ascertainable from public or published information, or trade sources or independent third parties (other than as a direct or indirect result of unauthorized disclosure by Executive ).

 

(iii) Executives of and Consultants to the Company. During the Restricted Period, Executive shall not, directly or indirectly (other than in furtherance of the business of the Company), initiate communications with, solicit, persuade, entice, induce or encourage any individual who is then an executive of or consultant to the Company or any of its affiliates to terminate employment with, or a consulting relationship with, the Company or such affiliate, as the case may be, or to become employed by or enter into a contract or other agreement with any other person, and Executive shall not approach any such executive or consultant for any such purpose or authorize or knowingly approve the taking of any such actions by any other person.

 

(iv) Solicitation of Customers. During the Restricted Period, Executive shall not, directly or indirectly, initiate communications with, solicit, persuade, entice, induce, encourage (or assist in connection with any of the foregoing) any person who is then or has been within the preceding 12-month period a customer or account of the Company or its affiliates, or any actual customer leads whose identity Executive learned during the course of his employment with the Company, to terminate or to adversely alter its contractual or other relationship with the Company or its affiliates.

 

(b) Rights and Remedies Upon Breach. If Executive breaches any of the provisions of Section 8(a) hereof (collectively, the “Restrictive Covenants”), the Company and its affiliates shall, in addition to the rights set forth in Section 8(a) hereof, have the right and remedy to seek from any court of competent jurisdiction specific performance of the Restrictive Covenants or injunctive relief against any act which would violate any of the Restrictive Covenants, it being acknowledged and agreed that any such breach may cause irreparable injury to the Company and its affiliates and that money damages will not provide an adequate remedy to the Company and its affiliates.

 

(c) Severability of Covenants. If any of the Restrictive Covenants, or any part thereof, is held by a court of competent jurisdiction or any foreign, federal, state, county or local government or other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the Restrictive Covenants shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and such court, government, agency or authority shall be empowered to substitute, to the extent enforceable, provisions similar thereto or other provisions so as to provide to the Company and its affiliates, to the fullest extent permitted by applicable law, the benefits intended by such provisions.

 

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(d) Enforceability in Jurisdictions. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants under the laws of the State of Florida.

 

9. Other Provisions.

 

(a) Notices. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, or sent by overnight delivery service with proof of delivery, to the parties at the addresses specified on the signature page hereto, or at such other addresses as shall be specified by the parties by like notice, and shall be deemed given as long as such provides a receipt of delivery, when so delivered. A copy of all notices shall be sent by email.

 

(b) Entire Agreement. This Employment Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior contracts and other agreements, written or oral, with respect thereto.

 

(c) Waivers and Amendments. This Employment Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

 

(d) Governing Law. This Employment Agreement shall be governed by, and construed in accordance with and subject to, the laws of the State of Delaware applicable to agreements made and to be performed entirely within such state.

 

(e) Binding Effect; Benefit. This Employment Agreement shall inure to the benefit of and be binding upon the parties hereto and any successors and assigns permitted or required by Section 9(f) hereof. Nothing in this Employment Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or such successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Employment Agreement.

 

(f) Assignment. This Employment Agreement, and Executive ’s rights and obligations hereunder, may not be assigned by Executive. The Company may assign this Employment Agreement and its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its assets or business, whether by merger, consolidation or otherwise.

 

(g) Counterparts. This Employment Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Facsimiles and electronic signatures may be used.

 

(h) Headings. The headings in this Employment Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement.

 

(i) Attorneys’ Fees In the event of the bringing of any action, suit or proceeding by any party hereto against any other party hereto by reason of a breach of this Agreement or any portion thereof, then the prevailing party in such action or suit shall be entitled to have and recover all costs and expenses of suit, including reasonable attorneys’ fees, as well as all costs and expenses, including reasonable attorneys’ fees.

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first above written.

 

  COMPANY:  
       
  Bonne Santé Group, Inc.
       
  By:  /s/ Alfonso J. Cervantes
    Name: Alfonso J. Cervantes
    Title: Executive Chairman
    Address: 

10575 NW 37th Terrace

Miami, FL 33178

       
    Email:  
       
  EXECUTIVE:  
       
  Name:  Darren Minton
       
    /s/ Darren Minton
       
    Address:  
       
    Email:  

 

 

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Exhibit 10.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonne Santé Group, Inc.


2020 Stock Incentive Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BONNE SANTÉ GROUP, INC.

2020 STOCK INCENTIVE PLAN

 

SECTION 1. PURPOSE.

 

The Plan was adopted by the Board of Directors and Stockholders effective September 14, 2020. The purpose of the Plan is to offer selected Employees, Consultants and Outside Directors the opportunity to acquire equity in the Company through awards of Options (which may constitute incentive stock options or nonstatutory stock options) and the award or sale of Shares.

 

SECTION 2. DEFINITIONS.

 

“Board” shall mean the Board of Directors of the Company, as constituted from time to time.

 

“Change in Control” shall mean the occurrence of any of the following events:

 

(a) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization fifty percent (50%) or more of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity;

 

(b) The consummation of the sale, transfer or other disposition of all or substantially all of the Company’s assets or the stockholder of the Company approve a plan of complete liquidation of the Company; or

 

(c) Any “person” (as defined below) who, by the acquisition or aggregation of securities, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); except that any change in the relative beneficial ownership of the Company’s securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Company.

 

The term “person” shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (1) a trustee or other fiduciary holding securities under an employee benefit plan maintained by the Company or a Parent or Subsidiary and (2) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the Stock.

 

Notwithstanding the foregoing, the term “Change in Control” shall not include (a) a transaction the sole purpose of which is to change the state of the Company’s incorporation, (b) a transaction the sole purpose of which is to form a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction, (c) a transaction the sole purpose of which is to make an initial public offering of the Company’s Stock or (d) any change in the beneficial ownership of the securities of the Company as a result of a private financing of the Company that is approved by the Board.

 

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

 

 

 

 

“Committee” shall mean the committee designated by the Board, which is authorized to administer the Plan, as described in Section 3 hereof.

 

“Company” shall mean Bonne Santé Group, Inc., a Delaware corporation.

 

“Consultant” shall mean a consultant or advisor who is not an Employee or Outside Director and who performs bona fide services for the Company, a Parent or Subsidiary.

 

“Disability” shall mean a condition that renders an individual unable to engage in substantial gainful activity by reason of any medically determinable physical or mental impairment.

 

“Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary and who is an “employee” within the meaning of section 3401(c) of the Code and regulations issued thereunder.

 

“Exchange Act” shall mean the U.S. Securities and Exchange Act of 1934, as amended.

 

“Exercise Price” shall mean the amount for which one Share may be purchased upon the exercise of an Option, as specified in a Stock Option Agreement.

 

“Fair Market Value” means, with respect to a Share, the market price of one Share of Stock, determined by the Board in good faith. Such determination shall be conclusive and binding on all persons.

 

“ISO” shall mean an incentive stock option described in section 422(b) of the Code.

 

“NSO” shall mean a stock option that is not an ISO.

 

“Option” shall mean an ISO or NSO granted under the Plan and entitling the holder to purchase Shares.

 

“Optionee” shall mean a person that holds an Option.

 

“Outside Director” shall mean a member of the Board of the Company, a Parent or a Subsidiary who is not an Employee.

 

“Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

 

“Plan” shall mean the Bonne Santé Group, Inc. 2020 Stock Incentive Plan.

 

“Purchase Price” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option).

 

“Purchaser” shall mean a person to whom the Board has offered the right to acquire Shares under the Plan (other than upon exercise of an Option).

 

“Restricted Stock Award Agreement” shall mean the agreement between the Company and a Purchaser who acquires Shares under the Plan that contains the terms, conditions and restrictions pertaining to the acquisition of such Shares.

 

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“Securities Act” shall mean the U.S. Securities Act of 1933, as amended.

 

“Service” shall mean service as an Employee, a Consultant or an Outside Director, subject to such further limitations as may be set forth in the applicable Stock Option Agreement or Restricted Stock Award Agreement. Service shall be deemed to continue during a bona fide leave of absence approved by the Company in writing if and to the extent that continued crediting of Service for purposes of the Plan is expressly required by the terms of such leave or by applicable law, as determined by the Company. However, for purposes of determining whether an Option is entitled to ISO status, and to the extent required under the Code, an Employee’s employment will be treated as terminating three (3) months after such Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract or such Employee immediately returns to active work. The Company determines which leaves count toward Service, and when Service terminates for all purposes under the Plan.

 

“Share” shall mean one share of Stock, as adjusted in accordance with Section 9 (if applicable).

 

“Stock” shall mean the common stock of the Company.

 

“Stock Option Agreement” shall mean the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to the Optionee’s Option.

 

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

 

“Ten-Percent Stockholder” means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries. In determining stock ownership for purposes herein, the attribution rules of section 424(d) of the Code shall be applied.

 

SECTION 3. ADMINISTRATION.

 

3.1 General Rule. The Plan shall be administered by the Board. However, the Board may delegate any or all administrative functions under the Plan otherwise exercisable by the Board to one or more Committees. Each Committee shall consist of at least two directors of the Board who have been appointed by the Board. Each Committee shall have the authority and be responsible for such functions as the Board has assigned to it. If a Committee has been appointed, any reference to the Board in the Plan shall be construed as a reference to the Committee to whom the Board has assigned a particular function.

 

3.2 Board Authority and Responsibility. Subject to the provisions of the Plan, the Board shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. All decisions, interpretations and any other actions of the Board with respect to the Plan shall be final and binding on all persons deriving rights under the Plan.

 

SECTION 4. ELIGIBILITY.

 

4.1 General Rule. Only Employees shall be eligible for the grant of ISOs. Only Employees, Consultants and Outside Directors shall be eligible for the grant of NSOs or the award or sale of Shares.

 

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SECTION 5. STOCK SUBJECT TO PLAN.

 

5.1 Share Limit. Subject to Sections 5.2 and 9, the aggregate number of Shares which may be issued under the Plan shall not exceed 2,000,000 Shares. The number of Shares which are subject to Options or other rights outstanding at any time shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. Shares offered under the Plan may be authorized but unissued Shares.

 

5.2 Additional Shares. In the event that any outstanding Option or other right expires or is canceled for any reason, the Shares allocable to the unexercised portion of such Option or other right shall remain available for issuance pursuant to the Plan. If a Share previously issued under the Plan is reacquired by the Company pursuant to a forfeiture provision, then such Share shall again become available for issuance under the Plan.

 

SECTION 6. RESTRICTED STOCK.

 

6.1 Restricted Stock Award Agreement. Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Restricted Stock Award Agreement between the Purchaser and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions imposed by the Board, as set forth in the Restricted Stock Award Agreement, that are not inconsistent with the Plan. The provisions of the various Restricted Stock Award Agreements entered into under the Plan need not be identical.

 

6.2 Duration of Offers and Nontransferability of Purchase Rights. Any right to acquire Shares (other than an Option) shall automatically expire if not exercised by the Purchaser within thirty (30) days after the Company communicates the grant of such right to the Purchaser. Such right shall be nontransferable and shall be exercisable only by the Purchaser to whom the right was granted.

 

6.3 Purchase Price. The Board shall determine the amount of the Purchase Price in its sole discretion. The Purchase Price shall be payable in a form described in Section 8.

 

6.4 Repurchase Rights and Transfer Restrictions. Each award or sale of Shares shall be subject to such forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board may determine, subject to the requirements of Section 10. Such restrictions shall be set forth in the applicable Restricted Stock Award Agreement and shall apply in addition to any restrictions otherwise applicable to holders of Shares generally.

 

SECTION 7. STOCK OPTIONS.

 

7.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. The Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions imposed by the Board, as set forth in the Stock Option Agreement, which are not inconsistent with the Plan. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

 

7.2 Number of Shares; Kind of Option. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 9. The Stock Option Agreement shall also specify whether the Option is intended to be an ISO or an NSO.

 

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7.3 Exercise Price. Each Stock Option Agreement shall set forth the Exercise Price, which shall be payable in a form described in Section 8. Subject to the following requirements, the Exercise Price under any Option shall be determined by the Board in its sole discretion:

 

(a) Minimum Exercise Price for ISOs. The Exercise Price per Share of an ISO shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant; provided, however, that the Exercise Price per Share of an ISO granted to a Ten-Percent Stockholder shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date of grant.

 

(b) Minimum Exercise Price for NSOs. The Exercise Price per Share of an NSO shall not be less than one-hundred percent (100%) of the Fair Market Value of a Share on the date of grant.

 

7.4 Term. Each Stock Option Agreement shall specify the term of the Option. The term of an Option shall in no event exceed ten (10) years from the date of grant. The term of an ISO granted to a Ten-Percent Stockholder shall not exceed five (5) years from the date of grant. Subject to the foregoing, the Board in its sole discretion shall determine when an Option shall expire.

 

7.5 Exercisability. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable; provided, however, that no Option shall be exercisable unless the Optionee has delivered to the Company an executed copy of the Stock Option Agreement. Subject to the following restrictions, the Board in its sole discretion shall determine when all or any installment of an Option is to become exercisable and may, in its discretion, provide for accelerated exercisability in the event of a Change in Control or other events:

 

(a) Options Granted to Outside Directors. The exercisability of an Option granted to an Optionee for service as an Outside Director shall be automatically accelerated in full in the event of a Change in Control.

 

(b) Early Exercise. A Stock Option Agreement may permit the Optionee to exercise the Option as to Shares that are subject to a right of repurchase by the Company in accordance with the requirements of Section 10.

 

7.6 Repurchase Rights and Transfer Restrictions. Shares purchased on exercise of Options shall be subject to such forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board may determine, subject to the requirements of Section 10. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any restrictions otherwise applicable to holders of Shares generally.

 

7.7 Transferability of Options. During an Optionee’s lifetime, his or her Options shall be exercisable only by the Optionee or by the Optionee’s guardian or legal representatives, and shall not be transferable other than by beneficiary designation, will or the laws of descent and distribution. Notwithstanding the foregoing, however, to the extent permitted by the Board in its sole discretion, an NSO may be transferred by the Optionee to a revocable trust or to one or more family members or a trust established for the benefit of the Optionee and/or one or more family members to the extent permitted Rule 701 of the Securities Act and applicable state securities laws.

 

7.8 Exercise of Options on Termination of Service. Each Option shall set forth the extent to which the Optionee shall have the right to exercise the Option following termination of the Optionee’s Service. Each Stock Option Agreement shall provide the Optionee with the right to exercise the Option following the Optionee’s termination of Service during the Option term, to the extent the Option was exercisable for vested Shares upon termination of Service, for at least thirty (30) days if termination of Service is due to any reason other than cause, death or Disability, and for at least six (6) months after termination of Service if due to death or Disability (but in no event later than the expiration of the Option term). If the Optionee’s Service is terminated for cause, the Stock Option Agreement may provide that the Optionee’s right to exercise the Option terminates immediately on the effective date of the Optionee’s termination. To the extent the Option was not exercisable for vested Shares upon termination of Service, the Option shall terminate when the Optionee’s Service terminates. Subject to the foregoing, such provisions shall be determined in the sole discretion of the Board, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.

 

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7.9 No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of the Option. No adjustments shall be made, except as provided in Section 9.

 

7.10 Modification, Extension and Renewal of Options. Within the limitations of the Plan, the Board may modify, extend or renew outstanding Options or may accept the cancellation of outstanding Options (to the extent not previously exercised), whether or not granted hereunder, in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, materially impair his or her rights or increase the Optionee’s obligations under such Option.

 

SECTION 8. PAYMENT FOR SHARES.

 

8.1 General. The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash, cash equivalents or one of the other forms provided in this Section.

 

8.2 Surrender of Stock. To the extent permitted by the Board in its sole discretion, payment may be made in whole or in part by surrendering (in good form for transfer), or attesting to ownership of, Shares which have already been owned by the Optionee; provided, however, that payment may not be made in such form if such action would cause the Company to recognize any (or additional) compensation expense with respect to the Option for financial reporting purposes. Such Shares shall be valued at their Fair Market Value on the date of Option exercise.

 

8.3 Services Rendered. As determined by the Board in its discretion, Shares may be awarded under the Plan in consideration of past services rendered to the Company, a Parent or Subsidiary.

 

8.4 Promissory Notes. To the extent permitted by the Board in its sole discretion, payment may be made in whole or in part with a full-recourse promissory note executed by the Optionee or Purchaser. The interest rate payable under the promissory note shall not be less than the minimum rate required to avoid the imputation of income for U.S. federal income tax purposes. Shares shall be pledged as security for payment of the principal amount of the promissory note, and interest thereon; provided that if the Optionee or Purchaser is a Consultant, such note must be collateralized with such additional security to the extent required by applicable laws. In no event shall the stock certificate(s) representing such Shares be released to the Optionee or Purchaser until such note is paid in full. Subject to the foregoing, the Board shall determine the term, interest rate and other provisions of the note.

 

8.5 Exercise/Sale. To the extent permitted by the Board in its sole discretion, and if a public market for the Shares exists, payment may be made in whole or in part by delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

 

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8.6 Exercise/Pledge. To the extent permitted by the Board in its sole discretion, and if a public market for the Shares exists, payment may be made in whole or in part by delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker or lender approved by the Company to pledge Shares, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

 

8.7 Other Forms of Payment. To the extent permitted by the Board in its sole discretion, payment may be made in any other form that is consistent with applicable laws, regulations and rules.

 

SECTION 9. ADJUSTMENT OF SHARES.

 

9.1 General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a recapitalization, a spin-off, a reclassification, or a similar occurrence, the Board shall make equitable adjustments to the following: (a) the number of Shares available for future awards under Section 5; (b) the number of Shares covered by each outstanding Option; (c) the Exercise Price under each outstanding Option; and (d) the price of Shares subject to the Company’s right of repurchase.

 

9.2 Dissolution or Liquidation. To the extent not previously exercised or settled, Options shall terminate immediately prior to the dissolution or liquidation of the Company.

 

9.3 Mergers and Consolidations. In the event that the Company is a party to a merger or other consolidation, or in the event of a transaction providing for the sale of all or substantially all of the Company’s stock or assets, outstanding Options shall be subject to the agreement of merger, consolidation or sale. Such agreement may provide for one or more of the following: (a) the continuation of the outstanding Options by the Company, if the Company is a surviving corporation; (b) the assumption of the Plan and outstanding Options by the surviving corporation or its parent; (c) the substitution by the surviving corporation or its parent of options with substantially the same terms for such outstanding Options; (d) immediate exercisability of such outstanding Options followed by the cancellation of such Options; or (e) settlement of the intrinsic value of the outstanding Options (whether or not then exercisable) in cash or cash equivalents or equity (including cash or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Options or the underlying Shares) followed by the cancellation of such Options; in each case without the Optionee’s consent.

 

9.4 Reservation of Rights. Except as provided in this Section 9, an Optionee or offeree shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

SECTION 10. REPURCHASE RIGHTS.

 

The Company shall have the right to repurchase Shares that have been acquired through an award or sale of Shares or exercise of an Option upon termination of the Purchaser’s or Optionee’s Service if provided in the applicable Restricted Stock Award Agreement or Stock Option Agreement. The Board in its sole discretion shall determine when the right to repurchase shall lapse as to all or any portion of the Shares, and may, in its discretion, provide for accelerated vesting in the event of a Change in Control or other events; provided, however, that the right to repurchase shall lapse as to all of the Shares issued to an Outside Director for service as an Outside Director in the event of a Change in Control.

 

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SECTION 11. WITHHOLDING AND OTHER TAXES.

 

11.1 General. An Optionee or Purchaser or his or her successor shall pay, or make arrangements satisfactory to the Board for the satisfaction of, any federal, state, local or foreign withholding tax obligations that may arise in connection with the Plan. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.

 

11.2 Share Withholding. The Board may permit an Optionee or Purchaser to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that would otherwise would be issued to him or her upon exercise of an Option, or by surrendering all or a portion of any Shares that he or she previously acquired; provided, however, that in no event may an Optionee or Purchaser surrender Shares in excess of the legally required withholding amount based on the minimum statutory withholding rates for federal and state tax purposes that apply to supplemental taxable income. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including any restrictions required by rules of any federal or state regulatory body or other authority. All elections by Optionees or Purchasers to have Shares withheld for this purpose shall be made in such form and under such conditions as the Board may deem necessary or advisable.

 

11.3 Cashless Exercise/Pledge. The Board may provide that if Company Shares are publicly traded at the time of exercise, arrangements may be made to meet the Optionee’s or Purchaser’s withholding obligation by cashless exercise or pledge.

 

11.4 Other Forms of Payment. The Board may permit such other means of tax withholding as it deems appropriate.

 

11.5 Employer Fringe Benefit Taxes. To the extent permitted by applicable federal, state, local and foreign law, an Optionee or Purchaser shall be liable for any fringe benefit tax that may be payable by the Company and/or the Optionee’s or Purchaser’s employer in connection with any award granted to the Optionee or Purchaser under the Plan, which the Company and/or employer may collect by any reasonable method established by the Company and/or employer.

 

SECTION 12. SECURITIES LAW REQUIREMENTS.

 

12.1 General. Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be listed.

 

12.2 Dividend Rights. A Restricted Stock Award Agreement may require that the holders of Shares invest any cash dividends received in additional Shares. Such additional Shares shall be subject to the same conditions and restrictions as the award with respect to which the dividends were paid.

 

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SECTION 13. NO RETENTION RIGHTS.

 

No provision of the Plan, or any right or Option granted under the Plan, shall be construed to give any Optionee or Purchaser any right to become an Employee, to be treated as an Employee, or to continue in Service for any period of time, or restrict in any way the rights of the Company (or Parent or subsidiary to whom the Optionee or Purchaser provides Service), which rights are expressly reserved, to terminate the Service of such person at any time and for any reason, with or without cause, without thereby incurring any liability to him or her.

 

SECTION 14. DURATION AND AMENDMENTS.

 

14.1 Term of the Plan. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board, subject to the approval of the Company’s stockholders. In the event that the stockholders fail to approve the Plan within twelve (12) months after its adoption by the Board, any grants, exercises or sales that have already occurred under the Plan shall be rescinded, and no additional grants, exercises or sales shall be made under the Plan after such date. The Plan shall terminate automatically ten (10) years after its adoption by the Board. The Plan may be terminated on any earlier date pursuant to Section 14.2 below.

 

14.2 Right to Amend or Terminate the Plan. The Board may amend, suspend, or terminate the Plan at any time and for any reason. An amendment of the Plan shall not be subject to the approval of the Company’s stockholders unless it (a) increases the number of Shares available for issuance under the Plan (except as provided in Section 9) or (b) materially changes the class of persons who are eligible for the grant of Options or the award or sale of Shares.

 

14.3 Effect of Amendment or Termination. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not adversely affect any Shares previously issued or any Option previously granted under the Plan without the holder’s consent.

 

To record the adoption of the Plan by the Board on September 14, 2020, effective on such date, the Company has caused its authorized officer to execute the same.

 

  Bonne Santé Group, Inc.
     
  By: /s/ Darren Minton
  Name:  Darren Minton
  Title: President

 

 

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Exhibit 10.44

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.

 

Bonne SantE Group, INC.

2020 STOCK INCENTIVE PLAN

 

NOTICE OF STOCK OPTION GRANT 

 

Bonne Santé Group, Inc. (the “Company”) hereby grants you the following option (this “Option”) to purchase shares of its common stock (“Shares”). The terms and conditions of this Option are set forth in the Stock Option Agreement and the Bonne Santé Group, Inc. 2020 Stock Incentive Plan (the “Plan”), both of which are attached to and made a part of this document.

 

Date of Grant:  
   
Name of Optionee:  
   
Number of Option Shares:  
   
Exercise Price per Share:  
   
Vesting Start Date:  
   
Type of Option:  
   
Vesting Schedule:  

 

 

 

 

Bonne Santé Group, Inc.
2020 Stock Incentive Plan

 

STOCK OPTION AGREEMENT

 

1. Kind of Option. This Option is intended to be either an incentive stock option intended to meet the requirements of section 422 of the Internal Revenue Code (an “ISO”) or a non-statutory option (an “NSO”), which is not intended to meet the requirements of an ISO, as indicated in the Notice of Stock Option Grant. Even if this Option is designated as an ISO, it shall be deemed to be an NSO to the extent required by the $100,000 annual limitation under Section 422(d) of the Code.

 

2. Vesting. Subject to the terms and conditions of the Plan and this Stock Option Agreement (the “Agreement”), your Option will be exercisable with respect to the Shares that have become vested in accordance with the schedule set forth in the Notice of Stock Option Grant. If your Option is granted in consideration of your Service as an Employee or a Consultant, after your Service as an Employee or a Consultant terminates for any reason, vesting of your Shares subject to such Option immediately stops and such Option expires immediately as to the number of Shares that are not vested as of the date your Service as an Employee or a Consultant terminates. If your Option is granted in consideration of your Service as an Outside Director, after your Service as an Outside Director terminates for any reason, vesting of your Shares subject to such Option immediately stops and such Option expires immediately as to the number of Shares that are not vested as of the date your Service as an Outside Director terminates.

 

3. Term. Your Option will expire in any event at the close of business at Company headquarters ten (10) years after the Date of Grant; provided, however, that if your Option is an ISO it will expire five (5) years after the Date of Grant if you are a Ten-Percent Stockholder of the Company (the “Expiration Date”). Also, your Option will expire earlier if your Service terminates, as described below.

 

4. Regular Termination.

 

(a) If your Service terminates for any reason except death or Disability, the vested portion of your Option will expire at the close of business at Company headquarters on the date three (3) months after your termination of Service. During that three (3) month period, you may exercise the portion of your Option that was vested on your termination date. Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

 

(b) If your Option is an ISO and you exercise it more than three months after termination of your Service as an Employee for any reason other than death or Disability expected to result in death or to last for a continuous period of at least twelve (12) months, your Option will cease to be eligible for ISO tax treatment.

 

(c) Your Option will cease to be eligible for ISO tax treatment if you exercise it more than three months after the first day following three months of a bona fide leave of absence approved by the Company, unless you return to employment immediately upon termination of such leave or your right to reemployment after your leave was guaranteed by statute or contract.

 

5. Death. If you die while in Service with the Company, the vested portion of your Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date of your death. During that twelve (12) month period, your estate, legatees or heirs may exercise that portion of your Option that was vested on the date of your death. Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

 

 

 

 

6. Disability.

 

(a) If your Service terminates because of a Disability, the vested portion of your Option will expire at the close of business at Company headquarters on the date twelve (12) months after your termination date. During that twelve (12) month period, you may exercise that portion of your Option that was vested on the date of your Disability. Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

 

(b) If your Option is an ISO and your Disability is not expected to result in death or to last for a continuous period of at least twelve (12) months, your Option will be eligible for ISO tax treatment only if it is exercised within three (3) months following the termination of your Service as an Employee.

 

7. Exercising Your Option. To exercise your Option, you must execute the Notice of Exercise and Common Stock Purchase Agreement (the “Exercise Notice”), attached as Exhibit A. You must submit this form, together with full payment, to the Company. Your exercise will be effective when it is received by the Company. If someone else wants to exercise your Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.

 

8. Payment Forms. When you exercise your Option, you must include payment of the Exercise Price for the Shares you are purchasing in cash or cash equivalents. Alternatively, you may pay all or part of the Exercise Price by surrendering, or attesting to ownership of, Shares already owned by you, unless such action would cause the Company to recognize any (or additional) compensation expense with respect to the Option for financial reporting purposes. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date of Option exercise. To the extent that a public market for the Shares exists and to the extent permitted by applicable law, in each case as determined by the Company, you also may exercise your Option by delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price and, if requested, applicable withholding taxes. The Company will provide the forms necessary to make such a cashless exercise. The Board may permit such other payment forms as it deems appropriate, subject to applicable laws, regulations and rules.

 

9. Tax Withholding and Reporting.

 

(a) You will not be allowed to exercise this Option unless you pay, or make acceptable arrangements to pay, any taxes required to be withheld as a result of the Option exercise or the sale of Shares acquired upon exercise of this Option. You hereby authorize withholding from payroll or any other payment due you from the Company or your employer to satisfy any such withholding tax obligation.

 

(b) If you sell or otherwise dispose of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, you shall immediately notify the Company in writing of such disposition.

 

(c) By signing this Agreement, you explicitly and unambiguously consent and agree to assume any liability for fringe benefit tax that may be payable by the Company and/or your employer in connection with the Option granted under this Agreement to the extent permitted under applicable law. Further, by signing this Agreement, you agree that the Company and/or your employer may collect the fringe benefit tax from you by any reasonable method established by the Company and/or your employer. You further agree to execute any other consents or elections required to accomplish the above, promptly upon request of the Company and/or your employer.

 

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10. Right of First Refusal. In the event that you propose to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have a “Right of First Refusal” with respect to such Shares in accordance with the provisions of the Exercise Notice.

 

11. Resale Restrictions/Market Stand-off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the U.S. Securities Act of 1933, as amended, including the Company’s initial public offering, you may be prohibited from engaging in any transaction with respect to any of the Company’s common stock without the prior written consent of the Company or its underwriters in accordance with the provisions of the Exercise Notice.

 

12. Transfer of Option. Prior to your death, only you may exercise this Option. This Option and the rights and privileges conferred hereby cannot be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may, however, dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company is not obligated to honor an Exercise Notice from your spouse or former spouse, nor is the Company obligated to recognize such individual’s interest in your Option in any other way. Notwithstanding the foregoing, however, to the extent permitted by the Board in its sole discretion, an NSO may be transferred by you to a revocable trust or to one or more family members or to a trust established for your benefit and/or one or more of your family members to the extent permitted by the Plan.

 

13. Retention Rights. This Agreement does not give you the right to be retained by the Company in any capacity. The Company reserves the right to terminate your Service at any time and for any reason without thereby incurring any liability to you.

 

14. Stockholder Rights. Neither you nor your estate or heirs have any rights as a stockholder of the Company until a certificate for the Shares acquired upon exercise of this Option has been issued. No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued, except as described in the Plan.

 

15. Adjustments. In the event of a stock split, a stock dividend or a similar change in the Company’s Stock, the number of Shares covered by this Option and the Exercise Price per share may be adjusted pursuant to the Plan. Your Option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity as set forth in the Plan.

 

16. Legends. All certificates representing the Shares issued upon exercise of this Option shall, where applicable, have endorsed thereon the following legends:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL, STATE AND FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL, STATE AND FOREIGN SECURITIES LAWS IS NOT REQUIRED.

 

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THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.

 

If the Option is an ISO, then the following legend should be included:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED UPON EXERCISE OF AN INCENTIVE STOCK OPTION, AND THE COMPANY MUST BE NOTIFIED IF THE SHARES SHALL BE TRANSFERRED BEFORE THE LATER OF THE TWO (2) YEAR ANNIVERSARY OF THE DATE OF GRANT OF THE OPTION OR THE ONE (1) YEAR ANNIVERSARY OF THE DATE ON WHICH THE OPTION WAS EXERCISED. THE REGISTERED HOLDER MAY RECOGNIZE ORDINARY INCOME IF THE SHARES ARE TRANSFERRED BEFORE SUCH DATE.

 

17. Tax Disclaimer. You agree that you are responsible for consulting your own tax advisor as to the tax consequences associated with your Option. The tax rules governing options are complex, change frequently and depend on the individual taxpayer’s situation. Options granted at a discount from fair market value may be considered “deferred compensation” subject to adverse tax consequences under new Section 409A of the Internal Revenue Code, which is generally effective January 1, 2005. The Board has made a good faith determination that the exercise price per share of the Option is not less than the fair market value of the Shares underlying your Option on the Date of Grant. It is possible, however, that the Internal Revenue Service could later challenge that determination and assert that the fair market value of the Shares underlying your Option was greater on the Date of Grant than the exercise price determined by the Board, which could result in immediate income tax upon the vesting of your Option (whether or not exercised) and a 20% tax penalty, as well as the loss of incentive stock option status (if applicable). The Company gives no assurance that such adverse tax consequences will not occur and specifically assumes no responsibility therefor. By accepting this Option, you acknowledge that any tax liability or other adverse tax consequences to you resulting from the grant of the Option will be the responsibility of, and will be borne entirely by, you.  YOU ARE THEREFORE ENCOURAGED TO CONSULT YOUR OWN TAX ADVISOR BEFORE ACCEPTING THE GRANT OF THIS OPTION.

 

18. The Plan and Other Agreements. The text of the Plan is incorporated in this Agreement by reference. Certain capitalized terms used in this Agreement are defined in the Plan. By signing this Agreement, you acknowledge receipt of a copy of the Plan, and agree that (a) you have carefully read, fully understand and agree to all of the terms and conditions described in this Agreement, the Plan and the Exercise Notice; (b) you hereby make the purchaser’s investment representations contained in the Exercise Notice with respect to the grant of this Option; (c) you understand and agree that this Agreement, including its cover sheet and attachments, constitutes the entire understanding between you and the Company regarding this Option, and that any prior agreements, commitments or negotiations concerning this Option are replaced and superseded; and (d) you have been given an opportunity to consult your own legal and tax counsel with respect to all matters relating to this Option prior to signing this Agreement and that you have either consulted such counsel or voluntarily declined to consult such counsel.

 

19. Applicable Law. This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to their choice of law provisions).

 

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20. Miscellaneous Provisions.

 

(a) You understand and acknowledge that (i) the Plan is entirely discretionary, (ii) the Company and your employer have reserved the right to amend, suspend or terminate the Plan at any time, (iii) the grant of an option does not in any way create any contractual or other right to receive additional grants of options (or benefits in lieu of options) at any time or in any amount and (iv) all determinations with respect to any additional grants, including (without limitation) the times when options will be granted, the number of Shares offered, the Exercise Price and the vesting schedule, will be at the sole discretion of the Company.

 

(b) The value of this Option shall be an extraordinary item of compensation outside the scope of your employment contract, if any, and shall not be considered a part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

(c) You understand and acknowledge that participation in the Plan ceases upon termination of your Service for any reason, except as may explicitly be provided otherwise in the Plan or this Agreement.

 

(d) You hereby authorize and direct your employer to disclose to the Company or any Subsidiary any information regarding your employment, the nature and amount of your compensation and the fact and conditions of your participation in the Plan, as your employer deems necessary or appropriate to facilitate the administration of the Plan.

 

(e) You consent to the collection, use and transfer of personal data as described in this Subsection. You understand and acknowledge that the Company, your employer and the Company’s other Subsidiaries hold certain personal information regarding you for the purpose of managing and administering the Plan, including (without limitation) your name, home address, telephone number, date of birth, social insurance number, salary, nationality, job title, any Shares or directorships held in the Company and details of all options or any other entitlements to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (the “Data”). You further understand and acknowledge that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and that the Company and/or any Subsidiary may each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan. You understand and acknowledge that the recipients of Data may be located in the United States or elsewhere. You authorize such recipients to receive, possess, use, retain and transfer Data, in electronic or other form, for the purpose of administering your participation in the Plan, including a transfer to any broker or other third party with whom you elect to deposit Shares acquired under the Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf. You may, at any time, view the Data, require any necessary modifications of Data or withdraw the consents set forth in this Subsection by contacting the Human Resources Department of the Company or its equivalent in writing.

 

(f) If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

 

(g) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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In Witness Whereof, the parties hereto have executed this Agreement as of the day and year first above written.

 

  Bonne Santé Group, Inc.
       
  By:  
    Name:  
    Title:  
       
  Address:   
     
     
     
       
  OPTIONEE:
       
       
       
  (Signature)
       
       
  Name (Please Print)
       
  Address:  
     
     

 

Bonne Santé Group, Inc.
Stock Option Agreement

 

 

 

 

EXHIBIT A

 

Bonne sAntÉ Group, Inc.

2020 STOCK INCENTIVE PLAN

 

NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT 

 

THIS AGREEMENT is dated as of ___________, ____, between Bonne Santé Group, Inc. (the “Company”), and _____________________ (“Purchaser”).

 

BACKGROUND

 

The Company granted Purchaser a stock option on __________ (the “Date of Grant”) pursuant to a stock option agreement (the “Option Agreement”) under which Purchaser has the right to purchase up to ________________ shares of the Company’s common stock (the “Option Shares”). The Option is exercisable with respect to certain of the Option Shares as of the date hereof. Pursuant to the Option Agreement, Purchaser desires to purchase shares of the Company as herein described, on the terms and conditions set forth in this Agreement, the Option Agreement and the Bonne Santé Group, Inc. 2020 Stock Incentive Plan (the “Plan”). Certain capitalized terms used in this Agreement are defined in the Plan.

 

AGREEMENT

 

NOW, THEREFORE, it is agreed between the parties as follows:

 

1. Purchase of Shares.

 

(a) Pursuant to the terms of the Option Agreement, Purchaser hereby agrees to purchase from the Company and the Company agrees to sell and issue to Purchaser _________ shares of the Company’s common stock (the “Common Stock”) for the Exercise Price per Share specified in the Notice of Stock Option Grant payable by personal check, cashier’s check, money order or otherwise as permitted by the Option Agreement. Payment shall be delivered at the Closing.

 

(b) The closing (the “Closing”) under this Agreement shall occur at the offices of the Company as of the date hereof, or such other time and place as may be designated by the Company (the “Closing Date”).

 

2. Adjustment of Shares. Subject to the provisions of the Certificate of Incorporation of the Company, if (a) there is any stock dividend or liquidating dividend of cash and/or property, stock split or other change in the character or amount of any of the outstanding securities of the Company, or (b) there is any consolidation, merger or sale of all or substantially all of the assets of the Company, then, in such event, any and all new, substituted or additional securities or other cash or property to which Purchaser is entitled by reason of Purchaser’s ownership of the shares shall be immediately subject to the Right of First Refusal (as defined below) with the same force and effect as the shares subject to the Right of First Refusal. Appropriate adjustments shall be made to the number and/or class of shares subject to the Right of First Refusal to reflect the exchange or distribution of such securities. In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Right of First Refusal may be exercised by the Company’s successor.

 

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3. The Company’s Right of First Refusal. Before any shares of Common Stock registered in the name of Purchaser may be sold or transferred, such shares shall first be offered to the Company as follows (the “Right of First Refusal”):

 

(a) Purchaser shall promptly deliver a notice (“Notice”) to the Company stating (i) Purchaser’s bona fide intention to sell or transfer such shares, (ii) the number of such shares to be sold or transferred, and the basic terms and conditions of such sale or transfer, (iii) the price for which Purchaser proposes to sell or transfer such shares, (iv) the name of the proposed purchaser or transferee, and (v) proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable U.S. federal, state or foreign securities laws. The Notice shall be signed by both Purchaser and the proposed purchaser or transferee and must constitute a binding commitment subject to the Right of First Refusal as set forth herein.

 

(b) Within thirty (30) days after receipt of the Notice, the Company may elect to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice. If the Company elects not to purchase all or any portion of the shares, the Company may assign its right to purchase all or any portion of the shares. The assignees may elect within thirty (30) days after receipt by the Company of the Notice to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice. An election to purchase shall be made by written notice to Purchaser. Payment for shares purchased pursuant to this Section 3 shall be made within thirty (30) days after receipt of the Notice by the Company and, at the option of the Company, may be made by cancellation of all or a portion of outstanding indebtedness, if any, or in cash or both.

 

(c) If all or any portion of the shares to which the Notice refers are not elected to be purchased, as provided in subparagraph 3(b), Purchaser may sell those shares to any person named in the Notice at the price specified in the Notice, provided that such sale or transfer is consummated within sixty (60) days of the date of said Notice to the Company, and provided, further, that any such sale is made in compliance with applicable U.S. federal, state and foreign securities laws and not in violation of any other contractual restrictions to which Purchaser is bound. The third-party purchaser shall be bound by, and shall acquire the shares of stock subject to, the provisions of this Agreement, including the Right of First Refusal.

 

(d) Any proposed transfer on terms and conditions different from those set forth in the Notice, as well as any subsequent proposed transfer shall again be subject to the Right of First Refusal and shall require compliance with the procedures described in this Section 3.

 

(e) Purchaser agrees to cooperate affirmatively with the Company, to the extent reasonably requested by the Company, to enforce rights and obligations pursuant to this Agreement.

 

(f) Notwithstanding the above, neither the Company nor any assignee of the Company under this Section 3 shall have any right under this Section 3 at any time subsequent to the closing of a public offering of the common stock of the Company pursuant to a registration statement declared effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”).

 

(g) This Section 3 shall not apply to (i) a transfer by will or intestate succession, or (ii) a transfer to one or more members of Purchaser’s Immediate Family (defined below) or to a trust established by Purchaser for the benefit of Purchaser and/or one or more members of Purchaser’s Immediate Family, provided that the transferee agrees in writing on a form prescribed by the Company to be bound by all of the provisions of this Agreement to the same extent as they apply to Purchaser. The transferee shall execute a copy of the attached Annex I and file the same with the Secretary of the Company. For purposes of this Agreement, “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and shall include adoptive relationships.

 

4. Purchaser’s Rights After Exercise of Right of First Refusal. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Common Stock to be repurchased in accordance with the provisions of Section 3 of this Agreement, then from and after such time the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed to have been repurchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.

 

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5. Right of Repurchase.

 

(a) The Company shall have the right to repurchase all or any part of the shares of Common Stock purchased by the Purchaser hereunder (a “Repurchase Right”) on the terms and conditions below. The Company’s Repurchase Right shall be exercisable only within the ninety (90) day period following a Repurchase Event, or such longer period as may be required to avoid a charge to earnings for financial accounting purposes or as otherwise agreed to by the Company and the Purchaser (the “Repurchase Period”). Each of the following events shall constitute a “Repurchase Event:”

 

(i) Termination of Purchaser’s continuous Service for any reason or no reason, with or without cause, including death or Disability, in which event the Repurchase Period shall commence on the date of termination of Purchaser’s continuous Service.

 

(ii) Purchaser, Purchaser’s legal representative, or other holder of shares of Common Stock acquired pursuant to this Agreement attempts to sell, exchange, transfer, pledge, or otherwise dispose of any of the Common Stock in violation of this Agreement or the Right of First Refusal, in which event the Repurchase Period shall commence on the date the Company receives actual notice of such attempted sale, exchange, transfer, pledge or other disposition.

 

(iii) The receivership, bankruptcy, or other creditor’s proceeding regarding Purchaser or the taking of any of the Stock by legal process, such as a levy of execution, in which event the Repurchase Period shall commence on the date the Company receives actual notice of the commencement of pendency of the receivership, bankruptcy or other creditor’s proceeding or the date of such taking, as the case may be, and the Fair Market Value of the shares shall be determined as of the last day of the month preceding the month in which the proceeding involved commenced or the taking occurred.

 

(b) The Company may exercise the Repurchase Right for all or any portion of the Purchaser’s Common Stock in the Company’s sole discretion. The Company shall exercise its Repurchase Right only for cash for the Common Stock and shall give Purchaser written notice (accompanied by payment for the Common Stock) within ninety (90) calendar days after the later of the Repurchase Event or a proper purchase of the Common Stock following such Repurchase Event (including after any extension of the Repurchase Period to avoid a charge to earnings for financial accounting purposes).

 

(c) The repurchase price shall be equal to the Fair Market Value of the Common Stock being repurchased at the time of the Repurchase Event.

 

6. Legend of Shares. All certificates representing the Common Stock purchased under this Agreement shall, where applicable, have endorsed thereon the following legends and any other legends required by applicable securities laws:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.

 

A-3

 

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING A REPURCHASE RIGHT AND RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.

 

If the Option is an ISO, then the following legend should be included:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED UPON EXERCISE OF AN INCENTIVE STOCK OPTION, AND THE COMPANY MUST BE NOTIFIED IF THE SHARES SHALL BE TRANSFERRED BEFORE THE LATER OF THE TWO (2) YEAR ANNIVERSARY OF THE DATE OF GRANT OF THE OPTION OR THE ONE (1) YEAR ANNIVERSARY OF THE DATE ON WHICH THE OPTION WAS EXERCISED. THE REGISTERED HOLDER MAY RECOGNIZE ORDINARY INCOME IF THE SHARES ARE TRANSFERRED BEFORE SUCH DATE.

 

7. Purchaser’s Investment Representations.

 

(a) This Agreement is made with Purchaser in reliance upon Purchaser’s representation to the Company, which by Purchaser’s acceptance hereof Purchaser confirms, that the Common Stock which Purchaser will receive will be acquired with Purchaser’s own funds for investment for an indefinite period for Purchaser’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting participation in, or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of Purchaser’s property shall at all times be within Purchaser’s control. By executing this Agreement, Purchaser further represents that Purchaser does not have any contract, understanding or agreement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any shares of the Common Stock.

 

(b) Purchaser understands that the Common Stock will not be registered or qualified under applicable U.S. federal, state or foreign securities laws on the ground that the sale provided for in this Agreement is exempt from registration or qualification under applicable U.S. federal, state or foreign securities laws and that the Company’s reliance on such exemption is predicated on Purchaser’s representations set forth herein.

 

(c) Purchaser agrees that in no event shall Purchaser make a disposition of any of the Common Stock (including a disposition under Section 3 of this Agreement), unless and until (i) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition and (ii) Purchaser shall have furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (A) such disposition will not require registration or qualification of such Common Stock under applicable U.S. federal, state or foreign securities laws or (B) appropriate action necessary for compliance with the applicable U.S. federal, state or foreign securities laws has been taken or (iii) the Company shall have waived, expressly and in writing, its rights under clauses (i) and (ii) of this Section.

 

A-4

 

 

(d) With respect to a transaction occurring prior to such date as the Plan and Common Stock thereunder are covered by a valid Form S-8 or similar U.S. federal registration statement, this Subsection shall apply unless the transaction is covered by a broad-based exemption under applicable state and federal securities laws. In connection with the investment representations made herein, Purchaser represents that Purchaser is able to fend for himself or herself in the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of Purchaser’s investment, has the ability to bear the economic risks of Purchaser’s investment and has been furnished with and has had access to such information as would be made available in the form of a registration statement together with such additional information as is necessary to verify the accuracy of the information supplied and to have all questions answered by the Company.

 

(e) Purchaser understands that if the Company does not register with the U.S. Securities and Exchange Commission pursuant to section 12 of the U.S. Securities Exchange Act of 1934, as amended, or if a registration statement covering the Common Stock (or a filing pursuant to the exemption from registration under Regulation A of the Securities Act) under the Securities Act is not in effect when Purchaser desires to sell the Common Stock, Purchaser may be required to hold the Common Stock for an indeterminate period. Purchaser also acknowledges that Purchaser understands that any sale of the Common Stock which might be made by Purchaser in reliance upon Rule 144 under the Securities Act may be made only in limited amounts in accordance with the terms and conditions of that Rule.

 

8. No Duty to Transfer in Violation of this Agreement. The Company shall not be required (a) to transfer on its books any shares of Common Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.

 

9. Rights of Purchaser.

 

(a) Except as otherwise provided herein, Purchaser shall, during the term of this Agreement, exercise all rights and privileges of a shareholder of the Company with respect to the Common Stock.

 

(b) Nothing in this Agreement shall be construed as a right by Purchaser to be retained by the Company, or a Parent or Subsidiary of the Company in any capacity. The Company reserves the right to terminate Purchaser’s Service at any time and for any reason without thereby incurring any liability to Purchaser.

 

10. Attorney’s Fees; Specific Performance. Grantee shall reimburse the Company for all costs incurred by the Company in enforcing the performance of, or protecting its rights under, any part of this Agreement, including reasonable costs of investigation and attorneys’ fees. It is the intention of the parties that the Company, upon exercise of the Repurchase Right or Right of First Refusal and payment of the applicable consideration for the Common Stock, pursuant to the terms of this Agreement, shall be entitled to receive the Common Stock, in specie, in order to have such Common Stock available for future issuance without dilution of the holdings of other stockholders. Furthermore, it is expressly agreed between the parties that money damages are inadequate to compensate the Company for the Common Stock and that the Company shall, upon proper exercise of the Repurchase Right or Right of First Refusal, be entitled to specific enforcement of its rights to purchase and receive the Common Stock.

 

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11. Resale Restrictions/Market Stand-off. Purchaser hereby agrees that in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, Purchaser shall not, directly or indirectly, engage in any transaction prohibited by the underwriter, or sell, make any short sale of, contract to sell, transfer the economic risk of ownership in, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or agree to engage in any of the foregoing transactions with respect to any Common Stock without the prior written consent of the Company or its underwriters, for such period of time after the effective date of such registration statement as may be requested by the Company or such underwriters. Such period of time shall not exceed one hundred eighty (180) days and may be required by the underwriter as a market condition of the offering; provided, however, that if either (a) during the last seventeen (17) days of such one hundred eighty (180) day period, the Company issues an earnings release or material news or a material event relating to the Company occurs or (b) prior to the expiration of such one hundred eighty (180) day period, the Company announces that it will release earnings results during the sixteen (16) day period beginning on the last day of the one hundred eighty (180) day period, then the restrictions imposed during such one hundred eighty (180) day period shall continue to apply until the expiration of the eighteen (18) day period beginning on the issuance of the earnings release or the occurrence of the material news or material event; provided, further, that in the event the Company or the underwriter requests that the one hundred eighty (180) day period be extended or modified pursuant to then-applicable law, rules, regulations or trading policies, the restrictions imposed during the one hundred eighty (180) day period shall continue to apply to the extent requested by the Company or the underwriter to comply with such law, rules, regulations or trading policies. Purchaser hereby agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. To enforce the provisions of this Section, the Company may impose stop-transfer instructions with respect to the Common Stock until the end of the applicable stand-off period.

 

12. Other Necessary Actions. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

 

13. Notice. Any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon the earliest of personal delivery, receipt or the third full day following deposit in the United States Post Office with postage and fees prepaid, addressed to the other party hereto at the address last known or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

 

14. Successors and Assigns. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser and Purchaser’s heirs, executors, administrators, successors and assigns. The failure of the Company in any instance to exercise the Right of First Refusal described herein shall not constitute a waiver of any other Right of First Refusal that may subsequently arise under the provisions of this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of a like or different nature.

 

15. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such state.

 

16. No State Qualification. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED UNDER THE LAWS OF ANY STATE, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION UNDER APPLICABLE STATE LAW. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

 

17. No Oral Modification. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.

 

18. Entire Agreement. This Agreement, the Option Agreement and the Plan constitute the entire complete and final agreement between the parties hereto with regard to the subject matter hereof.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 

  Bonne Santé Group, Inc.
       
  By:  
    Name:  
    Title:  
       
  Address:   
     
     
     
       
  PURCHASER:
       
       
       
  (Signature)
       
       
  Name (Please Print)
       
  Address:  
     
     

 

Bonne Santé Group, Inc.

Notice of Exercise and Common Stock Purchase Agreement

 

 

 

 

ANNEX I

 

ACKNOWLEDGMENT OF AND AGREEMENT TO BE BOUND
BY THE NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT OF
Bonne Santé Group, Inc.

 

The undersigned, as transferee of shares of Bonne Santé Group, Inc. hereby acknowledges that he or she has read and reviewed the terms of the Notice of Exercise and Common Stock Purchase Agreement of Bonne Santé Group, Inc. and hereby agrees to be bound by the terms and conditions thereof, as if the undersigned had executed said Agreement as an original party thereto.

 

Dated: ____________________, ____.

 

  (Signature of Transferee)
   
   
  (Printed Name of Transferee)

 

 

 

 

 

Exhibit 10.45

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.

 

Bonne SantÉ Group, INC.

2020 STOCK INCENTIVE PLAN


NOTICE OF RESTRICTED STOCK AWARD

 

Bonne Santé Group, Inc. (the “Company”) hereby grants to the Grantee named below the following restricted stock award to purchase shares of its common stock (“Shares”). The terms and conditions of this award are set forth in the Restricted Stock Award Agreement and the Bonne Santé Group, Inc. 2020 Stock Incentive Plan (the “Plan”), both of which are attached to and made a part of this document.

 

Date of Grant:

 
   
Name of Grantee:  
   
Number of Shares:  
   
Purchase Price per Share:  
   
Vesting Start Date:  
   
Vesting Schedule:  

 

 

 

 

Bonne Santé Group, Inc.
2020 Stock Incentive Plan

RESTRICTED STOCK AWARD AGREEMENT

 

1. Restricted Stock Award and Transfer. Upon execution of this Agreement, the Company shall issue to the Grantee the number of shares of restricted Common Stock of the Company, $0.0001 par value per share, as is set forth in the Notice of Restricted Stock Award (the “Stock”), at a purchase price as specified in the Notice of Restricted Stock Award, subject to the restrictions and other terms set forth herein (the “Award”).

 

2. Adjustments to Stock. In the event of a stock split, a stock dividend or a similar change in the Company’s Stock, the number of shares of Stock covered by this Award and the Purchase Price Per Share (as defined in the Notice of Restricted Stock Award) may be adjusted pursuant to the Plan. Grantee’s Award shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity as set forth in the Plan.

 

3. Right of Repurchase.

 

(a) The Company shall have the right to repurchase all or any part of the shares of Stock (whether or not vested) received pursuant to this Award (a “Repurchase Right”) on the terms and conditions below. The Company’s Repurchase Right shall be exercisable only within the ninety (90) day period following a Repurchase Event, or such longer period as may be required to avoid a charge to earnings for financial accounting purposes or as otherwise agreed to by the Company and the Grantee (the “Repurchase Period”). Each of the following events shall constitute a “Repurchase Event:”

 

(i) Termination of Grantee’s continuous Service for any reason or no reason, with or without cause, including death or Disability, in which event the Repurchase Period shall commence on the date of termination of Grantee’s continuous Service.

 

(ii) Grantee, Grantee’s legal representative, or other holder of shares acquired pursuant to this Restricted Stock Award Agreement attempts to sell, exchange, transfer, pledge, or otherwise dispose of any of the Stock in violation of this Agreement or the Right of First Refusal (as defined below), in which event the Repurchase Period shall commence on the date the Company receives actual notice of such attempted sale, exchange, transfer, pledge or other disposition.

 

(iii) The receivership, bankruptcy, or other creditor’s proceeding regarding Grantee or the taking of any of the Stock by legal process, such as a levy of execution, in which event the Repurchase Period shall commence on the date the Company receives actual notice of the commencement of pendency of the receivership, bankruptcy or other creditor’s proceeding or the date of such taking, as the case may be, and the Fair Market Value of the shares shall be determined as of the last day of the month preceding the month in which the proceeding involved commenced or the taking occurred.

 

(b) The Company may exercise the Repurchase Right for all or any portion of the Grantee’s Stock in the Company’s sole discretion and may choose to exercise the Repurchase Right to acquire only the unvested portion of Grantee’s Stock if the Company so desires. The Company shall exercise its Repurchase Right only for cash for the Stock and shall give Grantee written notice (accompanied by payment for the Stock) within ninety (90) calendar days after the later of the Repurchase Event or a proper purchase of the Stock following such Repurchase Event (including after any extension of the Repurchase Period to avoid a charge to earnings for financial accounting purposes).

 

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(c) The repurchase price for vested shares shall be equal to the shares’ Fair Market Value at the time of the Repurchase Event. The Company may repurchase unvested shares at a price equal to the original price per share that Grantee paid pursuant to Section 1 above.

 

4. Limitations on Transfer; The Company’s Right of First Refusal. In addition to any other limitation on transfer created by applicable securities laws or the Company’s certificate of incorporation or bylaws, before any shares of Stock registered in the name of Grantee may be sold or transferred, such shares shall first be offered to the Company as follows (the “Right of First Refusal”):

 

(a) Grantee shall promptly deliver a notice (“Notice”) to the Company stating (i) Grantee’s bona fide intention to sell or transfer such shares of Stock, (ii) the number of such shares to be sold or transferred, and the basic terms and conditions of such sale or transfer, (iii) the price for which Grantee proposes to sell or transfer such shares of Stock, (iv) the name of the proposed purchaser or transferee, and (v) proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable U.S. federal, state or foreign securities laws. The Notice shall be signed by both Grantee and the proposed purchaser or transferee and must constitute a binding commitment subject to the Right of First Refusal as set forth herein.

 

(b) Within thirty (30) days after receipt of the Notice, the Company may elect to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice. If the Company elects not to purchase all or any portion of the shares, the Company may assign its right to purchase all or any portion of the shares. The assignees may elect within thirty (30) days after receipt by the Company of the Notice to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice. An election to purchase shall be made by written notice to Grantee. Payment for shares purchased pursuant to this Section 4 shall be made within thirty (30) days after receipt of the Notice by the Company and, at the option of the Company, may be made by cancellation of all or a portion of outstanding indebtedness, if any, or in cash or both.

 

(c) If all or any portion of the shares to which the Notice refers are not elected to be purchased, as provided in Section 4(b), Grantee may sell those shares to any person named in the Notice at the price specified in the Notice, provided that such sale or transfer is consummated within sixty (60) days of the date of said Notice to the Company, and provided, further, that any such sale is made in compliance with applicable U.S. federal, state and foreign securities laws and not in violation of any other contractual restrictions to which Grantee is bound. The third-party purchaser shall be bound by, and shall acquire the shares of stock subject to, the provisions of this Agreement, including the Right of First Refusal.

 

(d) Any proposed transfer on terms and conditions different from those set forth in the Notice, as well as any subsequent proposed transfer shall again be subject to the Right of First Refusal and shall require compliance with the procedures described in this Section 4.

 

(e) Grantee agrees to cooperate affirmatively with the Company, to the extent reasonably requested by the Company, to enforce rights and obligations pursuant to this Agreement.

 

(f) Notwithstanding the above, neither the Company nor any assignee of the Company under this Section 4 shall have any right under this Section 4 at any time subsequent to the closing of a public offering of the common stock of the Company pursuant to a registration statement declared effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”).

 

(g) This Section 4 shall not apply to (i) a transfer by will or intestate succession, or (ii) a transfer to one or more members of Grantee’s Immediate Family (defined below) or to a trust established by Grantee for the benefit of Grantee and/or one or more members of Grantee’s Immediate Family, provided that the transferee agrees in writing on a form prescribed by the Company to be bound by all of the provisions of this Agreement to the same extent as they apply to Grantee. The transferee shall execute a copy of the attached Annex I and file the same with the Secretary of the Company. For purposes of this Agreement, “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and shall include adoptive relationships.

 

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5. Rights of Grantee. Subject to the provisions of Sections 4, 5, 9 and 10 herein, Grantee shall exercise all rights and privileges of a stockholder of the Company with respect to the Stock. Grantee shall be deemed to be the holder for purposes of receiving any dividends that may be paid with respect to such shares of Stock and for the purpose of exercising any voting rights relating to such shares of Stock, even if some or all of such shares of Stock have not yet vested and been released from the Repurchase Right.

 

6. Restrictive Legends. All certificates representing the Stock shall have endorsed thereon legends in substantially the following forms (in addition to any other legend which may be required by other agreements between the parties hereto):

 

(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE OR APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.

 

(b) THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING A REPURCHASE RIGHT AND RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.

 

7. Investment Representations. In connection with the purchase of the Stock, Grantee represents to the Company the following:

 

(a) Grantee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Stock. Grantee is purchasing the Stock for investment for Grantee’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act.

 

(b) Grantee understands that the Stock has not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Grantee’s investment intent as expressed herein.

 

(c) Grantee further acknowledges and understands that the Stock must be held indefinitely unless the Stock is subsequently registered under the Securities Act or an exemption from such registration is available. Grantee further acknowledges and understands that the Company is under no obligation to register the Stock. Grantee understands that the certificate evidencing the Stock will be imprinted with a legend, which prohibits the transfer of the Stock unless the Stock is registered, or such registration is not required in the opinion of counsel for the Company.

 

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(d) Grantee is familiar with the provisions of Rule 144 and Rule 701, under the Securities Act, as in effect from time to time, which, in substance, permit limited public resale of “restricted securities” (as defined in the Securities Act) acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of issuance of the securities, such issuance will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the securities exempt under Rule 701 may be sold by Grantee ninety (90) days thereafter, subject to the satisfaction of certain of the conditions specified by Rule 144 and the market stand-off provision described in Section 8 below. In the event that the sale of the Stock does not qualify under Rule 701 at the time of purchase, then the Stock may be resold by Grantee in certain limited circumstances subject to the provisions of Rule 144, which require, among other things: (i) the availability of certain public information about the Company; and (ii) the resale occurring following the required holding period under Rule 144 after Grantee has purchased, and made full payment of (within the meaning of Rule 144), the securities to be sold.

 

(e) Grantee further understands that at the time Grantee wishes to sell the Stock there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144 or Rule 701, and that, in such event, Grantee would be precluded from selling the Stock under Rule 144 or Rule 701 even if the minimum holding period requirement had been satisfied.

 

(f) Grantee further warrants and represents that Grantee has either (i) preexisting personal or business relationships with the Company or any of its officers, directors or controlling persons, or (ii) the capacity to protect his own interests in connection with the purchase of the Stock by virtue of the business or financial expertise of himself or of professional advisors to Grantee who are unaffiliated with and who are not compensated by the Company or any of its affiliates, directly or indirectly.

 

8. Market Stand-Off Agreement. Grantee hereby agrees that in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, Grantee shall not, directly or indirectly, engage in any transaction prohibited by the underwriter, or sell, make any short sale of, contract to sell, transfer the economic risk of ownership in, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or agree to engage in any of the foregoing transactions with respect to any Common Stock without the prior written consent of the Company or its underwriters, for such period of time after the effective date of such registration statement as may be requested by the Company or such underwriters. Such period of time shall not exceed one hundred eighty (180) days and may be required by the underwriter as a market condition of the offering; provided, however, that if either (a) during the last seventeen (17) days of such one hundred eighty (180) day period, the Company issues an earnings release or material news or a material event relating to the Company occurs or (b) prior to the expiration of such one hundred eighty (180) day period, the Company announces that it will release earnings results during the sixteen (16) day period beginning on the last day of the one hundred eighty (180) day period, then the restrictions imposed during such one hundred eighty (180) day period shall continue to apply until the expiration of the eighteen (18) day period beginning on the issuance of the earnings release or the occurrence of the material news or material event; provided, further, that in the event the Company or the underwriter requests that the one hundred eighty (180) day period be extended or modified pursuant to then-applicable law, rules, regulations or trading policies, the restrictions imposed during the one hundred eighty (180) day period shall continue to apply to the extent requested by the Company or the underwriter to comply with such law, rules, regulations or trading policies. Grantee hereby agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. To enforce the provisions of this Section, the Company may impose stop-transfer instructions with respect to the Common Stock until the end of the applicable stand-off period.

 

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9. Section 83(b) Election. Grantee understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the difference between the amount paid for the Stock and the fair market value of the Stock as of the date any restrictions on the Stock lapse. In this context, “restriction” includes the right of the Company to buy back the Stock pursuant to the Repurchase Right set forth in Section 3 above. Grantee understands that Grantee may elect to be taxed at the time the Stock is purchased, rather than when and as the Repurchase Right expires, by filing an election under Section 83(b) (an “83(b) Election”) of the Code with the Internal Revenue Service within thirty (30) days from the date of purchase. Even if the fair market value of the Stock at the time of the execution of this Agreement equals the amount paid for the Stock, the 83(b) Election must be made to avoid income under Section 83(a) in the future. Grantee understands that failure to file such an 83(b) Election in a timely manner may result in adverse tax consequences for Grantee. Grantee further understands that an additional copy of such 83(b) Election is required to be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Grantee acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to the purchase of the Stock hereunder, and does not purport to be complete. Grantee further acknowledges that the Company has directed Grantee to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Grantee may reside, and the tax consequences of Grantee’s death. Grantee assumes all responsibility for filing an 83(b) Election and paying all taxes resulting from such election or the lapse of the restrictions on the Stock. Grantee agrees that Grantee is responsible for consulting Grantee’s own tax advisor as to the tax consequences associated with Grantee’s Stock. The tax rules governing this Award are complex, change frequently and depend on the individual taxpayer’s situation.

 

10. Refusal to Transfer. The Company shall not be required (a) to transfer on its books any shares of Stock of the Company which shall have been transferred in violation of any of the provisions set forth in this Agreement or the Right of First Refusal or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.

 

11. No Employment Rights. This Agreement is not an employment contract and nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company (or a parent or Subsidiary of the Company) to terminate Grantee’s employment for any reason at any time, with or without Cause and with or without notice.

 

12. Other Necessary Actions. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

 

13. Notice. Any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon the earliest of personal delivery, receipt or the third full day following deposit in the United States Post Office with postage and fees prepaid, addressed to the other party hereto at the address last known or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

 

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14. Successors and Assigns. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Grantee and Grantee’s heirs, executors, administrators, successors and assigns. The failure of the Company in any instance to exercise the Right of First Refusal described herein shall not constitute a waiver of any other Right of First Refusal that may subsequently arise under the provisions of this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of a like or different nature.

 

15. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such state.

 

16. No State Qualification. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH ANY STATE SECURITIES LAW ADMINISTRATOR, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

 

17. No Oral Modification. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.

 

18. Entire Agreement. This Agreement and the Plan constitute the entire complete and final agreement between the parties hereto with regard to the subject matter hereof.

 

19. The Plan And Other Agreements. The text of the Plan is incorporated in this Agreement by reference. Certain capitalized terms used in this Agreement are defined in the Plan. The Notice of Restricted Stock Award, this Agreement, including its attachments, and the Plan constitute the entire understanding between Grantee and the Company regarding this Award. Any prior agreements, commitments or negotiations concerning this Award are superseded. By signing this Agreement, Grantee acknowledges receipt of a copy of the Plan, and agrees that (a) Grantee has carefully read, fully understands and agrees to all of the terms and conditions described in this Agreement and the Plan; and (b) Grantee has been given an opportunity to consult Grantee’s own legal and tax counsel with respect to all matters relating to this restricted stock award prior to signing this Agreement and that Grantee has either consulted such counsel or voluntarily declined to consult such counsel.

 

20. Attorneys’ Fees; Specific Performance. Grantee shall reimburse the Company for all costs incurred by the Company in enforcing the performance of, or protecting its rights under, any part of this Agreement, including reasonable costs of investigation and attorneys’ fees. It is the intention of the parties that the Company, upon exercise of the Repurchase Right or Right of First Refusal and payment of the applicable consideration for the Stock, pursuant to the terms of this Agreement, shall be entitled to receive the Stock, in specie, in order to have such Stock available for future issuance without dilution of the holdings of other stockholders. Furthermore, it is expressly agreed between the parties that money damages are inadequate to compensate the Company for the Stock and that the Company shall, upon proper exercise of the Repurchase Right or Right of First Refusal, be entitled to specific enforcement of its rights to purchase and receive the Stock.

 

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21. Miscellaneous Provisions.

 

(a) Grantee understands and acknowledges that (i) the Plan is entirely discretionary, (ii) the Company and Grantee’s employer have reserved the right to amend, suspend or terminate the Plan at any time, (iii) the Award does not in any way create any contractual or other right to receive additional awards at any time or in any amount and (iv) all determinations with respect to any additional awards, including (without limitation) the times when awards will be granted, the number of shares of stock offered, the exercise price or purchase price, as applicable, and the vesting schedule, will be at the sole discretion of the Company.

 

(b) Grantee understands and acknowledges that participation in the Plan ceases upon termination of Grantee’s Service for any reason, except as may explicitly be provided otherwise in the Plan or this Agreement.

 

(c) Grantee hereby authorize and directs its employer to disclose to the Company or any Subsidiary any information regarding Grantee’s employment, the nature and amount of Grantee’s compensation and the fact and conditions of Grantee’s participation in the Plan, as Grantee’s employer deems necessary or appropriate to facilitate the administration of the Plan.

 

(d) Grantee consents to the collection, use and transfer of personal data as described in this Subsection. Grantee understands and acknowledges that the Company, Grantee’s employer and the Company’s other Subsidiaries hold certain personal information regarding Grantee for the purpose of managing and administering the Plan, including (without limitation) Grantee’s name, home address, telephone number, date of birth, social insurance number, salary, nationality, job title, any Stock or directorships held in the Company and details of all options or any other entitlements to Stock awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor (the “Data”). Grantee further understand and acknowledge that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purpose of implementation, administration and management of Grantee’s participation in the Plan and that the Company and/or any Subsidiary may each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan. Grantee understands and acknowledges that the recipients of Data may be located in the United States or elsewhere. Grantee authorizes such recipients to receive, possess, use, retain and transfer Data, in electronic or other form, for the purpose of administering Grantee’s participation in the Plan, including a transfer to any broker or other third party with whom Grantee elect to deposit shares of Stock acquired under the Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Stock on Grantee’s behalf. Grantee may, at any time, view the Data, require any necessary modifications of Data or withdraw the consents set forth in this Subsection by contacting the Human Resources Department of the Company or its equivalent in writing.

 

(e) If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

 

(f) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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In Witness Whereof, the parties hereto have executed this Agreement as of the day and year first above written.

 

  Bonne Santé Group, Inc.
   
  By:                     
  Name:    
  Title:  

 

  Address:     
     
     
   
  GRANTEE:
   
   
  (Signature)
   
   
  Name (Please Print)
   
  Address:  
     
     

 

Bonne Sante Group, Inc.
Restricted Stock Award Agreement

 

 

 

 

ANNEX I

 

ACKNOWLEDGMENT OF AND AGREEMENT TO BE BOUND
BY THE RESTRICTED STOCK AWARD AGREEMENT OF
bonne Santé Group, Inc.

 

The undersigned, as transferee of shares of Bonne Santé Group, Inc. hereby acknowledges that he or she has read and reviewed the terms of the Restricted Stock Award Agreement of Bonne Santé Group, Inc. and hereby agrees to be bound by the terms and conditions thereof, as if the undersigned had executed said Agreement as an original party thereto.

 

Dated: ____________________, ____.

 

   
  (Signature of Transferee)
   
   
  (Printed Name of Transferee)

 

 

 

 

 

Exhibit 21.1

 

LIST OF SUBSIDIARIES

 

Name of Subsidiary  

Jurisdiction of

Organization

  Percentage of Ownership
Bonne Sante Natural Manufacturing, Inc.   Florida   100%
GSP Nutrition Inc.   Delaware   100%
Nexus Offers, Inc.   Florida   100%
Doctors Scientific Organica, LLC   Florida   100%
Oyster Management Services, Ltd.   Florida   100%
Lawee Enterprises, L.L.C.   Florida   100%
U.S. Medical Care Holdings, L.L.C.   Florida   100%
Smart for Life Canada Inc.   Canada   100%

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Smart for Life, Inc.

Doral, Florida

 

We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration on Form S-1 of Smart for Life, Inc., of our reports dated August 11, 2021 relating to the financial statements at and for the year ended December 31, 2020 and 2019, respectively.

 

We also consent to the reference to our firm under the heading “Experts” in the Prospectus.

 

/s/ Daszkal Bolton LLP

 

Sunrise, Florida

December 16, 2021

 

Exhibit 23.2

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Doctors Scientific Organica, LLC

Doral, Florida

 

We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration on Form S-1 of Smart for Life, Inc., of our reports dated August 5, 2021 relating to the financial statements at and for the year ended December 31, 2020 and 2019, respectively.

 

We also consent to the reference to our firm under the heading “Experts” in the Prospectus.

 

/s/ Daszkal Bolton LLP

 

Sunrise, Florida

December 16, 2021

 

Exhibit 23.3

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Nexus Offers, Inc.

Doral, Florida

 

We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration on Form S-1 of Smart for Life, Inc., of our reports dated December 15, 2021 relating to the financial statements at and for the year ended December 31, 2020 and 2019, respectively.

 

We also consent to the reference to our firm under the heading “Experts” in the Prospectus.

 

/s/ Daszkal Bolton LLP

 

Sunrise, Florida

December 16, 2021

 

Exhibit 99.1

December 16, 2021

 

Smart for Life, Inc.

990 Biscayne Blvd., Suite 503

Miami, Florida 33132

 

Ladies and Gentlemen:

 

Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the references to my name in the Registration Statement on Form S-1 of Smart for Life, Inc. (the “Company”), and any amendments thereto, which indicate that I have accepted the nomination to become a director of the Company.

 

Sincerely yours,

 

/s/ Richard M. Cohen  
Richard M. Cohen  

 

Exhibit 99.2

December 16, 2021

 

Smart for Life, Inc.

990 Biscayne Blvd., Suite 503

Miami, Florida 33132

 

Ladies and Gentlemen:

 

Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the references to my name in the Registration Statement on Form S-1 of Smart for Life, Inc. (the “Company”), and any amendments thereto, which indicate that I have accepted the nomination to become a director of the Company.

 

Sincerely yours,

 

/s/ Robert S. Rein, Esq.  
Robert S. Rein, Esq.  

 

Exhibit 99.3

December 16, 2021

 

Smart for Life, Inc.

990 Biscayne Blvd., Suite 503

Miami, Florida 33132

 

Ladies and Gentlemen:

 

Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the references to my name in the Registration Statement on Form S-1 of Smart for Life, Inc. (the “Company”), and any amendments thereto, which indicate that I have accepted the nomination to become a director of the Company.

 

Sincerely yours,

 

/s/ Roger Conley Wood  
Roger Conley Wood