UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(Exact name of registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
| 3420 | 82-5051728 | |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
1001 Bannock St, Suite 612, Denver, CO 80204
(Address of principal business offices)
303-416-7208
(Registrant’s telephone number, including area code)
J.P. Galda
c/o J.P. Galda & Co., 40 E. Lancaster Avenue LTW 22, Ardmore, PA 19003
(Name, address of agent for service)
Copies of Communications to:
J.P. Galda & Co. Attn: J.P. Galda, Esq.
40 East Montgomery Avenue LTW 220
Ardmore, PA 19003
Tel: (215) 815-1534
Email: jpgalda@jpgaldaco.com
Approximate date of commencement of proposed sale of the securities to the public: As promptly as practicable after this proxy statement-prospectus becomes effective and upon the consummation of the conversion described herein.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, 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 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 checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act ☐
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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. The selling shareholders named herein may not sell these securities 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 an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, Dated February 14, 2022
PRELIMINARY PROSPECTUS
PROSPECTUS
CRYOMASS TECHNOLOGIES INC.
56,217,022 Common Shares
3,023,054 Common Shares Issuable Pursuant to Common Share Purchase Warrants
This prospectus (this “Prospectus”) relates to the resale of common shares in the capital of Cryomass Technologies Inc (“we”, “our” or the “Company”) (“Common Shares”) and Common Shares issuable upon exercise of Common Share purchase warrants (the “Warrants”) held by selling shareholders which were issued by the Company in previous private placement transactions by the selling security holders named herein under “Selling Shareholders and Certain Beneficial Owners” (the “Selling Shareholders”). We will not receive any proceeds from the resale of these Common Shares, although we may receive proceeds from the exercise of the warrants.
The selling shareholders may offer all or part of the Common Shares for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. The Company is paying for all registration, listing and qualification fees, printing fees and legal fees.
Our Common Shares are quoted on the OTC QB (“OTC”) under the ticker symbol “CRYM.” On February 9, 2022, the closing price of our Common Shares was U.S. $0.27 per Common Share.
We are a “smaller reporting company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements. The purchase of the securities offered through this Prospectus involves a high degree of risk. See section entitled “Risk Factors” starting on page 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: February 14, 2022
TABLE OF CONTENTS
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You should rely only on the information contained in this Prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed information and Company’s financial statements for the years ended December 31, 2020 and December 31, 2019 and the interim financial statements for the three and nine-month periods ended September 30, 2021 and September. 30, 2020 (the “Financial Statements”) appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this Prospectus. Unless the context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,” or the “Registrant” refer to Cryomass Technologies Inc, a Nevada corporation. References to “$” refer to monetary amounts expressed in U.S. dollars.
Our Business
Corporate History
Cryomass Technologies Inc (“Cryomass Technologies” or the “Company”) began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. Effective October 14, 2019, the Company changed its name to Redwood Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. On July 15, 2021, the Company entered into a plan of merger with its wholly-owned subsidiary, Cryomass Technologies Inc a Nevada corporation, pursuant to which we agreed that subsidiary would merge with and into our company. Following the consummation of the merger, the separate existence of the subsidiary ceased, and we continued as the surviving corporation with our name changed to Cryomass Technologies Inc. effective August 27, 2021. Our ticker symbol changed from AGOL to CRYM.
The Company’s principal office is located at 1001 Bannock St., Suite 612, Denver, CO 80204, and its telephone number is 303-416-7208. The Company’s website is www.cryomass.com. Information appearing on the website is not incorporated by reference into this prospectus.
The Company over its history has explored a number of different business opportunities.
On May 10, 2018, the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”) a Colombian company, and began to establish various business ventures in Colombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing to phase them out in April 2019.
On July 1, 2019, the Company acquired 100% of the membership interests in General Extract, LLC (“General Extract”), a Colorado limited liability company. General Extract was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp derivatives. The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts.
On July 15, 2019, the Company, through its wholly owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement to acquire cannabis-related intellectual property and other assets of Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”), a Colorado limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement Division of Colorado Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing of infused products and retail distribution. At the time the Company entered into the Membership Interest Purchase Agreement, Colorado law prohibited public companies, including the Company, from owning cannabis licenses. Therefore, CMI spun off certain assets acquired by the Company. Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis license, inventory and accounts receivable (the “Cannabis License Assets”) and continued to operate the cannabis business related to those assets. In consideration for the transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company common stock, in addition to $1,999,770 in cash to CMI.
Good Meds, the operating unit of CMI, is based in Denver, CO, and operates in a 60,000-square-foot cultivation and processing facility. This facility produces cannabis for sale as dry flower and biomass input for processing into Marijuana-Infused Products (“MIP”), such as live resin, wax and budder. Good Meds also owns and operates two medical cannabis dispensaries located in Lakewood, CO and Englewood, CO. The business has been in operation since 2009.
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Beginning in March 2020, an evaluation of various strategic alternatives was followed by the decision to sell the Colorado-based assets and refocus its attention on unique opportunities for gold exploration in Colombia. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS for this purpose. In December 2020, due to the death of the top geologist exploring opportunities on behalf of the Company, and the effects of the ongoing Coronavirus pandemic, the Company determined that pursuit of gold exploration in Colombia was no longer a practical alternative.
On June 22, 2021, the Company entered into an Asset Purchase Agreement with Cryocann USA Corp, a California corporation (“Cryocann”), pursuant to which Company acquired substantially all the assets of Cryocann. The aggregate purchase price was $3,500,000 million in cash and 10,000,000 shares of Company common stock As part of the Cryocann Acquisition, we retained both Cryocann employees, who have expert knowledge of the industry, related participants, customers and the acquired patented technology. Under their employment agreements, each employee may receive compensation if specific performance targets are met in association with our future operating performance when the Cryocann technology enters the market. The technology and assets acquired from Cryocann are operated from the Company’s subsidiary, Cryomass LLC. The patented cryo-mechanical technology is for the separation of plant materials in the harvesting of hemp and cannabis, and potentially other high value crops such as hops. We believe this technology will reduce processing costs and increases the quality of extracted compounds. We are exploring the application of the underlying technology to a broad range of industries that handle high-value materials and that could benefit from our precision capture methods. We anticipate that cannabis and hemp will be the first in a series of such industries.
To develop and commercialize the technology, we contracted with an independent engineering and manufacturing firm to refine the design of our cryo-mechanical system for the handling of harvested hemp, cannabis and other high-value plants. The system exploits CryoMass’s U.S.-patented process for the controlled application of liquid nitrogen to stabilize and separate the structural elements of gross plant material. The device currently under development is scaled for highway transportability and is being optimized for the low-cost collection of fully intact hemp and cannabis trichomes. It can be used within minutes after plants have been cut and can also efficiently capture trichomes from fresh frozen or even dried plant parts, including trim. The device’s through-put capacity is expected to be approximately 600 kilograms of gross plant material per hour. The advanced design for the equipment has been completed, and testing of a prototype machine is currently underway. The engineering and manufacturing firm has indicated that it has the capacity to build 10 to 15 such devices per month.
In November we retained a second engineering and manufacturing firm to independently develop a separate machine design that applies our patented process. We expect their work to help strengthen the power and robustness of our technology. In addition, it opens a channel to a second manufacturing source.
The first functional “beta” machine is expected to be ready for field testing by a third-party cannabis producer in February 2022. The first production-run machine is expected to be ready for use towards the end of the first quarter 2022. At that moment, we expect to start helping our first tolling client (fee for service) increase its margins by cutting the cost of handling, processing and refining its hemp or cannabis and increasing the resulting material’s value to formulators of end products.
Management believes the CryoMass system will deliver a compelling combination of cost and time savings while enhancing product quality and quantity for largescale cultivators and processors of hemp and cannabis. The use of a CryoMass system – which can be trucked to and operated on the fields of most large hemp and cannabis growers or be permanently installed at a user’s processing facility – should eliminate many of the costs that come with traditional practices, especially the labor, fuel and capital costs of drying and curing hemp or cannabis that is grown for the extraction of end products. With traditional practices, harvested plants are transported to a specially constructed drying house and then treated for a week or longer under controlled conditions of temperature and humidity. It’s a costly method. With our system, harvested plants are simply fed into the front end of a CryoMass machine, and minutes later fully intact trichomes are collected at the back end of the machine. With traditional practices and their seven-to-ten days of handling and drying, a large share of a plant’s valuable trichomes break off and are lost. Then the remaining trichomes are damaged by long exposure to oxygen and by the evaporation of their volatile terpenes. The CryoMass system, on the other hand, stabilizes and collects fully intact trichomes at harvest, leaving no opportunity for such wasteful loss. Field-captured trichomes are the cleanest element of a hemp or cannabis plant because, unlike the rest of the plant, trichomes do not readily take up heavy metals, pesticides or other common soil contaminants. As a product for end-users, field-captured trichomes are closest to being contaminant free. As feedstock for manufacturers of extracts and oils, they are the key to the purest products possible.
Because the trichomes collected with CryoMass technology represent only 10% or so of a plant’s weight and volume, they are cheaper to ship and store than gross plant material. For the same reason and because trichomes are free of the waxes and other unwanted materials found in the rest of the plant, processing trichomes into oils and extracts can be far quicker, cheaper and easier than processing gross plant material. Even trichomes captured from dried or frozen plant parts deliver this cost-saving advantage to processors of oils and extracts. The three-dimensional advantage achievable with the CryoMass system – first-stage cost savings, product enhancement and downstream cost savings – can as much as double a crop’s wholesale value. And in some jurisdictions, users may enjoy a reduction in excise taxes levied on cannabis and hemp harvests, which typically are tied to the gross weight of hemp or cannabis that is removed from the field.
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Market Size
Production and processing of hemp and cannabis is a huge, worldwide industry. In the U.S., for example, the wholesale value of the cannabis crop from just the 11 states permitting adult-use and medical cannabis exceeds $6 billion annually.1 Growth in the U.S. and in the worldwide market is likely fed in part by the growing acceptance of medicinal cannabis products and anticipated legislative changes in various jurisdictions worldwide.
And that may only be chapter one of the Company’s story. Several other high-value plants, including species that are important for health and wellness products, wrap their valuable elements in trichomes. The technology we are developing for hemp and cannabis may have profitable application to those other species as well. We intend to find out.
Recent Developments
In September, we were granted an additional patent for our process from the Chinese Intellectual Property Office. We currently are taking steps to gain further protection for our intellectual property through the European Union Intellectual Property Office and several other international jurisdictions.
On November 17th we announced the completion of a $10.3 million equity financing. The financing and the earlier conversion of substantially all the company’s debt into common stock left the Company with a strong balance sheet and adequate resources for our planned business development during the coming twelve months. In connection with the financing, 1,010,000 shares and 760,000 shares of CryoMass Technologies common stock were purchased by CEO Christian Noël and Chairman of the Board Delon Human, respectively.
Smaller Reporting Company Status
Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:
| ● | had a public float of less than $75,000,000 as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or | |
| ● | in the case of an initial registration statement under the United States Securities Act of 1933, as amended (the “Securities Act”) or Exchange Act for shares of its common equity, had a public float of less than $75,000,000 as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or | |
| ● | in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $50,000,000 during the most recently completed fiscal year for which audited financial statements are available. |
As a smaller reporting company, we will not be required and may not include a Compensation Discussion and Analysis section in our proxy statements; we will provide only two years of financial statements; and we need not provide the table of selected financial data. We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our Common Shares less attractive to potential investors, which could make it more difficult for our shareholders to sell their shares.
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SUMMARY OF THE OFFERING
| Common Shares offered by Selling Shareholders and Certain Beneficial Owners | Common Shares, including: | |||
| ● | 56,217,022 Common Shares; | |||
| ● | 3,023,054 Common Shares issuable upon exercise of Common Share purchase warrants held by selling shareholders issued between October 2020 and January 2021 and exercisable at a price per Share of $0.30 until twenty-four months after the issue date. | |||
| Common Shares outstanding before the offering | 197,747,830 Common Shares as of the date hereof. | |||
| Offering Price | Determined at the time of sale by the selling shareholders. | |||
| Use of proceeds | We will not receive any proceeds from the sale of shares by the selling shareholders, although we may receive proceeds from the exercise of common share purchase warrants. Any such proceeds will we used for general working capital purposes. | |||
| OTC Trading Symbol | CRYM | |||
| Risk Factors | The Common Shares offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors”. | |||
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SUMMARY OF FINANCIAL INFORMATION
The following selected financial information is derived from the Financial Statements appearing elsewhere in this Prospectus and should be read in conjunction with the Financial Statements, including the notes thereto, appearing elsewhere in this Prospectus. The amounts below are expressed in United States dollars.
As of or For the Year-to-Date Period Ended | ||||||||||||
| September 30, | December 31, | December 31, | ||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| (unaudited) | (audited) | (audited) | ||||||||||
| Operating Statement Data: | ||||||||||||
| Revenues | $ | - | $ | 781,455 | $ | 18,248 | ||||||
| Expenses | 6,795,775 | 7,652,133 | 3,355,988 | |||||||||
| Net (loss) income from continuing operations | (6,795,775 | ) | (6,870,678 | ) | (3,337,740 | ) | ||||||
| Net (loss) income | (6,190,381 | ) | (11,815,907 | ) | (3,057,534 | ) | ||||||
| Net loss from continuing operations per common share | (0.06 | ) | (0.07 | ) | (0.04 | ) | ||||||
| Net loss per common share | (0.05 | ) | 0.12 | 0.03 | ||||||||
| Balance Sheet Data: | ||||||||||||
| Total assets | 13,876,156 | 7,798,154 | 15,760,006 | |||||||||
| Total liabilities | 9,694,026 | 4,192,860 | 2,672,974 | |||||||||
| Common shares issued and outstanding | 120,058,181 | 97,005,817 | 106,216,708 | |||||||||
| Shareholders’ equity | 4,182,130 | 3,605,294 | 13,087,032 | |||||||||
| 5 |
RISK FACTORS
You should carefully consider the risks described below together with all other information included in our public filings before making an investment decision with regard to our securities. The statements contained in or incorporated into this Prospectus that are not historic facts are forward- looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward- looking statements. While the risks described below are the ones we believe are most important for you to consider, these risks are not the only ones that we face. If any of the following events described in these risk factors actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our Common Shares could decline, and you may lose all or part of your investment.
General Risk Factors
We have a limited operating history in an evolving industry, which makes it difficult to accurately assess our future growth prospects.
Although we believe our management team has extensive knowledge of the cannabis industry and closely monitors changes in legislation, we also intend to provide equipment and services in an evolving industry that may not develop as expected. Furthermore, our operations continue to evolve under our business plan as we continually assess new strategic opportunities for our business within our industry. Assessing the future prospects of our business is challenging in light of both known and unknown risks and difficulties we may encounter. Growth prospects in our industry can be affected by a wide variety of factors including:
| ● | Competition from other similar companies; |
| ● | Regulatory limitations on the industry we primarily supply to (cannabis agriculture) we can offer and markets we can serve; |
| ● | Other changes in the regulation of cannabis and hemp grow, harvesting and processing; |
| ● | Changes in cannabis industry demand and consumer behavior, which may affect the size of the agricultural businesses we intend to serve; |
| ● | Our ability to access adequate financing on reasonable terms and our ability to raise additional capital in order to fund our operations; |
| ● | Challenges with new machinery, services and markets; and |
| ● | Fluctuations in the commodities markets. |
We may not be able to successfully address these factors, which could negatively impact our growth, harm our business and cause our operating results to be worse than expected.
Our success depends on the introduction of new products, which requires substantial expenditures.
Our long-term results depend upon our ability to introduce and market new products successfully. The success of our new products will depend on a number of factors, including:
| ● | innovation; |
| ● | customer acceptance; |
| ● | the efficiency of our suppliers in providing component parts and of our contract manufacturing facilities in producing final products; and |
| ● | the performance and quality of our products relative to those of our competitors. |
We cannot predict the level of market acceptance or the amount of market share our new products will achieve. We may experience delays in the introduction of new products. Any delays or other problems with our new product launches will adversely affect our performance. In addition, introducing new products can result in decreases in revenues from our existing products. We expect to make substantial investments in product development and refinement. We may need more funding for product development and refinement than is readily available, which could adversely affect our business.
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We face significant competition, and, if we are unable to compete successfully against other agricultural equipment manufacturers, we will lose customers and our net sales and profitability will decline.
The agricultural equipment business is highly competitive, particularly in the United States. Established and substantially larger agricultural equipment manufacturers, with substantially greater financial and other resources, have the capability to compete with us successfully. Our competitors may substantially increase the resources devoted to the development and marketing of products that compete with our products. In addition, competitive pressures in the agricultural equipment business may affect the market prices of new and used equipment, which, in turn, may adversely affect our performance.
We will require significant additional capital to fund our business plan.
The Company will be required to expend significant funds to implement its business plan. The Company anticipates that it will be required to make substantial capital expenditures for the manufacture of its equipment.
The Company’s ability to obtain necessary funding for these purposes, in turn, depends upon a number of factors, including the status of the national and worldwide economy and the financial markets and the availability of capital. Capital markets worldwide were adversely affected by substantial losses by financial institutions, caused by investments in asset-backed securities and remnants from those losses continue to impact the ability for the Company to raise capital. The Company may not be successful in obtaining the required financing or, if it can obtain such financing, such financing may not be on terms that are favorable to us.
The Company’s inability to access sufficient capital for its operations could have a material adverse effect on its financial condition, results of operations, or prospects. Sales of substantial amounts of securities may have a highly dilutive effect on the Company’s ownership or share structure. Sales of a large number of shares of the Company’s Common Shares in the public markets, or the potential for such sales, could decrease the trading price of the Common Shares and could impair the Company’s ability to raise capital through future sales of Common Shares.
International, national and regional trade laws, regulations and policies and government farm programs and policies could significantly impair our profitability and growth prospects.
International, national and regional laws, regulations and policies directly or indirectly related to or restricting the import and export of the Company’s products, services and technology, including protectionist policies in particular jurisdictions or for the benefit of favored industries or sectors, could harm the Company’s ability to grow in international markets and subject the Company to civil and criminal sanctions. Restricted access to global markets impairs the Company’s ability to export goods and services from its various manufacturing locations around the world, and limits the ability to access raw materials and high-quality parts and components at competitive prices on a timely basis. Trade restrictions could limit the Company’s ability to capitalize on future growth opportunities in international markets and impair the Company’s ability to expand the business by offering new technologies, products and services. These restrictions may affect the Company’s competitive position. Additionally, changes in government farm programs and policies, including restrictions on cannabis and hemp cultivation and processing, can significantly influence demand for agricultural equipment.
Changing demand for certain agricultural products could have an effect on the price of farming output and consequently the demand for certain of our equipment and could also result in higher research and development costs related to changing machine requirements.
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Negative economic conditions and outlook can materially weaken demand for our equipment and services, limit access to funding and result in higher funding costs.
The demand for the Company’s products and services can be significantly reduced in an economic environment characterized by high unemployment, cautious consumer spending, lower corporate earnings, U.S. budget issues and lower business investment. Negative or uncertain economic conditions causing the Company’s customers to lack confidence in the general economic outlook can significantly reduce their likelihood of purchasing the Company’s equipment. If negative economic conditions affect the overall farm economy, there could be a similar effect on the Company’s agricultural equipment sales. In addition, uncertain or negative outlook with respect to ongoing U.S. budget issues as well as general economic conditions and outlook can cause significant changes in market liquidity conditions. Such changes could impact access to funding and associated funding costs, which could reduce the Company’s earnings and cash flows. Such changes could affect the ability of the Company’s customers, contract manufacturers, suppliers and lenders to finance their respective businesses, to access liquidity at acceptable financing costs, if at all, the availability of supplies, materials and manufacturing facilities and on the demand for the Company’s products.
We may encounter difficulties in fully exploiting the assets we acquired from Cryocann USA Corp and may not fully achieve, or achieve within a reasonable time frame, expected strategic objectives and other expected benefits of the acquisitions.
Our recent acquisition of Cryocann USA Corp assets is expected to realize strategic and other benefits, including, among other things, the opportunity to enter the agricultural equipment industry, identify customers and provide our customers with an appealing range of products and services. However, it is impossible to predict with certainty whether, or to what extent, these benefits will be realized or whether we will be able to exploit the acquired assets in a timely and effective manner. For example:
| ● | the costs of using the assets in developing and manufacturing agricultural equipment may be higher than we expect and may require significant attention from our management; |
| ● | the asset acquisition and subsequent exploitation of the assets may result in as of yet unidentified liabilities, such as infringement of third parties’ intellectual property, environmental liabilities or liabilities for violations of laws, such as the FCPA, that we did not expect; |
| ● | our ability to successfully carry out our growth strategies with the help of the acquired assets will be affected by, among other things, our ability to maintain and enhance our relationships with potential customers, our ability to manufacture and distribution products, changes in the spending patterns and preferences of customers and potential customers, fluctuating economic and competitive conditions and our ability to retain their key personnel; |
| ● | litigation or other claims in connection with the acquired assets, including claims from Cryocann USA Corp customers, current or former shareholders or other third parties; and |
| ● | our due diligence of Cryocann USA Corp may have failed to identify all liabilities associated with the acquisition. Further, the acquired assets consisted primarily of intellectual property, which does not have a market value, and we may not have correctly assessed the relative benefits and detriments of making the acquisition and may have pay acquisition consideration exceeding the value of the acquired assets. |
Further acquisitions may be necessary to realize our overall corporate strategy. There can be no assurance that we will be able to identify appropriate acquisition targets, successfully acquire identified targets or successfully integrate the business of acquired companies or the assets acquired to realize the full, anticipated benefits of such acquisitions. Our ability to address these issues will determine the extent to which we are able to successfully integrate, exploit and develop the acquired assets and to realize the expected benefits of the Cryocann USA Corp. transactions. Our failure to do so could have a material adverse effect on our performance following the transaction
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Our business results depend largely on its ability to understand its customers’ specific preferences and requirements, and to develop, manufacture and market products that meet customer demand.
The Company’s ability to match new product offerings to customers’ anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to its success. This requires a thorough understanding of the Company’s potential customers and their needs, as well as an understanding of the cannabis and hemp cultivation dynamics and of other agricultural commodities cultivation dynamics. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant adverse effect on the Company’s business.
Our business may be directly and indirectly affected by unfavorable weather conditions or natural disasters that reduce agricultural production and demand for agriculture equipment.
Poor or unusual weather conditions can significantly affect the purchasing decisions of the Company’s potential customers. Natural calamities such as regional floods, hurricanes or other storms, and droughts can have significant negative effects on agricultural production. The resulting negative impact on farm income can strongly affect demand for agricultural equipment.
Changes in the availability and price of certain raw materials, components and whole goods could result in production disruptions or increased costs and lower profits on sales of our products.
The Company requires access to various materials and components at competitive prices to manufacture and distribute its products. Changes in the availability and price of these materials and components, which have fluctuated in the past and are more likely to fluctuate during times of economic volatility, can significantly increase the costs of production which could have a material negative effect on the profitability of the business, particularly if the Company, due to pricing considerations or other factors, is unable to recover the increased costs from its customers. The Company relies on suppliers and contract manufacturers to acquire materials and components to manufacture its products. Supply chain and contract manufacturing disruptions due to supplier or contract manufacturer financial distress, capacity constraints, business continuity, quality, delivery or disruptions due to weather-related or natural disaster events could affect the Company’s operations and profitability.
In determining the required quantities of our products and the manufacturing schedule, we must make significant judgments and estimates that are not based on any historical data. Because of the inherent nature of estimates, there could be significant differences between our estimates and the actual amounts of products we require, which could harm our business and results of operations.
The agricultural equipment industry is highly seasonal, and seasonal fluctuations may significantly impact our performance.
The agricultural equipment business is highly seasonal, which may cause our quarterly results and our cash flow to fluctuate during the year. Farmers generally purchase agricultural equipment seasonally in conjunction with the harvesting seasons. Seasonal fluctuations can significantly impact our performance in a specific quarter, or overall.
If we are unable to hire and retain key personnel, we may not be able to implement our business plan and our business may fail.
Our future success depends to a large extent on our ability to attract, hire, train and retain qualified managerial, operational and other personnel. We face significant competition for qualified and experienced employees in our industry and from other industries and, as a result, we may be unable to attract and retain the personnel needed to successfully conduct and grow our operations. Additionally, key personnel, including members of management, may leave and compete against us. At present, we do not have all the necessary personnel to carry out our business plans. If we are unable to hire and retain key personnel, our business will be materially adversely affected.
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Our growth is highly dependent on the U.S. cannabis and hemp markets. New regulations causing licensing shortages and future regulations may create other limitations that decrease the demand for our products. General regulations at state and federal in the future may adversely impact our business.
The base of cannabis growers in the U.S. has grown over the past 20 years since the legalization of cannabis for medical uses in states such as California, Colorado and Washington. The U.S. cannabis market is still in its infancy and early adopter states such as California, Colorado and Washington represent a large portion of historical industry revenues. The U.S. cannabis cultivation market is expected to be one of the fastest growing industries in the U.S. over the next five years. If the U.S. cannabis cultivation market does not grow as expected, our business, financial condition and results of operations could be adversely impacted. The California cannabis cultivation market is expected to be one of the fastest growing industries in California over the next five years. If the California cannabis cultivation market does not grow as expected, our business, financial condition and results of operations could be adversely impacted.
Cannabis remains illegal under U.S. federal law, with cannabis listed as a Schedule I substance under the United States Controlled Substances Act of 1970 (the “CSA”). Notwithstanding laws in various states permitting certain cannabis activities, all cannabis activities, including possession, distribution, processing and manufacturing of cannabis and investment in, and financial services or transactions involving proceeds of, or promoting such activities remain illegal under various U.S. federal criminal and civil laws and regulations, including the CSA, as well as laws and regulations of several states that have not legalized some or any cannabis activities to date. Compliance with applicable state laws regarding cannabis activities does not protect us from federal prosecution or other enforcement action, such as seizure or forfeiture remedies, nor does it provide any defense to such prosecution or action. Cannabis activities conducted in or related to conduct in multiple states may potentially face a higher level of scrutiny from federal authorities. Penalties for violating federal drug, conspiracy, aiding, abetting, bank fraud and/or money laundering laws may include prison, fines, and seizure/forfeiture of property used in connection with cannabis activities, including proceeds derived from such activities.
We are not currently subject directly to any state laws or regulations controlling participants in the legal cannabis industry. However, regulation of the cannabis industry does impact our potential customers in the cultivation industry and, accordingly, there can be no assurance that changes in regulation of the industry and more rigorous enforcement by federal authorities will not have a material adverse effect on us.
Legislation and regulations pertaining to the use and cultivation of cannabis are enacted on both the state and federal government level within the United States. As a result, the laws governing the cultivation and use of cannabis may be subject to change. Any new laws and regulations limiting the use or cultivation of cannabis and any enforcement actions by state and federal governments could indirectly reduce demand for our products and may impact our current and planned future operations.
Evolving federal and state laws and regulations pertaining to the use or cultivation of cannabis, as well active enforcement by federal or state authorities of the laws and regulations governing the use and cultivation of cannabis may indirectly and adversely affect our business, our revenues and our profits. Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require the end users of certain of our products or us to incur substantial costs associated with compliance or to alter our respective business plans. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operation and financial condition.
Certain of our products may be purchased for use for agricultural products other than cannabis and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, future scientific research and public perception.
The public’s perception of cannabis may significantly impact the cannabis industry’s success. Both the medical and adult-use of cannabis are controversial topics, and there is no guarantee that future scientific research, publicity, regulations, medical opinion, and public opinion relating to cannabis will be favorable. The cannabis industry is an early-stage business that is constantly evolving with no guarantee of viability. Among other things, such a shift in public opinion could cause state jurisdictions to abandon initiatives or proposals to legalize cultivation and sale of cannabis or adopt new laws or regulations restricting or prohibiting the cultivation of cannabis where it is now legal, thereby limiting the potential customers who are engaged in the cannabis industry.
Demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop. We cannot predict the nature of such developments or the effect, if any, that such developments could have on our business.
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Our indirect involvement in the cannabis industry could affect the public’s perception of us and be detrimental to our reputation.
Damage to our reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Cannabis has often been associated with various other narcotics, violence and criminal activities, the risk of which is that our retailers and resellers that transact with cannabis businesses might attract negative publicity. There is also risk that the action(s) of other participants, companies and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact our reputation. The increased use of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views with regard to cannabis companies and their activities, whether true or not and the cannabis industry in general, whether true or not. We do not ultimately have direct control over how the cannabis industry and its suppliers is perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance its business strategy and realize on its growth prospects, thereby having a material adverse impact on our business.
Businesses involved in the cannabis industry, and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping and proceeds of crimes.
We sell our products through third party retailers and resellers. Investments in the U.S. cannabis industry are subject to a variety of laws and regulations that involve money laundering, financial recordkeeping and proceeds of crime, including the BSA, as amended by the Patriot Act, other anti-money laundering laws, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States. In February 2014, the Financial Crimes Enforcement Network of the Treasury Department issued a memorandum (the “FinCEN Memo”) providing guidance to banks seeking to provide services to cannabis businesses. The FinCEN Memo outlines circumstances under which banks may provide services to cannabis businesses without risking prosecution for violation of U.S. federal money laundering laws. It refers to supplementary guidance that Deputy Attorney General Cole issued to U.S. federal prosecutors relating to the prosecution of U.S. money laundering offenses predicated on cannabis violations of the CSA and outlines extensive due diligence and reporting requirements, which most banks have viewed as onerous. The FinCEN Memo currently remains in place, but it is unclear at this time whether the current administration will continue to follow the guidelines of the FinCEN Memo. Such requirements could negatively affect the ability of certain of the end users of our products to establish and maintain banking connections.
We are subject to extensive anti-corruption laws and regulations.
The Company’s foreign operations, if and when established, must comply with all applicable laws, which may include the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act or other anti-corruption laws. These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Recently, there has been a substantial increase in the global enforcement of anti-corruption laws. Although the Company has a compliance program in place designed to reduce the likelihood of potential violations of such laws, violations of these laws could result in criminal or civil sanctions and have an adverse effect on the Company’s reputation, business and results of operations and financial condition.
Our business, results of operations and financial condition may be adversely affected by pandemic infectious diseases, particularly the recent novel coronavirus strain known as COVID-19.
Pandemic infectious diseases, such as the current COVID-19 strains, may adversely impact our business, consolidated results of operations and financial condition. The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption. The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our customers and customer demand our services, products and solutions; our ability to sell and provide its services and solutions, including as a result of travel restrictions and people working from home; the ability of our customers to pay for our services and solutions; and any closures of our offices and the offices and facilities of our customers. COVID-19, as well as measures taken by governmental authorities to limit the spread of this virus, may interfere with the ability of our employees, suppliers, and other business providers to carry out their assigned tasks or supply materials or services at ordinary levels of performance relative to the requirements of our business, which may cause us to materially curtail certain of our business operations. We require additional funding and such funding may not be available to us as a result of contracting capital markets resulting from the COVID-19 pandemic. Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.
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Natural disasters, pandemic outbreaks or other health crises could disrupt business and result in lower sales and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters, pandemic outbreaks or other health crises (including but not limited to the COVID-19 outbreak), could adversely affect our business and financial performance. If any of these events result in the closure of one or more of our dispensaries, extended sick leave involving our personnel, or impact key suppliers, our operations and financial performance could be materially adversely affected through an inability to provide other support functions to our stores and through lost sales. These events also could affect consumer shopping patterns or prevent customers from reaching our dispensaries, which could lead to lost sales and higher markdowns, the temporary lack of an adequate work force in a market, the temporary or long-term disruption of product availability in our dispensaries and the temporary or long-term inability to obtain technology needed to effectively run our business.
Security breaches and other disruptions to our information technology infrastructure could interfere with our operations and could compromise the Company’s and its customers’ and suppliers’ information, exposing us to liability that would cause the Company’s business and reputation to suffer.
In the ordinary course of business, the Company relies upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distribution, invoicing and collection of payments from intermediaries or other purchasers or lessees of our equipment. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information and the proprietary business information of the Company’s customers and suppliers, as well as personally identifiable information of our customers and employees, in third party data centers, “cloud” providers and on information technology networks. The secure operation of these information technology networks, and the processing and maintenance of this information is critical to the Company’s business operations and strategy. Such third parties, as well as the Company’s information technology networks, cloud and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. The occurrence of any of these events could compromise the respective storage networks, data centers or cloud, and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation, which could adversely affect the Company’s business.
Our suppliers, contract manufacturers and customers are subject to and affected by increasingly rigorous environmental, health and safety laws and regulations of federal, state and local authorities in the U.S. and various regulatory authorities with jurisdiction over the Company’s operations. In addition, private civil litigation on these subjects has increased, primarily in the U.S.
Enforcement actions arising from violations of environmental, health and safety laws or regulations can lead to investigation and defense costs, and result in significant fines or penalties. In addition, new or more stringent requirements of governmental authorities could prevent or restrict the Company’s operations, or those of our suppliers and customers, require significant expenditures to achieve compliance and/or give rise to civil or criminal liability. There can be no assurance that violations of such legislation and/or regulations, or private civil claims for damages to property or personal injury arising from the environmental, health or safety impacts of our operations, or those of our suppliers and customers, would not have consequences that result in a material adverse effect on our business, financial condition or results of operations.
Increasingly stringent engine emission standards could impact our ability to manufacture and distribute certain equipment, which could negatively affect business results.
The Company’s equipment operations must meet increasingly stringent engine emission reduction standards, including USEPA, Interim Tier 4/Stage IIIb and Final Tier 4/Stage IV non-road diesel emission requirements in the U.S. and European Union.
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We may incur increased costs due to new or more stringent greenhouse gas emission standards designed to address climate change and could be further impacted by physical effects attributed to climate change on its facilities, suppliers and customers.
There is a growing political and scientific consensus that emissions of greenhouse gases (GHG) continue to alter the composition of Earth’s atmosphere in ways that are affecting and are expected to continue to affect the global climate. These considerations may lead to international, national, regional or local legislative or regulatory responses in the future. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, as well as companies in many business sectors, including the Company, are considering ways to reduce GHG emissions. The regulation of GHG emissions from certain stationary or mobile sources could result in additional costs to the Company or its suppliers in the form of taxes or emission allowances, facilities improvements and energy costs, which would increase our operating costs through higher contract manufacturing, utility, transportation and materials costs. Increased input costs and compliance-related costs could also impact customer operations and demand for our equipment. Because the impact of any future GHG legislative, regulatory or product standard requirements on our businesses and products is dependent on the timing and design of mandates or standards, the Company is unable to predict its potential impact at this time.
Furthermore, the potential physical impacts of climate change on our suppliers and customers and therefore on our operations are highly uncertain and will be particular to the circumstances developing in various geographical regions. These may include long-term changes in temperature levels and water availability. These potential physical effects may adversely impact the demand for the Company’s products and the cost, production, sales and financial performance of the Company’s operations.
Our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations, we could be subject to significant claims, penalties and damages.
Increasingly, the United States, the European Union and other governmental entities are imposing regulations designed to protect the collection, maintenance and transfer of personal information. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”) that imposes stringent data protection requirements and greater penalties for non-compliance beginning in May 2018. The GDPR also protects a broader set of personal information than traditionally has been protected in the United States and provides for a right of “erasure.” Other regulations govern the collection and transfer of financial data and data security generally. These regulations generally impose penalties in the event of violations. While we attempt to comply with all applicable cybersecurity regulations, their implementation is complex, and, if we are not successful, we may be subject to penalties and claims for damages from regulators and the impacted individuals.
Risks Relating to Our Intellectual Property
Recent laws make it difficult to predict how patents will be issued or enforced in our industry.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. There have been numerous recent changes to the patent laws and to the rules of the United States Patent and Trademark Office (the “USPTO”), which may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, which was signed into law in 2011, includes a transition from a “first-to-invent” system to a “first-to-file” system, and changes the way issued patents can be challenged. Certain changes, such as the institution of inter partes review and post-grant and derivation proceedings, came into effect in 2012. Substantive changes to patent law associated with the Leahy-Smith America Invents Act may affect our ability to obtain patents, and, if obtained, to enforce or defend them in litigation or inter partes review, or post-grant or derivation proceedings, all of which could harm our business.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
Our ability to compete effectively depends in part on our rights to trademarks, patents and other intellectual property rights we own. We have not sought to register every one of our intellectual properties either in the United States or in every country in which such intellectual property may be used. Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States with respect to the registered brand names and issued patents we hold. If we are unable to protect our intellectual property, proprietary information and/or brand names, we could suffer a material adverse effect on our business, financial condition and results of operations.
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Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, patent or other intellectual property infringement against us, or any other successful challenge to the use of our intellectual property, could subject us to damages or prevent us from providing certain products or services, or using certain of our recognized brand names, which could have a material adverse effect on our business, financial condition and results of operations.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance or annuity fees on any issued patents are due to be paid to the USPTO, and/or foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payments and other similar provisions during the patent application process. While an inadvertent or unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, nonpayment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our products, our competitors might be able to enter the market, which would have a material adverse effect on our business.
From time to time, we may need to rely on licenses to proprietary technologies, which may be difficult or expensive to obtain or we may lose certain licenses which may be difficult to replace, harming our competitive position.
We may need to obtain licenses to patents and other proprietary rights held by third parties to develop, manufacture and market our products, if, for example, we sought to develop our products, in conjunction with any patented technology. If we are unable to timely obtain these licenses on commercially reasonable terms and maintain these licenses, our ability to commercially market our products, may be inhibited or prevented, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In spite of our best efforts, our licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements, thereby removing our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors may have the freedom to market products identical to ours.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our success depends upon our ability to develop, manufacture, market and sell our products, and to use our proprietary technologies without infringing the proprietary rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings and various other post-grant proceedings before the USPTO and/or non-United States opposition proceedings. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. As a result of any such infringement claims, or to avoid potential claims, we may choose or be compelled to seek intellectual property licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees, royalties, minimum royalties and/or milestone payments and the rights granted to us could be nonexclusive, which would mean that our competitors may be able to obtain licenses to the same intellectual property. Ultimately, we could be prevented from commercializing a product and/or technology or be forced to cease some aspect of our business operations if, as a result of actual or threatened infringement claims, we are unable to enter into licenses of the relevant intellectual property on acceptable terms. Further, if we attempt to modify a product and/or technology or to develop alternative methods or products in response to infringement claims or to avoid potential claims, we could incur substantial costs, encounter delays in product introductions or interruptions in sales.
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Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
| ● | Others may be able to construct products that are similar to our products but that are not covered by the claims of the patents that we own or have exclusively licensed; |
| ● | We or our licensors or strategic collaborators, if any, might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed; |
| ● | We or our licensors or strategic collaborators, if any, might not have been the first to file patent applications covering certain of our inventions; |
| ● | Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
| ● | It is possible that our pending patent applications will not lead to issued patents; |
| ● | Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; |
| ● | Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| ● | We may not develop additional proprietary technologies that are patentable; and |
| ● | The patents of others may have an adverse effect on our business. |
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning agreements with our employees, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the value of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
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Risks Related to the Common Shares
The Company’s Common Share price may be volatile and as a result investor could lose all or part of their investment.
In addition to volatility associated with equity securities in general, the value of an investor’s investment could decline due to the impact of any of the following factors upon the market price of the Common Shares:
| ● | disappointing results from the Company’s operations or financing activities; |
| ● | decline in demand for its Common Shares; |
| ● | downward revisions in securities analysts’ estimates or changes in general market conditions; |
| ● | technological innovations by competitors or in competing technologies; |
| ● | investor perception of the Company’s industry or its prospects; and |
| ● | general economic trends. |
Our Common Share price on the OTCQB has experienced significant price and volume fluctuations. Stock markets in general have experienced extreme price and volume fluctuations, and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of the Common Shares. As a result, an investor may be unable to sell any Common Shares such investor acquires at a desired price.
Potential future sales under Rule 144 may depress the market price for our Common Shares.
In general, under Rule 144, a person who has satisfied a minimum holding period of between 6 months and one-year and any other applicable requirements of Rule 144, may thereafter sell such shares publicly. A significant number of the Company’s currently issued and outstanding Common Shares held by existing shareholders, including officers and directors and other principal shareholders, are currently eligible for resale pursuant to and in accordance with the provisions of Rule 144. The possible future sale of the Company’s Common Shares by its existing shareholders, pursuant to and in accordance with the provisions of Rule 144, may have a depressive effect on the price of its Common Shares in the over-the-counter market.
The Company’s Common Shares currently deemed a “penny stock”, which may make it more difficult for investors to sell their Common Shares.
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price less than $5.00 per Common Share or an exercise price of less than $5.00 per Common Share, subject to certain exceptions. The Company’s s securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000, exclusive of their principal residence, or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade its securities. The Company believes that the penny stock rules may discourage investor interest in and limit the marketability of its Common Shares.
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The Company has never paid dividends on its Common Shares.
The Company has not paid dividends on its Common Shares to date, and it does not expect to pay dividends for the foreseeable future. The Company intends to retain its initial earnings, if any, to finance its operations. Any future dividends on Common Shares will depend upon the Company’s earnings, its then-existing financial requirements, and other factors, and will be at the discretion of the Board.
FINRA has adopted sales practice requirements, which may also limit an investor’s ability to buy and sell the Company’s Common Shares.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy the Company’s Common Shares, which may limit an investor’s ability to buy and sell its stock and have an adverse effect on the market for the Common Shares.
Investors’ interests in the Company will be diluted and investors may suffer dilution in their net book value per share of Common Shares if we issue additional employee/director/consultant options or if we sell additional Common Shares and/or warrants to finance its operations.
In order to further expand the Company’s operations and meet its objectives, any additional growth and/or expanded business activity will likely need to be financed through sale of and issuance of additional Common Shares. The Company will also in the future grant to some or all of its directors, officers, and key employees and/or consultants options to purchase Common Shares as non-cash incentives. The issuance of any equity securities could, and the issuance of any additional Common Shares will, cause the Company’s existing shareholders to experience dilution of their ownership interests.
If the Company issues additional Common Shares or decides to enter into joint ventures with other parties in order to raise financing through the sale of equity securities, investors’ interests in the Company will be diluted and investors may suffer dilution in their net book value per share of Common Shares depending on the price at which such securities are sold.
The issuance of additional shares of Common Shares may negatively impact the trading price of the Company’s securities.
We have issued Common Shares in the past and will continue to issue Common Shares to finance our activities in the future. In addition, newly issued or outstanding options and warrants to purchase Common Shares may be exercised, resulting in the issuance of additional Common Shares. Any such issuance of additional Common Shares would result in dilution to the Company’s shareholders, and even the perception that such an issuance may occur could have a negative impact on the trading price of the Common Shares.
The Company faces risks related to compliance with corporate governance laws and financial reporting standards.
The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the SEC and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, referred to as Section 404, materially increase the Company’s legal and financial compliance costs and make certain activities more time-consuming and burdensome.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Except for statements of historical facts, this Prospectus contains forward-looking statements involving risks and uncertainties. The words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” or the negative of these terms and similar expressions or variations thereof are intended to forward looking statements. Such statements reflect the current view of the Registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this registration statement on Form S-1 entitled “Risk Factors”) relating to the Registrant’s industry, the Registrant’s operations and results of operations and any businesses that may be acquired by the Registrant. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Although the Registrant believes that the expectations reflected in the forward-looking statements are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Registrant does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with the Registrant’s financial statements and the related notes included in this registration statement on Form S-1.
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USE OF PROCEEDS
This Prospectus relates to the sale or other disposition of Common Shares by the selling shareholders listed in the “Selling shareholders and Certain Beneficial Owners” section below, and their transferees. We will not receive any proceeds from any sale of the Common Shares by the selling shareholders. We will receive the exercise price of the warrants. Any proceeds received from exercise of warrants will be used for payment of general corporate and operating expenses.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note of Caution Regarding Forward-Looking Statements
Certain statements in this report, including statements in the following discussion, are what are known as “forward looking statements”, which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as “plans,” “intends,” “will,” “hopes,” “seeks,” “anticipates,” “expects “and the like often identify such forward looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this Prospectus and in the Company’s other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.
Background and Overview
Results of Operations
Comparison of the fiscal years ended December 31, 2020 and December 31, 2019
Revenue
During the fiscal year ended December 31, 2020, the Company generated total revenues of $781,455 as compared to $18,248 during the fiscal year ended December 31, 2019; an increase of $763,207 or approximately 4,182%.
Expenses
During the fiscal year ended December 31, 2020, the Company reported total operating expenses of $6,572,017 as compared to $3,152,356 during the fiscal year ended December 31, 2019; an increase of $2,679,897 or approximately 85%.
Net Loss and Comprehensive Loss
During the fiscal year ended December 31, 2020, the Company reported a net loss of $11,815,907 as compared to $3,057,534 during the fiscal year ended December 31, 2019; an increase of $8,758,373 or approximately 286%.
During the fiscal year ended December 31, 2020, the Company reported a comprehensive loss of $11,815,907 as compared to 3,062,904 during the fiscal year ended December 31, 2019; an increase of $8,753,003 or approximately 286%.
Comparison of the three and nine months ended September 30, 2021 and September 30, 2020
Revenue
During the three months ended September 30, 2021 and 2020, the Company generated no revenues.
During the nine months ended September 30, 2021, the Company reported total revenues of $0 as compared to $781,455 during the nine months ended September 30, 2020; a decrease of $781,455 or 100%.
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Expenses
During the three months ended September 30, 2021, the Company reported total operating expenses of $2,056,476 as compared to $1,181,384 during the three months ended September 30, 2020; an increase of $875,092 or approximately 74%.
During the nine months ended September 30, 2021, the Company reported total operating expenses of $5,689,625 as compared to $5,340,000 during the nine months ended September 30, 2020; an increase of $349,625 or approximately 7%.
Net Loss and Comprehensive Loss
During the three months ended September 30, 2021, the Company reported a net loss and comprehensive loss of $2,373,815 as compared to $5,939,989 during the three months ended September 30, 2020; a decrease of $3,566,174 or approximately 60%.
During the nine months September 30, 2021, the Company reported a net loss and comprehensive loss of $6,190,381 as compared to $10,310,306 during the nine months ended September 30, 2020; a decrease of $4,119,925 or approximately 40%.
Liquidity and Capital Resources
After completion of a $10.3 million private placement in November 2021 and the conversion of $4.9 million of convertible debt to common shares, the Company has sufficient resources to meets its existing obligations for a period of at least twelve months, and likewise sufficient resources to implement its new business plan arising from the acquisition of the assets of Cryocann USA Corp.
Current Assets and Total Assets
As of September 30, 2021, the Company’s balance sheet reflects that the Company had: i) total current assets of $8,490,725, compared to total current assets of $8,386,548 at September 30, 2020 - an increase of $104,177 or approximately 1%; and ii) total assets of $13,876,156, compared to total assets of $8,386,548 at September 30, 2020 – an increase of $5,489,608 or approximately 65%. The increase in total assets was predominantly due to the assets acquired in the Cryocann acquisition.
Current Liabilities and Total Liabilities
As of September 30, 2021, the Company’s balance sheet reflects that the Company had: i) total current liabilities of $5,546,617, compared to total current liabilities of $3,723,258 at September 30, 2020 - an increase of $1,823,359 or approximately 49%; and ii) total liabilities of $9,694,026, compared to total liabilities of $3,751,767 at September 30, 2020 – an increase of $5,942,259 or approximately 158%. The increase in current liabilities was predominantly due to an increase in accounts payable and the increase in total liabilities was predominantly due to the Company entering into a $4,900,000 convertible note offering in 2021 the first half of 2021, all of which was converted to shares in the fourth quarter of 2021.
Cash Flow
For the nine months ended September 30, 2021 and 2020, the Company had net cash used in operating activities of $3,070,095 and $3,247,391, respectively.
Off-Balance Sheet Arrangements
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors and executive officers and their respective ages, positions, and biographical information are set forth below.
| Name | Position | Age | ||
| Christian Noël | Chief Executive Officer & Director | 45 | ||
| Philip Mullin | Chief Financial Officer | 68 | ||
| Patricia Kovacevic | General Counsel, Corporate Secretary | 51 | ||
| Dr. Delon Human | Chairman of the Board | 59 | ||
| Mario Gobbo | Director | 68 | ||
| Mark Radke | Director | 67 | ||
| Simon Langelier | Director | 64 |
Christian Noël, Chief Executive Officer & Director
Christian Noel is a trusted investor and business strategist, who has held senior positions in financial and investment organizations in Montreal, Canada, for the last 21 years. During his career, he has acquired extensive experience in risk management, tax planning, investment banking, and financial strategy design and execution.
In 2005 he joined Richardson GMP as Vice-President and Partner. Richardson GMP is a non-bank organization that specializes in portfolio management for high-net-worth individuals and families.
In 2014 Christian was admitted as a portfolio manager of GVC Ltd, a boutique wealth management firm based in Montreal, and was subsequently named Partner. At GVC, he developed a deep understanding of the nascent cannabis industry, building a team to analyze investment opportunities in all facets of the cannabis value chain, thereby providing clients with a superior range of services.
Christian expertise spans many different industries and has performed numerous due diligence activities over the last 20 years. He specializes in small and mid-cap companies as well as sophisticated alternative investment strategies. Christian is fluent in English and French and possesses a vast network of relationships in North American, European, and other regional capital markets.
Philip Mullin, Chief Financial Officer
Philip Mullin has 30 years’ experience as CFO, COO, and in consulting and turnarounds for businesses with revenues of less than $100 million and has served as Chief Financial Officer of the Company since June, 20219. Mr. Mullin was previously managing director of Somerset Associates LLC, a CFO, accounting, tax and financial consulting company, and served until recently on the board of CanaQuest Medical Corp. Since 2009, he has operated primarily in consulting and interim CFO roles in multiple sectors including fintech, blockchain, drones, recycling, medical marijuana, and electrical power generation. From 2003-09, Mr. Mullin was a partner of Tatum Partners, a human capital firm engaged in providing CFO services. Within Tatum, Mr. Mullin served in numerous leadership roles: from 2006-09, as CFO of Zi Corporation, a leading software development company specializing in mobile phones, which was sold in April 2009 to Nuance Communications; from 2003-06, as interim CFO of Homax Products, Vice President Finance of Yakima Products, and as a consultant in several engagements in industrial construction, manufacturing and air transportation. From 2001-03, he served as turnaround consultant to companies in the telecom sector during the critical post-9/11 timeframe; from 1995-2001, he was engaged in various C-level capacities in a public entity that was restructured and eventually became International DisplayWorks, a manufacturer of LCD displays based in Rocklin, California with operations in Shenzhen, China, which was later sold to Flextronics.
Mr. Mullin began his career in banking in 1982 after completing his MBA from University of Western Ontario Richard Ivey School of Business in London, Ontario, Canada and BA in Economics from Wilfrid Laurier University, in Waterloo, Ontario, Canada.
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Patricia Kovacevic, General Counsel & Head of External Affairs
An experienced legal and compliance department leader, Patricia I. Kovacevic’s career comprises leading senior legal and regulatory positions with FDA-regulated multinationals, including Philip Morris International and Lorillard, as well as partner roles with large law firms.
Her expertise includes corporate law, compliance, M&A, US and global food, drug, nicotine and consumer goods regulation, cannabis/CBD regulation, external affairs and the legal framework applicable to marketing, media communications, investigations, FCPA, trade sanctions, privacy, intellectual property, product development and launch. She also led cross-disciplinary teams engaged in scientific research efforts. She has served on various trade association bodies and conference advisory boards. Ms. Kovacevic authored several articles on nicotine regulation, co-authored an academic treatise, “The Regulation of E-Cigarettes” and is often invited as a keynote speaker or panelist before global conferences and government agencies public hearings.
Patricia Kovacevic is an attorney admitted to practice in New York, before the U.S. Tax Court, before the U.S. Court of International Trade and before the Supreme Court of the United States. She holds a Juris Doctor (Doctor of Law) degree from Columbia Law School in New York and completed the Harvard Business School “Corporate Leader” executive education program. Ms. Kovacevic speaks several languages, including French, Italian, Spanish, Romanian and Croatian.
Dr. Delon Human, Chairman of the Board
Dr. Delon Human, M.B.Ch.B., M.Prax.Med, MFGP, DCH, MBA serves as President of the Board of Directors of Cryomass Technologies Inc
He is an experienced global business leader, published author and health & technology consultant. He serves as President of Health Diplomats, a specialized health, technology and nutrition consulting group, operating worldwide. Health Diplomats clients include Fortune 500 companies such as Johnson & Johnson, Pfizer, Nestlé, McDonald’s, Nicoventures, BAT, ABInBev, foundations such as the IKEA Foundation, Rockefeller Foundation, PepsiCo Foundation; governments such as Ireland, South Africa, Kuwait and Taiwan and NGOs such as the International Food and Beverage Alliance (IFBA).
From 2016 to 2020, he served as Director (Vice-Chairman) of the Board of Pharmacielo, a biopharmaceutical health & wellness company, from its early phase, to its listing on the Toronto Stock Exchange. Since August 2019, he has also served on the board of Redwood Green Corporation (now called Cryomass Technologies Inc), from December 2019 as Chairman of the Board. This company is listed on the USA OTCQB stock exchange. In addition, he serves on the board of the Fio Corporation, a big data and medical diagnostics company.
He has acted as adviser to three WHO Directors-General and to UN Secretary-General Ban Ki Moon. Up to 2014 he served as Secretary-General and Special Envoy to WHO / UN of the International Food and Beverage Alliance, a group of leading food and non-alcoholic beverage companies with a global presence (including Unilever, Nestlé, McDonald’s, Coca-Cola, PepsiCo, Ferrero, Mars, General Mills, Mondeléz and the Bel Group). He serves on the Board of Directors / Advisory Boards of selected health, wellness and medical diagnostics companies.
Up to 2005, Dr. Human served as secretary general of the World Medical Association (WMA), the global representative body for physicians. He was instrumental in the establishment of the World Health Professions Alliance, an alliance of the global representative bodies of physicians, nurses, pharmacists, dentists and physical therapists. During 2006 he was elected to serve as the secretary-general of the Africa Medical Association (AfMA). He is a fellow of the Russian and Romanian Academies of Medical Sciences. He is a published author, international lecturer and health care consultant specializing in global health strategy, corporate and product transformation, harm reduction, access to healthcare and health communication. He authored the book “Wise Nicotine” in 2009, in which the preferred future for tobacco harm reduction and the emergence of next generation nicotine products was described. Editor of the book “Caring Physicians of the World”, a project in collaboration with Pfizer Inc.
He was a clinician for two decades, part of the pediatric endocrinology research and diabetes unit at the John Radcliffe Hospital and was involved in the establishment of several medical centers, a hospital and emergency clinic in South Africa.
Dr. Human qualified as a physician in South Africa and completed his postgraduate studies in family medicine and child health in South Africa and Oxford, England. His business studies (MBA) were completed at the Edinburgh Business School.
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Mario Gobbo, Director
Mario Gobbo has 35 years of banking and corporate finance experience in healthcare and energy. His expertise encompasses venture capital and private equity as well as investment banking and strategic advisory services. Mr. Gobbo currently serves as acting CFO of Xcovery, a cancer-based biotech company and on the Supervisory Board and is Chair of Cinkarna Celje, a fine chemicals for paints (titanium dioxide) company in Celje, Slovenia. Until recently, he was on the board of Zavarovalnica Triglav, the largest Slovene insurance company spearheading healthcare insurance in Central Europe and was Chairman of the Board and is Chair of the Audit Committee of Helix BioPharma, a Toronto-listed biotech company developing interesting novel complex biomolecules to combat various cancers. As an executive director, he was also on the board of Lazard Brothers, London.
While Managing Director for Health Care Capital Markets and Advisory with Natixis Bleichroeder in New York, from 2006 to 2009, he secured transactions for the bank’s M&A and equity capital markets pharmaceuticals and life sciences group. He obtained mandates for several IPOs and follow-on transactions on NASDAQ, as well as advisory assignments for health care and medical devices companies. When with the International Finance Corporation, a World Bank Group institution dealing with private sector investments, the team he led completed several highly successful equity and loan investments in biotech and generic pharmaceutical companies and funds in India, Latin America, China and Central Europe. From 1993 to 2001, he was with Lazard in London, where he created and managed their Central and Eastern European operations, including Turkey. Mr. Gobbo advised on M&A, fundraising and privatization efforts for several key firms in the region.
Mario Gobbo holds a Bachelor of Arts in Organic Chemistry from Harvard College, a Master of Science in Biochemistry from the University of Colorado and an MBA, a Master of Business Economics and a PhD (Management) from the Wharton School of the University of Pennsylvania.
Mark Radke, Director
Mark Radke is a lawyer with a distinguished career in the area of financial services, specializing in federal securities regulation. As the Chief of Staff of the Securities and Exchange Commission under Chairman Harvey Pitt, he was responsible for that agency’s rulemaking in response to the Sarbanes Oxley Act. In private practice, as partner at several multinational law firms, he has represented corporations, brokerage and accounting firms, hedge funds and individuals on corporate governance, compliance, and regulatory issues involving not only the SEC but other federal and state regulators.
He was active in advising clients on legislative initiatives that lead to the Dodd-Frank Act of 2010, and in subsequent efforts to extend, implement or amend various components of that and other federal securities legislation.
As an adjunct professor at the Georgetown University Law Center, he has taught classes in aspects of securities regulation since 1999. He holds a B.A., University of Washington, J.D., University of Baltimore, LI.M., Securities Regulation, Georgetown University Law Center.
Simon Langelier - Director
Simon Langelier is currently a director of Imperial Brands PLC, a British multinational company with a comprehensive portfolio of traditional and non-combustible tobacco and nicotine products.
Previously, in his 30-year career with Philip Morris International, Simon Langelier served in several senior positions, including President Eastern Europe, Middle East & Africa, President Eastern Asia and President of Next Generation Products & Adjacent Businesses. He was also Managing Director in numerous countries in Europe and Colombia.
Mr. Langelier is currently an Honorary Professorial Fellow at Lancaster University in the U.K, a member of the Dean’s Council of that university’s Management School and a BSc Management Sciences graduate from the same institution.
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Information Concerning the Board of Directors and Certain Committees
The Board of Directors currently consists of five directors, four of whom the Board of Directors has determined are independent within the meaning of the rules of the OTCQB, which the Company has adopted as its definition of independence in the Audit Committee Charter. The Board of Directors held four regularly scheduled meetings during the 2021 fiscal year, and two special meetings during the 2021 fiscal year. Each of the directors attended all meetings of the Board of Directors and committees on which they served during the 2021 fiscal year. The Board of Directors does not have a formal policy governing director attendance at its annual meeting of stockholders.
The standing committees of the Board of Directors are the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, each of which was formed in 2019.
Audit Committee. The purpose of the Audit Committee is to oversee (i) the integrity of our financial statements and disclosures, (ii) our compliance with legal and regulatory requirements, (iii) the qualifications, independence and performance of our independent auditing firm (the “External Auditor”), (iv) the performance of our External Auditors, (v) our internal control systems, and (vi) our procedures for monitoring compliance with our Code of Business Conduct and Ethics.
The Audit Committee held four formal meetings during fiscal year 2021. The current members of the Audit Committee are Messrs. Gobbo (Chair) and Radke.
The Board of Directors has determined that each member of the Audit Committee meets the independence standards set forth in Rule 10A-3 promulgated under the Exchange Act and the independence standards set forth in the rules of the OTCQB. The Board of Directors has determined that Mr. Gobbo qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K, promulgated under the Exchange Act.
The Audit Committee operates under a written charter that is reviewed annually. Under the charter, the Audit Committee is required to pre-approve the audit and non-audit services to be performed by our independent registered public accounting firm.
Our Audit Committee meets on a regular basis, at least quarterly and more frequently as necessary. Our Audit Committee’s primary function is to assist our Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to stockholders and others, reviewing our system of internal controls, which management has established, overseeing the audit and financial reporting process, including the preapproval of services performed by our independent registered public accounting firm, and overseeing certain areas of risk management.
Compensation Committee. The Compensation Committee reviews the compensation strategy of the Company and consults with the Chief Executive Officer, as needed, regarding the role of our compensation strategy in achieving our objectives and performance goals and the long-term interests of our stockholders. The Compensation Committee has direct responsibility for approving the compensation of our Chief Executive Officer and makes recommendations to the Board with respect to our other executive officers. The term “executive officer” has the same meaning specified for the term “officer” in Rule 16a-1(f) under the Exchange Act.
Our Chief Executive Officer sets the compensation of anyone whose compensation is not set by the Board and reports to the Board regarding the basis for any such compensation if requested by it.
The Compensation Committee may retain compensation consultants, outside counsel and other advisors as the Board deems appropriate to assist it in discharging its duties.
The Compensation Committee held one formal meeting during fiscal year 2021. The members of the Compensation Committee are Dr. Human (Chair), and Mr. Langelier.
The Compensation Committee operates under a written charter that is reviewed annually.
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Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee identifies and recommends to the Board individuals qualified to be nominated for election to the Board and recommends to the Board the members and Chairperson for each Board committee.
In addition to stockholders’ general nominating rights provided in our Bylaws, stockholders may recommend director candidates for consideration by the Board. The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders if the recommendations are sent to the Board in accordance with the procedures in the bylaws. All director nominations submitted by stockholders to the Board for its consideration must include all of the required information set forth in our Bylaws.
Director Qualifications. In selecting nominees for director, without regard to the source of the recommendation, the Nominating and Corporate Governance Committee believes that each director nominee should be evaluated based on his or her individual merits, taking into account the needs of the Company and the composition of the Board. Members of the Board should have the highest professional and personal ethics, consistent with our values and standards and Code of Ethics. At a minimum, a nominee must possess integrity, skill, leadership ability, financial sophistication, and capacity to help guide us. Nominees should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on their experiences. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to responsibly perform all director duties. In addition, the Nominating and Corporate Governance Committee considers all applicable statutory and regulatory requirements and the requirements of any exchange upon which our common stock is listed or to which it may apply in the foreseeable future.
Evaluation of Director Nominees. The Nominating and Corporate Governance Committee will typically employ a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Corporate Governance Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current directors, stockholders, or other companies or persons. The Nominating and Corporate Governance Committee does not evaluate director candidates recommended by stockholders differently than director candidates recommended by other sources. Director candidates may be evaluated at regular or special meetings of the Nominating and Corporate Governance Committee and may be considered at any point during the year.
We do not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills so that, as a group, the Board will possess the appropriate talent, skills, and expertise to oversee our businesses. In evaluating director nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience, and capability on the Board. In connection with this evaluation, the Audit and Executive Oversight Committee will make a determination of whether to interview a prospective nominee based upon the Board’s level of interest. If warranted, one or more members of the Nominating and Corporate Governance Committee, and others as appropriate, will interview prospective nominees in person or by telephone. After completing this evaluation and any appropriate interviews, the Nominating and Corporate Governance Committee will recommend the director nominees after consideration of all its directors’ input. The director nominees are then selected by a majority of the independent directors on the Board, meeting in executive session and considering the Nominating and Corporate Governance Committee’s recommendations.
The Nominating and Corporate Governance Committee did not hold any meetings during the fiscal year 2021. The members of the Nominating and Corporate Governance Committee are Messrs. Radke (Chair) and Mr. Langelier.
The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee meets the independence standards set forth in Rule 10A-3 promulgated under the Exchange Act and the independence standards set forth in the New York Stock Exchange.
The Nominating and Corporate Governance Committee operates under a written charter that is reviewed annually.
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Stockholder and Interested Party Communications with Directors
We provide the opportunity for our stockholders and other interested parties to communicate with any member, or all members, of our Board of Directors by mail. To communicate with our Board of Directors, correspondence should be addressed to our Board of Directors or any one or more individual directors or group or committee of directors by either name or title. All such correspondence should be sent to the following address:
The Board of Directors of Cryomass Technologies Inc
c/o Dr. Delon Human, Chairman of the Board
1001 Bannock Street, Suite 612, Denver, CO 80204
All communications received as described above will be opened by our Secretary for the sole purpose of determining whether the contents constitute a communication to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the director or directors to whom it is addressed. In the case of communications to our Board of Directors or to any group of directors, our Secretary will make sufficient copies of the contents to send to each addressee.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
During the fiscal year ended December 31, 2019, the Company and its officers, directors and 10% shareholders (“Reporting Persons”) were not subject to the insider trading reports under Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”). On March 23, 2020 the Company became a reporting company under the Exchange Act and from that date Reporting Persons will be responsible for such filings. At time of filing, all such reports that should have been filed have been filed.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics that applies to all employees including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications; (iii) compliance with applicable governmental laws, rules and regulations; (iv) the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (v) accountability for adherence to the code. Our Code of Ethics is available on our website at cryomass.com.
Legal Proceedings
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
Family Relationships
There are no family relationships among our directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors, executive officers, promoters or control persons has been involved in any events requiring disclosure under Item 401(f) of Regulation S-K, except as follows:
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EXECUTIVE OFFICERS COMPENSATION
The following table sets forth, for the years indicated, all compensation paid, distributed or earned for services, including salary and bonus amounts, rendered in all capacities by the Company’s named executive officers during the years ended December 31, 2021 and December 31, 2020. The information contained below represents compensation earned by the Company’s officers for their work related to the Company:
| Name and Position | Year | Salary ($) | Share-based awards ($) | Option-based awards ($) | Total compensation ($) | ||||||||||||||
| Christian Noel, Chief Executive Officer | 2021 2020 | 240,000 - | 981,000 - | - - | 1,221,000 - | ||||||||||||||
| Christopher Hansen, Chief Executive Officer | 2021 2020 | 75,000 155,500 | 70,000 201,040 | - - | 145,000 356,540 | ||||||||||||||
| Michael Saxon, Chief Executive Officer | 2021 2020 | - 456,800 | - - | - - | - 456,800 | ||||||||||||||
| Philip Mullin, Chief Financial Officer | 2021 2020 | 240,000 240,000 | 54,000 82,559 | - 317,447 | 294,000 640,006 | ||||||||||||||
| Patricia Kovacevic, General Counsel & Head of External Affairs | 2021 2020 | 230,083 159,600 | 13,500 17,800 | 258,003 - | 501,586 177,400 | ||||||||||||||
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table provides information regarding the incentive plan awards for each named executive officer outstanding as of December 31, 2021:
Outstanding Share Awards and Option Awards as of December 31, 2021
| Option-based Awards(1) | Share-based Awards | |||||||||||||||||||
| Name and Position | Number of securities underlying unexercised options (#) | Option exercise price ($) | Value of unexercised in-the-money options as at December 31, 2021 | Number of shares or units of shares that have not vested | Market or payout value of share awards that have not vested | |||||||||||||||
| Christian Noel, Chief Executive Officer | N/A | N/A | N/A | N/A | N/A | |||||||||||||||
| Christopher Hansen, Chief Executive Officer | N/A | N/A | N/A | N/A | N/A | |||||||||||||||
| Philip Mullin, Chief Financial Officer | 2,000,000 | 0.16 | 220,000 | - | - | |||||||||||||||
| Patricia Kovacevic, General Counsel & Head of External Affairs | 1,000,000 | 0.29 | - | - | - | |||||||||||||||
The following table provides information regarding the value vested or earned on incentive plan awards during the year ended December 31, 2021:
Incentive Plan Awards – Value Vested or Earned During the Year
| Name and Position | Option-based awards - Value vested during the year(1) ($) | Share-based awards - Value vested during the year ($) | ||||||
| Christian Noel, Chief Executive Officer | N/A | 900,000 | ||||||
| Christopher Hansen, Chief Executive Officer | N/A | 70,000 | ||||||
| Philip Mullin, Chief Financial Officer | N/A | N/A | ||||||
| Patricia Kovacevic, General Counsel & Head of External Affairs | 258,003 | N/A | ||||||
Re-pricing of Options
We did not re-price any options previously granted to our executive officers during the fiscal years ended December 31, 2021 and 2020.
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DIRECTOR COMPENSATION
Director Compensation
The general policy of the Board is that compensation for independent directors should be a fair mix between cash and equity-based compensation. Additionally, the Company reimburses directors for reasonable expenses incurred during the course of their performance. There are no long-term incentive or medical reimbursement plans. the Company does not pay directors, who are part of management, for Board service in addition to their regular employee compensation. The Board determines the amount of director compensation. The board may appoint a compensation committee to take on this role.
Director Compensation Table
The following table provides information regarding compensation paid to the Company’s directors (other than a director who was a named executive officer) during the year ended December 31, 2021:
| Name | Fees earned ($) | Share-based awards ($) | based Option- awards ($) | Total ($) | ||||||||||||
| Dr. Delon Human | $ | - | $ | 67,454 | $ | - | $ | 67,454 | ||||||||
| Mario Gobbo | 40,000 | - | - | 40,000 | ||||||||||||
| Mark Radke | 40,000 | - | - | 40,000 | ||||||||||||
| Carlos Hernández | 6,556 | - | - | 6,556 | ||||||||||||
| Gary Artmont | 7,667 | 32,254 | - | 39,921 | ||||||||||||
2019 Omnibus Stock Incentive Plan
The Company adopted its 2019 Omnibus Stock Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options, stock grants and RSUs to employees, directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract, motivate, and retain the services of qualified employees, officers and directors. Any RSUs or stock options granted under the 2019 Plan will be at the discretion of the Compensation Committee of the Board of Directors. For the year ended December 31, 2020, the total stock compensation expense was $1,440,284 and consisted of $734,752 related to RSUs, $150,000 related to a separation agreement, and $555,532 related to stock options. Expenses for stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative expense. No cash was used to settle equity instruments granted under share-based payment arrangements.
2022 Stock Incentive plan
General
The board of directors of the Company have adopted the 2022 Stock Incentive Plan (Incentive Plan), subject to the approval of the Incentive Plan by the Company’s stockholders. The purpose of the Incentive Plan is to advance the interests of the Company and its stockholders by enabling the Company and its subsidiaries to attract and retain qualified individuals to perform services, to provide incentive compensation for such individuals in a form that is linked to the growth and profitability of the Company and increases in stockholder value, and to provide opportunities for equity participation that align the interests of recipients with those of its stockholders.
The Incentive Plan will permit the board of directors of the Company, or a committee or subcommittee thereof, to grant to eligible employees, non-employee directors and consultants of the Company and its subsidiaries non-statutory and incentive stock options, stock appreciation rights (SARs), restricted stock awards, restricted stock units (RSUs), deferred stock units, performance awards, non-employee director awards, and other stock-based awards. Subject to adjustment, the maximum number of shares of Common Stock to be authorized for issuance under the Incentive Plan is 15.2% of the outstanding shares of Common Stock.
The Incentive Plan was approved by a majority vote of shareholders on January 10, 2022.
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Summary of the Incentive Plan
The following is a summary of the principal features of the Incentive Plan. The summary is qualified in its entirety by reference to the full text of the Incentive Plan, which is set forth in Exhibit 10.6.
Purpose
The purpose of the Incentive Plan is to advance the interests of the Company and its stockholders by enabling the Company and its subsidiaries to attract and retain qualified individuals to perform services, to provide incentive compensation for such individuals in a form that is linked to the growth and profitability of the Company and increases in stockholder value, and to provide opportunities for equity participation that align the interests of recipients with those of its stockholders.
Administration
The board of directors of the Company will administer the Incentive Plan. The board has the authority under the Incentive Plan to delegate plan administration to a committee of the board or a subcommittee thereof. The board of directors of the Company or the committee of the board to which administration of the Incentive Plan has been delegated is referred to as the Committee. Subject to certain limitations, the Committee will have broad authority under the terms of the Incentive Plan to take certain actions under the plan.
To the extent permitted by applicable law, the Committee may delegate to one or more of its members or to one or more officers of the Company such administrative duties or powers, as it may deem advisable. The Committee may authorize one or more directors or officers of the Company to designate employees, other than officers, non-employee directors, or 10% stockholders of the Company, to receive awards under the Incentive Plan and determine the size of any such awards, subject to certain limitations.
No Re-pricing
The Committee may not, without prior approval of the the Company stockholders, effect any re-pricing of any previously granted “underwater” option or SAR by: (i) amending or modifying the terms of the option or SAR to lower the exercise price or grant price; (ii) canceling the underwater option or SAR in exchange for (A) cash; (B) replacement options or SARs having a lower exercise price or grant price; or (C) other awards; or (iii) repurchasing the underwater options or SARs and granting new awards under the Incentive Plan. An option or SAR will be deemed to be “underwater” at any time when the fair market value of Common Stock is less than the exercise price of the option or the grant price of the SAR.
Stock Subject to the Incentive Plan
Subject to adjustment (as described below), the maximum number of shares of Common Stock authorized for issuance under the Incentive Plan is 30,000,000 shares.
Shares that are issued under the Incentive Plan or that are subject to outstanding awards will be applied to reduce the maximum number of shares remaining available for issuance under the Incentive Plan only to the extent they are used; provided, however, that the full number of shares subject to a stock-settled SAR or other stock-based award will be counted against the shares authorized for issuance under the Incentive Plan, regardless of the number of shares actually issued upon settlement of such SAR or other stock-based award. Any shares withheld to satisfy tax withholding obligations on awards issued under the Incentive Plan, any shares withheld to pay the exercise price or grant price of awards under the Incentive Plan and any shares not issued or delivered as a result of the “net exercise” of an outstanding option or settlement of a SAR in shares will not be counted against the shares authorized for issuance under the Incentive Plan and will be available again for grant under the Incentive Plan. Shares subject to awards settled in cash will again be available for issuance pursuant to awards granted under the Incentive Plan. Any shares related to awards granted under the Incentive Plan that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of the shares will be available again for grant under the Incentive Plan. Any shares repurchased by the Company on the open market using the proceeds from the exercise of an award will not increase the number of shares available for future grant of awards. To the extent permitted by applicable law, shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or a subsidiary or otherwise will not be counted against shares available for issuance pursuant to the Incentive Plan. The shares available for issuance under the Incentive Plan may be authorized and unissued shares or treasury shares.
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Adjustments
In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin off) or other similar change in the corporate structure or shares of Common Stock, the Committee will make the appropriate adjustment or substitution. These adjustments or substitutions may be to the number and kind of securities and property that may be available for issuance under the Incentive Plan. In order to prevent dilution or enlargement of the rights of participants, the Committee may also adjust the number, kind, and exercise price or grant price of securities or other property subject to outstanding awards.
Eligible Participants
Awards may be granted to employees, non-employee directors and consultants of the Company or any of its subsidiaries. A “consultant” for purposes of the Incentive Plan is one who renders services to the Company or its subsidiaries that are not in connection with the offer and sale of its securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for its securities.
Types of Awards
The Incentive Plan will permit the Company to grant non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards and other stock-based awards. Awards may be granted either alone or in addition to or in tandem with any other type of award.
Stock Options. Stock options entitle the holder to purchase a specified number of shares of Common Stock at a specified price, which is called the exercise price, subject to the terms and conditions of the stock option grant. The Incentive Plan permits the grant of both non-statutory and incentive stock options. Incentive stock options may be granted solely to eligible employees of the Company or its subsidiary. Each stock option granted under the Incentive Plan must be evidenced by an award agreement that specifies the exercise price, the term, the number of shares underlying the stock option, the vesting and any other conditions. The exercise price of each stock option granted under the Incentive Plan must be at least 100% of the fair market value of a share of Common Stock as of the date the award is granted to a participant. Fair market value under the plan means, unless otherwise determined by the Committee, the closing sale price of Common Stock, as reported on the Nasdaq Stock Market, on the grant date. The Committee will fix the terms and conditions of each stock option, subject to certain restrictions, such as a ten-year maximum term.
Stock Appreciation Rights. A stock appreciation right, or SAR, is a right granted to receive payment of cash, stock or a combination of both, equal to the excess of the fair market value of shares of Common Stock on the exercise date over the grant price of such shares. Each SAR granted must be evidenced by an award agreement that specifies the grant price, the term, and such other provisions as the Committee may determine. The grant price of a SAR must be at least 100% of the fair market value of Common Stock on the date of grant. The Committee will fix the term of each SAR, but SARs granted under the Incentive Plan will not be exercisable more than 10 years after the date the SAR is granted.
Restricted Stock Awards, Restricted Stock Units and Deferred Stock Units. Restricted stock awards, restricted stock units, or RSUs, and/or deferred stock units may be granted under the Incentive Plan. A restricted stock award is an award of Common Stock that is subject to restrictions on transfer and risk of forfeiture upon certain events, typically including termination of service. RSUs or deferred stock units are similar to restricted stock awards except that no shares are actually awarded to the participant on the grant date. Deferred stock units permit the holder to receive shares of Common Stock or the equivalent value in cash or other property at a future time as determined by the Committee. The Committee will determine, and set forth in an award agreement, the period of restriction, the number of shares of restricted stock awards or the number of RSUs or deferred stock units granted, the time of payment for deferred stock units and other such conditions or restrictions.
Performance Awards. Performance awards, in the form of cash, shares of Common Stock, other awards or a combination of both, may be granted under the Incentive Plan in such amounts and upon such terms as the Committee may determine. The Committee shall determine, and set forth in an award agreement, the amount of cash and/or number of shares or other awards, the performance goals, the performance periods and other terms and conditions. The extent to which the participant achieves his or her performance goals during the applicable performance period will determine the amount of cash and/or number of shares or other awards earned by the participant.
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Non-Employee Director Awards. The Committee at any time and from time to time may approve resolutions providing for the automatic grant to non-employee directors of non-statutory stock options or SARs. The Committee may also at any time and from time-to-time grant on a discretionary basis to non-employee directors non-statutory stock options or SARs. In either case, any such awards may be granted singly, in combination, or in tandem, and may be granted pursuant to such terms, conditions and limitations as the Committee may establish in its sole discretion consistent with the provisions of the Incentive Plan. The Committee may permit non-employee directors to elect to receive all or any portion of their annual retainers, meeting fees or other fees in restricted stock, RSUs, deferred stock units or other stock-based awards in lieu of cash. Under the Incentive Plan the sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of awards granted to a non-employee director as compensation for services as a non-employee director during any fiscal year of the Company may not exceed $250,000 (increased to $350,000 with respect to any director serving as Chairman of the Board or Lead Independent Director or in the fiscal year of a director’s initial service as a director).
Other Stock-Based Awards. Consistent with the terms of the plan, other stock-based awards may be granted to participants in such amounts and upon such terms as the Committee may determine.
Dividend Equivalents. With the exception of stock options, SARs and unvested performance awards, awards under the Incentive Plan may, in the Committee’s discretion, earn dividend equivalents with respect to the cash or stock dividends or other distributions that would have been paid on the shares of Common Stock covered by such award had such shares been issued and outstanding on the dividend payment date. However, no dividends or dividend equivalents may be paid on unvested awards. Such dividend equivalents will be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as determined by the Committee.
Termination of Employment or Other Service
The Incentive Plan provides for certain default rules in the event of a termination of a participant’s employment or other service. These default rules may be modified in an award agreement or an individual agreement between the Company and a participant. If a participant’s employment or other service with the Company is terminated for cause, then all outstanding awards held by such participant will be terminated and forfeited. In the event a participant’s employment or other service with the Company is terminated by reason of death, disability or retirement, then:
| ● | All outstanding stock options (excluding non-employee director options in the case of retirement) and SARs held by the participant will, to the extent exercisable, remain exercisable for a period of one year after such termination, but not later than the date the stock options or SARs expire; |
| ● | All outstanding stock options and SARs that are not exercisable and all outstanding restricted stock will be terminated and forfeited; and |
| ● | All outstanding unvested RSUs, performance awards and other stock-based awards held by the participant will terminate and be forfeited. However, with respect to any awards that vest based on the achievement of performance goals, if a participant’s employment or other service with the Company or any subsidiary is terminated prior to the end of the performance period of such award, but after the conclusion of a portion of the performance period (but in no event less than one year), the Committee may, in its sole discretion, cause shares to be delivered or payment made with respect to the participant’s award, but only if otherwise earned for the entire performance period and only with respect to the portion of the applicable performance period completed at the date of such event, with proration based on the number of months or years that the participant was employed or performed services during the performance period. |
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In the event a participant’s employment or other service with the Company is terminated by reason other than for cause, death, disability or retirement, then:
| ● | All outstanding stock options (including non-employee director options) and SARs held by the participant that then are exercisable will remain exercisable for three months after the date of such termination, but will not be exercisable later than the date the stock options or SARs expire; |
| ● | All outstanding restricted stock will be terminated and forfeited; and |
| ● | All outstanding unvested RSUs, performance awards and other stock-based awards will be terminated and forfeited. However, with respect to any awards that vest based on the achievement of performance goals, if a participant’s employment or other service with the Company or any subsidiary is terminated prior to the end of the performance period of such award, but after the conclusion of a portion of the performance period (but in no event less than one year), the Committee may, in its sole discretion, cause shares to be delivered or payment made with respect to the participant’s award, but only if otherwise earned for the entire performance period and only with respect to the portion of the applicable performance period completed at the date of such event, with proration based on the number of months or years that the participant was employed or performed services during the performance period. |
Modification of Rights upon Termination
Upon a participant’s termination of employment or other service with the Company or any subsidiary, the Committee may, in its sole discretion (which may be exercised at any time on or after the grant date, including following such termination) cause stock options or SARs (or any part thereof) held by such participant as of the effective date of such termination to terminate, become or continue to become exercisable or remain exercisable following such termination of employment or service, and restricted stock, RSUs, deferred stock units, performance awards, non-employee director awards and other stock-based awards held by such participant as of the effective date of such termination to terminate, vest or become free of restrictions and conditions to payment, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that no stock option or SAR may remain exercisable beyond its expiration date any such action by the Committee adversely affecting any outstanding award will not be effective without the consent of the affected participant, except to the extent the Committee is authorized by the Incentive Plan to take such action.
Forfeiture and Recoupment
If a participant is determined by the Committee to have taken any action while providing services to the Company or within one year after termination of such services, that would constitute “cause” or an “adverse action,” as such terms are defined in the Incentive Plan, all rights of the participant under the Incentive Plan and any agreements evidencing an award then held by the participant will terminate and be forfeited. The Committee has the authority to rescind the exercise, vesting, issuance or payment in respect of any awards of the participant that were exercised, vested, issued or paid, and require the participant to pay to the Company, within 10 days of receipt of notice, any amount received or the amount gained as a result of any such rescinded exercise, vesting, issuance or payment. the Company may defer the exercise of any stock option or SAR for up to six months after receipt of notice of exercise in order for the Board to determine whether “cause” or “adverse action” exists. The Company is entitled to withhold and deduct future wages or make other arrangements to collect any amount due.
In addition, if the Company is required to prepare an accounting restatement due to material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, then any participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 will reimburse the Company for the amount of any award received by such individual under the Incentive Plan during the 12 month period following the first public issuance or filing with the SEC, as the case may be, of the financial document embodying such financial reporting requirement. The Company also may seek to recover any award made as required by the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other clawback, forfeiture or recoupment provision required by applicable law or under the requirements of any stock exchange or market upon which Common Stock is then listed or traded or any policy adopted by the Company.
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Effect of Change in Control
Generally, a change in control will mean:
| ● | The acquisition, other than from the Company, by any individual, entity or group of beneficial ownership of 50% or more of the then outstanding shares of Common Stock; |
| ● | The consummation of a reorganization, merger or consolidation of the Company with respect to which all or substantially all of the individuals or entities who were the beneficial owners of Common Stock immediately prior to the transaction do not, following the transaction, beneficially own more than 50% of the outstanding shares of common stock and voting securities of the corporation resulting from the transaction; or |
| ● | A complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company. |
Subject to the terms of the applicable award agreement or an individual agreement between the Company and a participant, upon a change in control, the Committee may, in its discretion, determine whether some or all outstanding options and SARs shall become exercisable in full or in part, whether the restriction period and performance period applicable to some or all outstanding restricted stock awards and RSUs shall lapse in full or in part and whether the performance measures applicable to some or all outstanding awards shall be deemed to be satisfied. The Committee may further require that shares of stock of the corporation resulting from such a change in control, or a parent corporation thereof, be substituted for some or all of the shares of Common Stock subject to an outstanding award and that any outstanding awards, in whole or in part, be surrendered to the Company by the holder, to be immediately cancelled by the Company, in exchange for a cash payment, shares of capital stock of the corporation resulting from or succeeding the Company or a combination of both cash and such shares of stock.
Term, Termination and Amendment
Unless sooner terminated by the Board, the Incentive Plan will terminate at midnight on the day before the ten year anniversary of its effective date. No award will be granted after termination of the Incentive Plan, but awards outstanding upon termination of the Incentive Plan will remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the Incentive Plan.
Subject to certain exceptions, the Board has the authority to suspend or terminate the Incentive Plan or terminate any outstanding award agreement and the Board has the authority to amend the Incentive Plan or amend or modify the terms of any outstanding award at any time and from time to time. No amendments to the Incentive Plan will be effective without approval of the Company’ stockholders if: (a) stockholder approval of the amendment is then required pursuant to Section 422 of the Code, the rules of the primary stock exchange on which Common Stock is then traded, applicable U.S. state and federal laws or regulations and the applicable laws of any foreign country or jurisdiction where awards are, or will be, granted under the Incentive Plan; or (b) such amendment would: (i) materially increase benefits accruing to participants; (ii) modify the re-pricing provisions of the Incentive Plan; (iii) increase the aggregate number of shares of Common Stock issued or issuable under the Incentive Plan; (iv) increase any limitation set forth in the Incentive Plan on the number of shares of Common Stock which may be issued or the aggregate value of awards which may be made, in respect of any type of award to any single participant during any specified period; (v) modify the eligibility requirements for participants in the Incentive Plan; or (vi) reduce the minimum exercise price or grant price as set forth in the Incentive Plan. No termination, suspension or amendment of the Incentive Plan or an award agreement shall adversely affect any award previously granted under the Incentive Plan without the written consent of the participant holding such award.
Federal Income Tax Information
The following is a general summary, as of the date of this prospectus/proxy statement, of the federal income tax consequences to participants and the Company of transactions under the Incentive Plan. This summary is intended for the information of stockholders considering how to vote at the Annual Meeting and not as tax guidance to participants in the Incentive Plan, as the consequences may vary with the types of grants made, the identity of the participant and the method of payment or settlement. The summary does not address the effects of other federal taxes or taxes imposed under state, local or foreign tax laws. Participants are encouraged to seek the advice of a qualified tax advisor regarding the tax consequences of participation in the Incentive Plan.
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Tax Consequences of Awards
Incentive Stock Options. With respect to incentive stock options, generally, the participant is not taxed, and the Company is not entitled to a deduction, on either the grant or the exercise of an incentive stock option so long as the requirements of Section 422 of the Code continue to be met. If the participant meets the employment requirements and does not dispose of the shares of Common Stock acquired upon exercise of an incentive stock option until at least one year after date of the exercise of the stock option and at least two years after the date the stock option was granted, gain or loss realized on sale of the shares will be treated as long-term capital gain or loss. If the shares of Common Stock are disposed of before those periods expire, which is called a disqualifying disposition, the participant will be required to recognize ordinary income in an amount equal to the lesser of (i) the excess, if any, of the fair market value of Common Stock on the date of exercise over the exercise price, or (ii) if the disposition is a taxable sale or exchange, the amount of gain realized. Upon a disqualifying disposition, the Company will generally be entitled, in the same tax year, to a deduction equal to the amount of ordinary income recognized by the participant, assuming that a deduction is allowed under Section 162(m) of the Code.
Non-Statutory Stock Options. The grant of a stock option that does not qualify for treatment as an incentive stock option, which is generally referred to as a non-statutory stock option, is generally not a taxable event for the participant. Upon exercise of the stock option, the participant will generally be required to recognize ordinary income in an amount equal to the excess of the fair market value of Common Stock acquired upon exercise (determined as of the date of exercise) over the exercise price of the stock option, and the Company will be entitled to a deduction in an equal amount in the same tax year, assuming that a deduction is allowed under Section 162(m) of the Code. At the time of a subsequent sale or disposition of shares obtained upon exercise of a non-statutory stock option, any gain or loss will be a capital gain or loss, which will be either a long-term or short-term capital gain or loss, depending on how long the shares have been held.
SARs. The grant of an SAR will not cause the participant to recognize ordinary income or entitle the Company to a deduction for federal income tax purposes. Upon the exercise of an SAR, the participant will recognize ordinary income in the amount of the cash or the value of shares payable to the participant (before reduction for any withholding taxes), and the Company will receive a corresponding deduction in an amount equal to the ordinary income recognized by the participant, assuming that a deduction is allowed under Section 162(m) of the Code.
Restricted Stock, RSUs, Deferred Stock Units and Other Stock-Based Awards. The federal income tax consequences with respect to restricted stock, RSUs, deferred stock units, performance shares and performance stock units, and other stock unit and stock-based awards depend on the facts and circumstances of each award, including, in particular, the nature of any restrictions imposed with respect to the awards. In general, if an award of stock granted to the participant is subject to a “substantial risk of forfeiture” (e.g., the award is conditioned upon the future performance of substantial services by the participant) and is nontransferable, a taxable event occurs when the risk of forfeiture ceases or the awards become transferable, whichever first occurs. At such time, the participant will recognize ordinary income to the extent of the excess of the fair market value of the stock on such date over the participant’s cost for such stock (if any), and the same amount is deductible by the Company, assuming that a deduction is allowed under Section 162(m) of the Code. Under certain circumstances, the participant, by making an election under Section 83(b) of the Code, can accelerate federal income tax recognition with respect to an award of stock that is subject to a substantial risk of forfeiture and transferability restrictions, in which event the ordinary income amount and the Company’ deduction, assuming that a deduction is allowed under Section 162(m) of the Code, will be measured and timed as of the grant date of the award. If the stock award granted to the participant is not subject to a substantial risk of forfeiture or transferability restrictions, the participant will recognize ordinary income with respect to the award to the extent of the excess of the fair market value of the stock at the time of grant over the participant’s cost, if any, and the same amount is deductible by us, assuming that a deduction is allowed under Section 162(m) of the Code. If a stock unit award or other stock-based award is granted but no stock is actually issued to the participant at the time the award is granted, the participant will recognize ordinary income at the time the participant receives the stock free of any substantial risk of forfeiture (or receives cash in lieu of such stock) and the amount of such income will be equal to the fair market value of the stock at such time over the participant’s cost, if any, and the same amount is then deductible by the Company, assuming that a deduction is allowed under Section 162(m) of the Code.
Withholding Obligations
The Company is entitled to withhold and deduct from future wages of the participant, to make other arrangements for the collection of, or to require the participant to pay to the Company, an amount necessary for it to satisfy the participant’s federal, state or local tax withholding obligations with respect to awards granted under the Incentive Plan. Withholding for taxes may be calculated based on the maximum applicable tax rate for the participant’s jurisdiction or such other rate that will not trigger a negative accounting impact on the Company. The Committee may permit a participant to satisfy a tax withholding obligation by withholding shares of Common Stock underlying an award, tendering previously acquired shares, delivery of a broker exercise notice or a combination of these methods.
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Code Section 409A
A participant may be subject to a 20% penalty tax, in addition to ordinary income tax, at the time a grant becomes vested, plus an interest penalty tax, if the grant constitutes deferred compensation under Section 409A of the Code and the requirements of Section 409A of the Code are not satisfied.
Code Section 162(m)
Pursuant to Section 162(m) of the Code, the annual compensation paid to an individual who is a “covered employee” is not deductible by the Company to the extent it exceeds $1 million. The Tax Cut and Jobs Act, signed into law on December 22, 2017, amended Section 162(m), effective for tax years beginning after December 31, 2017, (i) to expand the definition of a “covered employee” to include any person who was the Chief Executive Officer or the Chief Financial Officer at any time during the year and the three most highly compensated officers (other than the Chief Executive Officer or the Chief Financial Officer) who were employed at any time during the year whether or not the compensation is reported in the Summary Compensation Table included in the proxy statement for the Company’ Annual Meeting; (ii) to treat any individual who is considered a covered employee at any time during a tax year beginning after December 31, 2106 as remaining a covered employee permanently; and (iii) to eliminate the performance-based compensation exception to the $1 million deduction limit.
Excise Tax on Parachute Payments
Unless otherwise provided in a separate agreement between a participant and the Company, if, with respect to a participant, the acceleration of the vesting of an award or the payment of cash in exchange for all or part of an award, together with any other payments that such participant has the right to receive from the Company, would constitute a “parachute payment” then the payments to such participant will be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code. Such reduction, however, will only be made if the aggregate amount of the payments after such reduction exceeds the difference between the amount of such payments absent such reduction minus the aggregate amount of the excise tax imposed under Section 4999 of the Code attributable to any such excess parachute payments. If such provisions are applicable and if an employee will be subject to a 20% excise tax on any “excess parachute payment” pursuant to Section 4999 of the Code, the Company will be denied a deduction with respect to such excess parachute payment pursuant to Section 280G of the Code.
New Plan Benefits
It is not presently possible to determine the benefits or amounts that will be received by or allocated to participants under the Incentive Plan or would have been received by or allocated to participants for the last completed fiscal year if the Incentive Plan had then been in effect because awards under the Incentive Plan will be made at the discretion of the Committee.
Vote Required for Approval
The approval of the Incentive Plan Proposal requires the affirmative vote of the holders of a majority of the shares of Common Stock cast by the stockholders represented in person or by proxy and entitled to vote thereon at the Annual Meeting. Abstentions and broker non-votes will not be counted for purposes of determining whether this proposal has been approved.
Incentive Plan Awards
The following table provides information regarding the incentive plan awards for each director (other than a director who was a named executive officer) outstanding as of December 31, 2020:
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Outstanding Share Awards and Options Awards
| Option-based Awards(1) | Share-based Awards | ||||||||||||||||||
| Name | Number of securities underlying unexercised options (#) | Option exercise price ($) | Value of unexercised in-the-money options as at December 31, 2020 | Number of shares or units of shares that have not vested | Market or payout value of share awards that have not vested | ||||||||||||||
| Dr. Delon Human | 1,500,000 | 0.16 | 62,400 | - | - | ||||||||||||||
| Mario Gobbo | N/A | N/A | N/A | N/A | N/A | ||||||||||||||
| Mark Radke | N/A | N/A | N/A | N/A | N/A | ||||||||||||||
| John Scharffenberger | N/A | N/A | N/A | N/A | N/A | ||||||||||||||
| Steven Hilton | N/A | N/A | N/A | N/A | N/A | ||||||||||||||
| Carlos Hernández | N/A | N/A | N/A | N/A | N/A | ||||||||||||||
| Gary Artmont | N/A | N/A | N/A | N/A | N/A | ||||||||||||||
Directors and Officers Liability Insurance
As of December 31 September 30, 2021, the Corporation maintained $1,000,000 of group liability insurance for the protection of the directors and officers of the Corporation. In the fiscal year ended December 31, 2020, the Corporation paid an annual premium of $272,500 for such policy.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options, restricted share units and deferred share units may be granted at the discretion of the Board or a committee thereof.
Indebtedness of Directors, Senior Officers, Executive Officers and Other Management
None of our directors or executive officers or any associate or affiliate of our Company during the last two fiscal years, is or has been indebted to our Company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.
Termination Benefits
We do not have agreements with any named executives that would result in payments to them solely upon a change in control of Cryomass Technologies Inc. However, under the employment and severance agreements with named executives, three named executives would be entitled to severance benefits upon termination of employment under certain circumstances. Further, our Compensation Committee retains discretion to provide additional benefits to senior executives upon termination or resignation if it determines the circumstances so warrant.
As of the date hereof, Ms. Patricia Kovacevic’s employment agreement provides that Ms. Kovacevic shall receive continued payments from the Company in the event of disability, death, termination for any reason or no reason except for cause (including resignation) of the named executive officer with the Company, for the duration of the term of the respective employment agreement, and shall be given credit under any RSU agreement as if she remained employed with the Company for the term of the employment agreement for the purposes of vesting thereunder.
As of the date hereof, Mr. Philip Blair Mullin’s employment agreement provides that Mr.Mullin shall receive certain payments from the Company in the event of disability, death, termination for other than for cause of the named executive officer with the Company, for the duration of the term of the respective employment agreement, and shall be given credit under any RSU agreement as if he remained employed with the Company for the term of the employment agreement for the purposes of vesting thereunder.
As of the date hereof, Mr. Christian Noel’s employment agreements provides that Mr. Noel shall receive certain payments from the Company in the event of disability, death, termination for other than for cause of the named executive officer with the Company, for the duration of the term of the respective employment agreement, and shall be given credit under any RSU agreement as if he remained employed with the Company for the term of the employment agreement for the purposes of vesting thereunder.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review, Approval or other transactions, transactions with family members – loans, debt conversion, private placement, ratification of transactions with related persons
We have adopted a code of ethics and we rely on our board to review related party transactions on an ongoing basis to prevent conflicts of interest. Our Board reviews a transaction in light of the affiliations of the director, officer or employee and the affiliations of such person’s immediate family. Transactions are presented to our Board for approval before they are entered into or, if this is not possible, for ratification after the transaction has occurred. If our Board finds that a conflict of interest exists, then it will determine the appropriate remedial action, if any. Our Board approves or ratifies a transaction if it determines that the transaction is consistent with the best interests of the Company. During the year-ended December 31, 2021, the Board reviewed and approved a loan to the Company made by Christian Noel, its CEO. There were no other such transactions or requests for review during the fiscal years ended December 31, 2020 and December 31, 2021.
SELLING SHAREHOLDERS AND CERTAIN BENEFICIAL OWNERS
This Prospectus covers the offering of up to 59,240,075 Common Shares by selling shareholders. This includes Common Shares acquirable upon exercise of our outstanding warrants.
Selling shareholders are persons or entities that, directly or indirectly, have acquired shares, or will acquire shares from us from time to time upon exercise of certain warrants. This Prospectus and any prospectus supplement will only permit the selling shareholders to sell the Common Shares identified in the column “Maximum Number of Shares which may be sold pursuant to this offering”.
The selling shareholders may from time to time offer and sell the Common Shares pursuant to this Prospectus and any applicable prospectus supplement. The selling shareholders may offer all or some portion of the Common Shares they hold or acquire, but only Common Shares that are currently outstanding or are acquired upon the exercise of certain warrants that are currently outstanding, and in either case included in the “Maximum Number of Shares which may be sold pursuant to this Offering” column, may be sold pursuant to this Prospectus or any applicable prospectus supplement.
The Common Shares issued to the selling shareholders are “restricted” securities under applicable federal and state securities laws and are being registered to give the selling shareholders the opportunity to sell their Common Shares. The registration of such Common Shares does not necessarily mean, however, that any of these Common Shares will be offered or sold by the selling shareholders. The selling shareholders may from time to time offer and sell all or a portion of their Common Shares in the over-the-counter market (to the extent that there is a market), in negotiated transactions, or otherwise, at market prices prevailing at the time of sale or at negotiated prices.
The registered Common Shares may be sold directly or through brokers or dealers, or in a distribution by one or more underwriters on a firm commitment or best-efforts basis. To the extent required, the names of any agent or broker-dealer and applicable commissions or discounts and any other required information with respect to any particular offer will be set forth in an accompanying prospectus supplement. See “Plan of Distribution”.
Each of the selling shareholders reserves the sole right to accept or reject, in whole or in part, any proposed purchase of the registered Common Shares to be made directly or through agents. To the extent that any of the selling shareholders are affiliates of our Company or are brokers or dealers, they may be deemed to be “underwriters” within the meaning of the Securities Act and any commissions received by them and any profit on the resale of the registered shares may be deemed to be underwriting commissions or discounts under the Securities Act. As of the date of this Prospectus and based on the representations we have received from the selling shareholders, one of the selling shareholders is a broker or dealer or are affiliated with a broker or dealer and are identified below. Selling shareholders that are affiliates of or have material relationships with our Company are also identified below.
The following table sets forth the name of persons who are offering the resale of Common Shares by this Prospectus, the number of Common Shares beneficially owned by each person, the number of Common Shares that may be sold in this offering and the number of Common Shares each person will own after the offering, assuming they sell all of the Common Shares offered. The information appearing in the table below is based on information provided by or on behalf of the named selling shareholders. We will not receive any proceeds from the resale of the Common Shares by the selling shareholders.
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| Number of Shares and Shares subject to exercisable Warrants beneficially owned prior to this Offering | Maximum Number of Shares which may be sold pursuant to this Offering | Number of Shares and Shares subject to exercisable warrants beneficially owned after this Offering | ||||||||||||||||||||||||||
| Name | Shares | Warrants | % | 2 | Shares | Shares | Warrants | % | ||||||||||||||||||||
| Alexander Massa | 23,705,000 | 23,500,000 | 21.3 | % | 3 | 17,423,175 | 6,281,825 | 23,500,000 | 13.5 | % | ||||||||||||||||||
| Patrick Varin | 6,275,000 | 6,250,000 | 6.1 | % | 4 | 4,612,125 | 1,662,875 | 6,250,000 | 3.9 | % | ||||||||||||||||||
| Christian Noel | 7,495,529 | 1,010,000 | 4.3 | % | 1,5 | 742,350 | 6,753,179 | 1,010,000 | 3.9 | % | ||||||||||||||||||
| Dr. Delon Human | 760,000 | 760,000 | 0.8 | % | 1,6 | 558600 | 201,400 | 760,000 | 0.5 | % | ||||||||||||||||||
| Michael Bigger | 5,000,000 | 5,000,000 | 4.9 | % | 7 | 3,675,000 | 1,325,000 | 5,000,000 | 3.1 | % | ||||||||||||||||||
| 9043-0083 QUEBEC INC. | 2,910,867 | 2,600,000 | 2.6 | % | 1,915,312 | 1,058,055 | 2,232,500 | 1.6 | % | |||||||||||||||||||
| 0956267 B.C. Unlimited Liability Company | 2,512,500 | 2,500,000 | 2.5 | % | 1,846,688 | 665,813 | 2,500,000 | 1.6 | % | |||||||||||||||||||
| Elco Securities Ltd. | 2,200,000 | 2,250,000 | 2.2 | % | 1,800,750 | 583,000 | 2,066,250 | 1.3 | % | |||||||||||||||||||
| Marc- Andre Gragnani | 2,102,500 | 2,000,000 | 2.0 | % | 1,471,838 | 630,663 | 2,000,000 | 1.3 | % | |||||||||||||||||||
| Inestissement S Losier Inc. | 2,024,282 | 1,800,000 | 1.9 | % | 1,328,317 | 695,965 | 1,800,000 | 1.2 | % | |||||||||||||||||||
| MBL Management LLC | 1,850,000 | 1,850,000 | 1.8 | % | 1,359,750 | 490,250 | 1,850,000 | 1.2 | % | |||||||||||||||||||
| Martin Lemay | 1,903,667 | 1,700,000 | 1.8 | % | 1,252,195 | 798,472 | 1,553,000 | 1.2 | % | |||||||||||||||||||
| Jokau Holdings Inc. | 1,502,500 | 1,500,000 | 1.5 | % | 1,104,338 | 398,163 | 1,500,000 | 1.0 | % | |||||||||||||||||||
| Stephen Schroeder | 2,369,001 | 500,000 | 1.4 | % | 8 | 369,215 | 1,999,786 | 500,000 | 1.3 | % | ||||||||||||||||||
| Investissement Maxime Losier Inc | 1,506,250 | 1,250,000 | 1.4 | % | 923,344 | 582,906 | 1,250,000 | 0.9 | % | |||||||||||||||||||
| 9176-9547 QUEBEC, INC. | 1,250,000 | 1,250,000 | 1.3 | % | 918,750 | 331,250 | 1,250,000 | 0.8 | % | |||||||||||||||||||
| 3366669 CANADA INC. | 1,405,000 | 1,200,000 | 1.2 | % | 885,675 | 466,325 | 1,053,000 | 0.8 | % | |||||||||||||||||||
| Eric Salvail | 1,203,667 | 1,000,000 | 1.1 | % | 737,695 | 465,972 | 1,000,000 | 0.7 | % | |||||||||||||||||||
| Jean Noel | 1,100,467 | 1,100,000 | 1.1 | % | 808,843 | 291,624 | 1,100,000 | 0.7 | % | |||||||||||||||||||
| 2811863 CANADA INC. | 1,119,210 | 1,000,000 | 1.1 | % | 736,838 | 365,663 | 1,000,000 | 0.7 | % | |||||||||||||||||||
| 3317341 NOVA SCOTIA LTD. | 1,000,000 | 1,000,000 | 1.0 | % | 735,000 | 265,000 | 1,000,000 | 0.6 | % | |||||||||||||||||||
| Gestion Rejean Losier Inc. | 1,000,000 | 1,000,000 | 1.0 | % | 735,000 | 265,000 | 1,000,000 | 0.6 | % | |||||||||||||||||||
| Trac Investments Inc. | 1,000,000 | 1,000,000 | 1.0 | % | 735,000 | 632,500 | 632500 | 0.6 | % | |||||||||||||||||||
| Peter Dunham | 751,167 | 750,000 | 0.8 | % | 552,108 | 199,059 | 750,000 | 0.5 | % | |||||||||||||||||||
| L5 Capital Inc. | 500,000 | 1,000,000 | 0.8 | % | 367,500 | 132,500 | 1,000,000 | 0.6 | % | |||||||||||||||||||
| Antonio Nardi & Nadia Sicilia JTWROS | 750,000 | 750,000 | 0.8 | % | 551,250 | 198,750 | 750,000 | 0.5 | % | |||||||||||||||||||
| Sebastien Inkel | 700,000 | 700,000 | 0.7 | % | 514,500 | 185,500 | 700,000 | 0.4 | % | |||||||||||||||||||
| Ron Wilson | 802,500 | 500,000 | 0.7 | % | 369,338 | 433.163 | 500,000 | 0.5 | % | |||||||||||||||||||
| Adam Knapp | 1,146,768 | 70,000 | 0.6 | % | 51,450 | 1,146,768 | 18,550 | 0.6 | % | |||||||||||||||||||
| Patrick Milot-Daignault | 609,118 | 500,000 | 0.6 | % | 374,202 | 234,916 | 500,000 | 0.4 | % | |||||||||||||||||||
| Concept F3 Inc. | 602,500 | 500,000 | 0.6 | % | 369,338 | 233,163 | 500,000 | 0.4 | % | |||||||||||||||||||
| 1470475 ONTARIO INC. | 500,000 | 500,000 | 0.5 | % | 367,500 | 132,500 | 500,000 | 0.3 | % | |||||||||||||||||||
| Groupe BB Immobilier Inc. | 500,000 | 500,000 | 0.5 | % | 367,500 | 132,500 | 500,000 | 0.3 | % | |||||||||||||||||||
| Mark Lambert | 500,000 | 500,000 | 0.5 | % | 367,500 | 132,500 | 500,000 | 0.3 | % | |||||||||||||||||||
| Mark Skousen | 500,000 | 500,000 | 0.5 | % | 367,500 | 500,000 | 132,500 | 0.3 | % | |||||||||||||||||||
| Shane Prince | 500,000 | 500,000 | 0.5 | % | 367,500 | 131,250 | 500,000 | 0.3 | % | |||||||||||||||||||
| Thierry Hay Sabourin | 552,000 | 400,000 | 0.5 | % | 295,470 | 256,530 | 400,000 | 0.3 | % | |||||||||||||||||||
| Patrick Ethier | 470,933 | 430,000 | 0.5 | % | 316,736 | 154,197 | 430,000 | 0.3 | % | |||||||||||||||||||
| Jean-Francois Ruel | 843,000 | - | 0.4 | % | 619,605 | 223,395 | - | 0.1 | % | |||||||||||||||||||
| Alain Paradis | 376,875 | 375,000 | 0.4 | % | 277,003 | 99,872 | 375,000 | 0.2 | % | |||||||||||||||||||
| Gundyco ITF Ann Isabelle Deleeuw | 375,625 | 375,000 | 0.4 | % | 276,084 | 99,541 | 375,000 | 0.2 | % | |||||||||||||||||||
| Josh Greenberg | 500,000 | 250,000 | 0.4 | % | 183,750 | 500,000 | 66,250 | 0.3 | % | |||||||||||||||||||
| Tamer Zuhair Khalil | 850,845 | 333,333 | 0.3 | % | 245,000 | 850,845 | 88,333 | 0.2 | % | |||||||||||||||||||
| DunhamPBHoldings Co | 300,000 | 300,000 | 0.3 | % | 220,500 | 79,500 | 300,000 | 0.2 | % | |||||||||||||||||||
| Francoise Bisutti & Vittorio Gragnani JTWROS | 300,000 | 300,000 | 0.3 | % | 220,500 | 79,500 | 300,000 | 0.2 | % | |||||||||||||||||||
| Raymond James Ltd ITF Douglas Casey | 300,000 | 300,000 | 0.3 | % | 220,500 | 300,000 | 78,750 | 0.2 | % | |||||||||||||||||||
| 41 |
| Verdier Capital Inc. | 301,250 | 250,000 | 0.3 | % | 184,669 | 116,581 | 250,000 | 0.2 | % | |||||||||||||||||||
| Laurent Massa | 280,625 | 255,000 | 0.3 | % | 187,884 | 92,741 | 255,000 | 0.2 | % | |||||||||||||||||||
| Michael Mangione | 270,625 | 245,000 | 0.3 | % | 180,534 | 90,091 | 245,000 | 0.2 | % | |||||||||||||||||||
| 9164-3163 QUEBEC INC | 251,250 | 250,000 | 0.3 | % | 184,669 | 66,581 | 250,000 | 0.2 | % | |||||||||||||||||||
| Jenifer Lynn Zofchak | 251,250 | 250,000 | 0.3 | % | 184,669 | 66,581 | 250,000 | 0.2 | % | |||||||||||||||||||
| Nathalie Prevost | 251,250 | 250,000 | 0.3 | % | 184,669 | 66,581 | 250,000 | 0.2 | % | |||||||||||||||||||
| Etienne Simard | 513,000 | 250,000 | 0.3 | % | 183,750 | 329,250 | 250,000 | 0.2 | % | |||||||||||||||||||
| Jacques Trottier | 250,000 | 250,000 | 0.3 | % | 183,750 | 66,250 | 250,000 | 0.2 | % | |||||||||||||||||||
| Leidys Patricia Meza Gonzalez | 250,000 | 250,000 | 0.3 | % | 183,750 | 66,250 | 250,000 | 0.2 | % | |||||||||||||||||||
| Marie-Christine Allaire | 250,000 | 250,000 | 0.3 | % | 183,750 | 66,250 | 250,000 | 0.2 | % | |||||||||||||||||||
| Peter Tanzer | 270,000 | 250,000 | 0.3 | % | 183,750 | 66,250 | 250,000 | 0.2 | % | |||||||||||||||||||
| Philippe Bergeron-Belanger | 250,000 | 250,000 | 0.3 | % | 183,750 | 66,250 | 250,000 | 0.2 | % | |||||||||||||||||||
| Steve Cimini | 250,000 | 250,000 | 0.3 | % | 183,750 | 66,250 | 250,000 | 0.2 | % | |||||||||||||||||||
| Dr. Mathieu Beaudoin, Parodontiste Inc. | 240,933 | 200,000 | 0.2 | % | 147,686 | 93,247 | 200,000 | 0.1 | % | |||||||||||||||||||
| Gestion Michel Daoust Inc. | 201,200 | 200,000 | 0.2 | % | 147,882 | 53,318 | 200,000 | 0.1 | % | |||||||||||||||||||
| Pascal Pelletier | 201,000 | 200,000 | 0.2 | % | 147,735 | 53,265 | 200,000 | 0.1 | % | |||||||||||||||||||
| Luca Cefis | 190,000 | 190,000 | 0.2 | % | 139,650 | 50,350 | 190,000 | 0.1 | % | |||||||||||||||||||
| Richard Bendor-Samuel | 170,000 | 170,000 | 0.2 | % | 124,950 | 170,000 | 45,050 | 0.1 | % | |||||||||||||||||||
| Craig Henningfield | 166,666 | 166,666 | 0.2 | % | 122,500 | 166,666 | 44,166 | 0.1 | % | |||||||||||||||||||
| Francois Marchand | 166,666 | 166,666 | 0.2 | % | 122,500 | 166,666 | 44,166 | 0.1 | % | |||||||||||||||||||
| Sebastien Jutras | 187,631 | 125,000 | 0.2 | % | 92,304 | 95,327 | 125,000 | 0.1 | % | |||||||||||||||||||
| Nicolas Maltais | 273,559 | 155,000 | 0.2 | % | 113,925 | 279,559 | 41,075 | 0.1 | % | |||||||||||||||||||
| Pierre-Luc Marcotte | 175,367 | 150,000 | 0.2 | % | 110,520 | 64,847 | 150,000 | 0.1 | % | |||||||||||||||||||
| Daniel Lazaric | 150,000 | 150,000 | 0.2 | % | 110,250 | 39,750 | 150,000 | 0.1 | % | |||||||||||||||||||
| Nicholas David Giambruno | 133,000 | 133,000 | 0.1 | % | 97,755 | 133,000 | 35,245 | 0.1 | % | |||||||||||||||||||
| Jean-Pierre Janson | 125,625 | 125,000 | 0.1 | % | 92,334 | 33,291 | 125,000 | 0.1 | % | |||||||||||||||||||
| Carolina Rivera | 125,583 | 125,000 | 0.1 | % | 92,304 | 33,179 | 125,000 | 0.1 | % | |||||||||||||||||||
| Maxime Leduc Sequin | 120,000 | 120,000 | 0.1 | % | 88,200 | 31,800 | 120,000 | 0.1 | % | |||||||||||||||||||
| Marc-Andre La Barre | 120,500 | 100,000 | 0.1 | % | 73,868 | 46,663 | 100,000 | 0.1 | % | |||||||||||||||||||
| Francois Leclerc | 100,500 | 100,000 | 0.1 | % | 73,868 | 26,633 | 100,000 | 0.1 | % | |||||||||||||||||||
| Christian Cyr | 100,000 | 100,000 | 0.1 | % | 73,500 | 26,500 | 100,000 | 0.1 | % | |||||||||||||||||||
| Yannick Gaboriault | 80,000 | 80,000 | 0.1 | % | 58,800 | 21,200 | 80,000 | 0.1 | % | |||||||||||||||||||
| Jeanna K Lee | 70,000 | 70,000 | 0.1 | % | 51,450 | 70,000 | 18,550 | 0.0 | % | |||||||||||||||||||
| RSM & CIE | 105,000 | 65,000 | 0.1 | % | 47,775 | 105,000 | 17,225 | 0.0 | % | |||||||||||||||||||
| Jeannine St-Pierre | 60,000 | 60,000 | 0.1 | % | 44,100 | 15,900 | 60,000 | 0.0 | % | |||||||||||||||||||
| Greenhill Equity Solutions Ltd | 50,000 | 50,000 | 0.1 | % | 36,750 | 50,000 | 13,250 | 0.0 | % | |||||||||||||||||||
| Jacques Malo | 50,000 | 50,000 | 0.1 | % | 36,750 | 13,250 | 50,000 | 0.0 | % | |||||||||||||||||||
| Nicholas Drolet | 50,000 | 50,000 | 0.1 | % | 36,750 | 13,250 | 50,000 | 0.0 | % | |||||||||||||||||||
| Darren Blatt | 33,333 | 33,333 | 0.0 | % | 24,500 | 33,333 | 8,833 | 0.0 | % |
| 42 |
| (1) | Address of the beneficial owner is c/o the Company, 1001 Bannock Street, Suite 612, Denver, CO 80204. |
| (2) | Based on 197,747,830 shares outstanding. |
| (3) | Alexander Massa has voting and investment control over 22,500,000 shares and exercisable warrants to purchase 22,500,00 shares held by CRYM Co-Invest, LP, 602,500 shares and 500,000 exercisable warrants to purchase shares held by Ham Senior Inc., and 602,500 shares and exercisable warrants to purchase 500,000 shares held by Hungry Asset Monster Inc. The address for CRYM Co-Invest, LP is One World Trade Center, Suite 83G, New York, NY 10007 and the address for Ham Senior Inc. and Hungry Asset Monster Inc. is 50 North Laura Street, Jacksonville, FL 32202. |
| (4) | Patrick Varin has voting and investment control over 6,250,000 shares and exercisable warrants to purchase 6,275,000 shares held by 9318-2582 Quebec Inc. |
| (5) | Mr. Noël is beneficial owner of 760,000 shares and exercisable warrants to purchase 760,000 shares held by Trichome Capital Inc. and exercisable warrants to purchase 250,000 shares. |
| (6) | Dr. Human is the beneficial holder of fully-vested stock options to purchase 1,500,000 shares, exercisable at $0.16 per share, expiring in 2030, and is the beneficial owner of 760,000 shares and exercisable warrants to purchase 760,000 shares held by Health Diplomats Pte Ltd. |
| (7) | Michael Bigger has voting and investment control of 2,500,000 shares and investment control of immediately exercisable warrants to purchase 2,500,000 shares, held by Bigger Capital Fund, LP and voting and investment control of 2,500,000 shares and investment control of immediately exercisable warrants to purchase 2,500,000 shares held by District 2 Capital Fund, LP. |
| (8) | Steven Schroeder has voting and investment control of 1,100,000 shares and 1,269,001 shares held by 0997006 BC Ltd. |
| 43 |
DESCRIPTION OF SECURITIES TO BE REGISTERED
Our authorized capital stock consists of consists of 500,000,000 Common Shares with a par value of $0.001 per Common Share. As of February 9, 2022, there were 197,747,830 Common Shares outstanding.
The following description of our Common Shares and provisions of our articles of association and by-laws is only a summary. Investors are directed for a complete description of the terms and provisions of our articles and by-laws, which are exhibits to the registration statement which contains this Prospectus. We encourage you to review complete copies of our articles and by-laws.
Voting Rights
Holders of the Common Shares are entitled to one vote per share on all matters to be voted upon by the shareholder.
Dividend Rights
Holders of Common Shares are entitled to receive ratably such dividends, if any, as may be declared by the Board out of funds legally available for dividends. The Company has not declared a dividend in its history and there are no plans to declare a dividend in the foreseeable future.
Liquidation Rights
Upon the liquidation, dissolution, or winding up of our company, the holders of Common Shares are entitled to share ratably in all of our assets which are legally available for distribution after payment of all debts and other liabilities.
Conversion and Redemption
Holders of Common Shares have no preemptive, subscription, redemption or conversion rights.
Change of Control
Nevada’s “Acquisition of Controlling Interest Statute” applies to Nevada corporations that have at least 200 shareholders, with at least 100 shareholders of record being Nevada residents and that do business directly or indirectly in Nevada. Where applicable, the statute prohibits an acquiror from voting shares of a target company’s stock after exceeding certain threshold ownership percentages, until the acquiror provides certain information to the company and a majority of the disinterested shareholders vote to restore the voting rights of the acquiror’s shares at a meeting called at the request and expense of the acquiror. If the voting rights of such shares are restored, shareholders voting against such restoration may demand payment for the “fair value” of their shares. The Nevada statute also restricts a “business combination” with “interested shareholders”, unless certain conditions are met, with respect to corporations which have at least 200 shareholders of record. A “combination” includes:
| (i) | any merger with an “interested shareholder,” or any other corporation which is or after the merger would be, an affiliate or associate of the interested shareholder; | |
| (ii) | any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets, to an “interested shareholder,” having an aggregate market value equal to 5% or more of the aggregate market value of the corporation’s assets; an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or representing 10% or more of the earning power or net income of the corporation; | |
| (iii) | any issuance or transfer of shares of the corporation or its subsidiaries, having an aggregate market value equal to 5% or more of the aggregate market value of all the outstanding shares of the corporation to the “interested shareholder” | |
| (iv) | the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by the “interested shareholder”; | |
| (v) | certain transactions which would result in increasing the proportionate percentage of shares of the corporation owned by the “interested shareholder”; or | |
| (vi) | the receipt of benefits, except proportionately as a shareholder, of any loans, advances or other financial benefits by an “interested shareholder.” |
| 44 |
An “interested shareholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior three years, did beneficially own) 10% or more of the corporation’s voting stock. A corporation to which this statute applies may not engage in a “combination” within three years after the interested shareholder acquired its shares, unless the combination or the interested shareholder’s acquisition of shares was approved by the board of directors before the interested shareholder acquired the shares. If this approval was not obtained, then after the three-year period expires, the combination may be consummated if all applicable statutory requirements are met.
Approval of mergers, conversion, amendments to the articles of incorporation, and sales, leases or exchanges of all of the property or assets of a corporation, whether or not in the ordinary course of business, requires the affirmative vote or consent of the holders of a majority of the outstanding shares entitled to vote, except that, unless required by the articles of incorporation, no vote of shareholders of the corporation surviving a merger is necessary if:
| (i) | the merger does not amend the articles of incorporation of the corporation; | |
| (ii) | each outstanding share immediately prior to the merger is to be an identical share after the merger; | |
| (iii) | The number of voting shares outstanding immediately after the merger, plus the number of voting issued as a result of the merger, either by the conversion of shares securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20% the total number of voting shares of the surviving domestic corporation outstanding immediately before the merger; and | |
| (iv) | the number of participating shares (i.e. shares that entitle their holders to participate without limitation in distribution) outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20% the total number of participating shares outstanding immediately before the merger. |
| 45 |
PLAN OF DISTRIBUTION
We are registering the Common Shares to permit the resale of those Common Shares under the Securities Act from time to time after the date of this Prospectus at the discretion of the holders of such Common Shares. We will not receive any of the proceeds from the sale by the selling shareholders of the Common Shares. We will bear all fees and expenses incident to our obligation to register the Common Shares.
Each selling shareholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their Common Shares on the OTCQB, or any other stock exchange, market, quotation service or trading facility on which the shares are traded or in private transactions, provided that all applicable laws are satisfied. The selling shareholders may also sell their Common Shares directly or through one or more underwriters, broker-dealers, or agents. If the Common Shares are sold through underwriters or broker-dealers, the selling shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The Common Shares may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. A selling shareholder may use any one or more of the following methods when selling shares:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| ● | block trades in which the broker-dealer will attempt to sell the shares 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 entered into after the effective date of the registration statement of which this Prospectus is a part; | |
| ● | broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share; | |
| ● | 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; and | |
| ● | any other method permitted pursuant to applicable law. |
The selling shareholders may also sell shares pursuant to Rule 144 under the Securities Act, if available, rather than under this Prospectus.
If the selling shareholders effect such transactions by selling Common Shares to or through underwriters, broker-dealers, or agents, such underwriters, broker-dealers, or agents may receive commissions in the form of discounts, concessions, or commissions from the selling shareholders or commissions from purchasers of the Common Shares for whom they may act as agent or to whom they may sell as principal (which discounts, concessions, or commissions as to particular underwriters, broker-dealers, or agents may be in excess of those customary in the types of transactions involved). Broker-dealers engaged by any selling shareholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholder (or, if any broker-dealer acts as agent for the purchaser of shares, 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 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with sales of Common Shares or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Shares in the course of hedging in positions they assume. The selling shareholders may also sell Common Shares short and deliver Common Shares covered by this Prospectus to close out their short positions and to return borrowed shares in connection with such short sales. The selling shareholders may also loan or pledge Common Shares to broker-dealers that in turn may sell such Common Shares. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of Common Shares offered by this Prospectus, which Common Shares such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).
| 46 |
The selling shareholders and any broker-dealers or agents that are involved in selling the Common Shares 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, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of any Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the Common Shares is made, a prospectus supplement, if required, will be distributed that will set forth the aggregate amount of Common Shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions, and other terms constituting compensation from the selling shareholders and any discounts, commissions, or concessions allowed or re-allowed or paid to broker-dealers.
Each selling shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Shares.
Because the selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. Once this registration statement becomes effective, we intend to file the final prospectus with the SEC in accordance with SEC Rules 172 and 424. Provided we are not the subject of any SEC stop orders and we are not subject to any cease and desist proceedings, the obligation to deliver a final prospectus to a purchaser will be deemed to have been met.
There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling shareholders.
Under the securities laws of some states, the Common Shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Common Shares may not be sold unless such shares have been registered or qualified for sale in such state, or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling shareholder will sell any or all of the Common Shares registered pursuant to the registration statement of which this Prospectus forms a part.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Common Shares may not simultaneously engage in market making activities with respect to the Common Shares for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling shareholders 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 Common Shares by the selling shareholders or any other person. All of the foregoing provisions may affect the marketability of the Common Shares and the ability of any person or entity to engage in market-making activities with respect to the Common Shares.
We will pay all expenses of the registration of the Common Shares, estimated to be approximately $30,000 in total, including, without limitation, SEC filing fees, expenses of compliance with state securities or “blue sky” laws, and legal and accounting fees; provided, however, that a selling shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling shareholders against liabilities, including some liabilities under the Securities Act, in accordance with applicable registration rights agreements, if any, or the selling shareholders will be entitled to contribution. We may be indemnified by the selling shareholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling shareholder specifically for use in this Prospectus, in accordance with the related registration rights agreement, or we may be entitled to contribution.
We agreed to keep this Prospectus effective until the earlier of (i) the date on which the Common Shares may be resold by the selling shareholders without registration and without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 or (ii) all of the Common Shares have been sold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect.
Once sold under the registration statement of which this Prospectus forms a part, the Common Shares will be freely tradable in the hands of persons other than our affiliates.
| 47 |
LEGAL PROCEEDINGS
Legal proceedings covering a dispute arising from a past employment agreements is pending against the Company’s principal business partner, CMI. In Gaudio v. Critical Mass Industries, LLC et al, CMI’s motion to set aside a default judgment was granted April 26, 2021. It is possible that there could be adverse developments in the Gaudio case. An unfavorable outcome or settlement of pending litigation would have a significant impact on our ability to collect receivables from CMI, to complete any of the pending transactions involving our Colorado assets and agreements and could encourage the commencement of additional litigation against CMI or the Company. We and our subsidiaries will record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in the Gaudio case may occur, (i) management is unable to estimate the possible loss or range of loss that our Company would undergo that could result from an unfavorable outcome or settlement in Gaudio; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for an unfavorable outcome in this case, if applicable. Any applicable legal advice costs are expensed as incurred.
| 48 |
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Shares was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
The Financial Statements included in this Prospectus and in the registration statement have been audited by BF Borgers CPA PC and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
The validity of the issuance of the Common Shares hereby will be passed upon for us by J.P. Galda & Co., 40 East Montgomery Avenue, LTW 220 Ardmore, PA 19003.
| 49 |
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table shows the fees paid or accrued by us for the audit and other services provided for the fiscal periods shown.
| 2021 | 2020 | ||||||||
| Haynie & Company: | |||||||||
| Audit and Non-Audit Fees | |||||||||
| Audit fees | $ | - | $ | 5,000 | |||||
| Audit-related fees | - | - | |||||||
| Tax fees | - | - | |||||||
| All other fees | - | - | |||||||
| Total | $ | - | $ | 5,000 | |||||
| Marcum: | |||||||||
| Audit and Non-Audit Fees | |||||||||
| Audit fees | $ | - | $ | 77,086 | |||||
| Audit-related fees | - | - | |||||||
| Tax fees | - | - | |||||||
| All other fees | - | - | |||||||
| Total | $ | - | $ | 77,086 | |||||
| Borgers: | |||||||||
| Audit and Non-Audit Fees | |||||||||
| Audit fees | $ | 274,000 | $ | 566,200 | |||||
| Audit-related fees | 54,000 | - | |||||||
| Tax fees | - | - | |||||||
| All other fees | - | - | |||||||
| Total | $ | 328,000 | $ | 566,200 | |||||
The Audit Committee pre-approves all audit and non-audit services to be performed by the independent registered public accounting firm in accordance with the rules and regulations promulgated under the Exchange Act. The Board pre-approved 100% of the audit, audit-related and tax services performed by the independent registered public accounting firm for the fiscal years ended December 31, 2020 and 2019. The percentage of hours expended on the principal accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employee was 0%.
| 50 |
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Nevada law allows a corporation to indemnify its directors, officers, employees and agents against all reasonable expenses (including attorneys’ fees and amounts paid in settlement) and, provided that such individual, or indemnitee, acted in good faith and for a purpose which he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, in the case of a criminal proceeding, had reasonable grounds to believe his or her conduct was lawful. Nevada law authorizes a corporation to indemnify its directors, officers, employees and agents against all reasonable expenses including amounts paid in settlement and attorneys’ fees in connection with a lawsuit by or in the right of the corporation to procure a judgment in its favor if such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interest of the corporation, except that no indemnification may be paid as to any claim, issue or matter as to which such person has been adjudged liable to the corporation unless it is determined by the court making such adjudication of liability that, despite such finding, such person is fairly and reasonably entitled for such expenses deemed proper.
Nevada law also provides for discretionary indemnification made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made either:
| (i) | by the shareholders; | |
| (ii) | by the board of directors by majority vote of a quorum consisting of directors who were not parties to the actions, suit or proceeding; | |
| (iii) | if a majority vote of a quorum consisting of directors who were not parties to the actions, suit or proceeding so orders, by independent legal counsel in a written opinion; or | |
| (iv) | if a quorum consisting of directors who were not parties to the actions, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. |
The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the actions, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions do not affect any right to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to Nevada law does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding office, except that indemnification, unless ordered by a court or for the advancement of expenses, may not be made to or on behalf of any director or officer if his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. In addition, indemnification continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities Act, as amended, may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has 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.
| 51 |
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1, together with all amendments and exhibits, with the SEC. This Prospectus, which forms a part of that registration statement, does not contain all information included in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits. With respect to references made in this Prospectus to any of our contracts or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contracts or documents. You may read and copy any document that we file at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our filings and the registration statement can also be reviewed by accessing the SEC’s website at http://www.sec.gov.
| 52 |
FINANCIAL STATEMENTS
Our audited financial statements as of and for the fiscal years ended December 31, 2020 and December 31, 2019 and unaudited financial statements for the fiscal quarters ended September 30, 2021 and September 30, 2020.
CRYOMASS TECHNOLOGIES INC
(f/k/a Andina Gold Corp.)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019
(EXPRESSED IN UNITED STATES DOLLARS)
ANDINA GOLD CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
Andina Gold Corp.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Andina Gold Corp. (the “Company”) as of December 31, 2020 and 2019 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the two years in the period ended December 31, 2020, and the related notes and schedules (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 the two years in the period ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Wholesale revenue recognition in relation to fraud
As described in Note 5 to the consolidated financial statements, management applies FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”) to recognize revenue. Management recognizes revenue upon transfer of control of promised products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products. The Company’s revenue, inclusive of revenue from discontinued operations, can be most simply divided into retail revenues and wholesale revenues. Retail revenue transactions are completed quickly and with payment only in cash at the time of the sale. However, wholesale revenue transactions are completed over a longer time frame, are larger in value than retail transactions, and may be completed on credit with the creation of a receivable.
The principal considerations for our determination that performing procedures over the full completion of wholesale revenue contracts and subsequent payment collections is a critical audit matter and there are more significant risks associated with the recognition of. This in turn led to significant effort in performing our audit procedures which were designed to evaluate whether the contractual terms, the timing of revenue recognition and the subsequent collections were appropriately identified and accounted for by management under ASC 606.
Our audit procedures included, among others, understanding of controls relating to management’s revenue recognition process, examining transaction related documents, confirming revenues and outstanding receivables at the balance sheet date with a sample of the wholesale customers, and testing collections subsequent to the balance sheet date.
BF Borgers CPA PC
We have served as the Company’s auditor since 2020
Lakewood, CO
March 30, 2021
F-3
Andina Gold Corp
Consolidated Balance Sheets
(Expressed in United States Dollars)
ANDINA GOLD CORP.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ANDINA GOLD CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net sales | $ | 781,455 | $ | 18,248 | ||||
| Cost of goods sold, inclusive of provision for inventory loss of $400,787 and $163,800 for the years ended December 31, 2020 and 2019, respectively | 744,279 | 198,822 | ||||||
| Gross profit / (loss) | 37,176 | (180,574 | ) | |||||
| Operating expenses: | ||||||||
| Personnel costs | 2,473,730 | 812,916 | ||||||
| Sales and marketing | 14,854 | 123,853 | ||||||
| General and administrative | 2,338,599 | 894,422 | ||||||
| Legal and professional fees | 1,744,834 | 843,580 | ||||||
| Research and development | 477,585 | |||||||
| Total operating expenses | 6,572,017 | 3,152,356 | ||||||
| Loss from operations | (6,534,841 | ) | (3,332,930 | ) | ||||
| Other income (expenses): | ||||||||
| Interest expense | (236,912 | ) | 310 | |||||
| Loss on foreign exchange | (88,690 | ) | (429 | ) | ||||
| Total other expenses | (325,602 | ) | (119 | ) | ||||
| Net loss from continuing operations, before taxes | (6,860,443 | ) | (3,333,049 | ) | ||||
| Income taxes | 10,235 | 4,691 | ||||||
| Net loss from continuing operations | (6,870,678 | ) | (3,337,740 | ) | ||||
| Net gain / (loss) from discontinued operations, net of tax | (4,945,229 | ) | 280,206 | |||||
| Net loss | $ | (11,815,907 | ) | $ | (3,057,534 | ) | ||
| Comprehensive loss from discontinued operations | (5,370 | ) | ||||||
| Comprehensive loss | $ | (11,815,907 | ) | $ | (3,062,904 | ) | ||
| Net loss per common share: | ||||||||
| Loss from continuing operations - basic and diluted | $ | (0.07 | ) | $ | (0.04 | ) | ||
| Gain / (loss) from discontinued operations - basic and diluted | $ | (0.05 | ) | $ | 0.00 | |||
| Loss per common share - basic and diluted | $ | (0.12 | ) | $ | (0.03 | ) | ||
| Weighted average common shares outstanding—basic and diluted | 99,863,059 | 89,808,227 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ANDINA GOLD CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Common Stock | Additional Paid-In | Common Stock to be | Accumulated | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Capital | Issued | Deficit | AOCL | Equity | ||||||||||||||||||||||
| Balance at December 31, 2018 | 76,400,016 | $ | 76,400 | $ | 1,425,885 | $ | $ | (840,656 | ) | $ | (15,097 | ) | $ | 646,532 | ||||||||||||||
| Common stock issued pursuant to private placement, net of issuance costs | 14,325,005 | 14,325 | 7,090,407 | 7,104,732 | ||||||||||||||||||||||||
| Common stock issued in connection with business combination | 13,553,233 | 13,553 | 6,763,064 | 6,776,617 | ||||||||||||||||||||||||
| Common stock issued pursuant to advisory agreements | 790,000 | 790 | 394,210 | 395,000 | ||||||||||||||||||||||||
| Common stock issued in connection with conversion of debt and accounts payable | 1,148,454 | 1,148 | 573,079 | 574,227 | ||||||||||||||||||||||||
| Consolidation of variable interest entity | - | 647,458 | 647,458 | |||||||||||||||||||||||||
| Deconsolidation of former subsidiary | - | (15,097 | ) | 15,097 | ||||||||||||||||||||||||
| Net loss | - | (3,057,534 | ) | (3,057,534 | ) | |||||||||||||||||||||||
| Balance at December 31, 2019 (Revised) | 106,216,708 | $ | 106,216 | $ | 16,894,103 | $ | $ | (3,913,287 | ) | $ | $ | 13,087,032 | ||||||||||||||||
| Issuance of common stock pursuant to separation agreement | 1,175,549 | $ | 1,176 | $ | 148,824 | $ | $ | $ | $ | 150,000 | ||||||||||||||||||
| Issuance of common stock pursuant to accelerated vesting of RSU’s | 600,000 | 600 | 162,440 | 163,040 | ||||||||||||||||||||||||
| Stock-based compensation | 757,895 | 758 | 570,954 | 571,712 | ||||||||||||||||||||||||
| Stock options issued and outstanding | - | 555,532 | 555,532 | |||||||||||||||||||||||||
| Share cancellations | (15,350,000 | ) | (15,350 | ) | 15,350 | |||||||||||||||||||||||
| Share issuance | 3,605,665 | 3,606 | 541,744 | 545,350 | ||||||||||||||||||||||||
| Common stock to be issued | - | 98,535 | 98,535 | |||||||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | 250,000 | 250,000 | |||||||||||||||||||||||||
| Net loss | - | (11,815,907 | ) | (11,815,907 | ) | |||||||||||||||||||||||
| Balance at December 31, 2020 | 97,005,817 | $ | 97,006 | $ | 19,138,947 | $ | 98,535 | $ | (15,729,194 | ) | $ | - | $ | 3,605,294 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ANDINA GOLD CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (6,870,678 | ) | $ | (3,337,740 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: | ||||||||
| Amortization of debt discount | 52,083 | |||||||
| Fair value of common stock issued pursuant to service and advisory agreements | 7,500 | 395,000 | ||||||
| Research and development expenses associated with asset acquisition | 477,585 | |||||||
| Provision for inventory loss | 400,787 | 163,800 | ||||||
| Stock-based compensation expense | 1,440,284 | |||||||
| Deferred income tax expense | 10,235 | 4,691 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (540,000 | ) | ||||||
| Prepaid expenses | 40,080 | (100,481 | ) | |||||
| Inventory, net | (60,787 | ) | (503,800 | ) | ||||
| Accounts payable and accrued expenses | 1,493,385 | 687,429 | ||||||
| Due to related party | (7,846 | ) | ||||||
| Taxes payable | 771 | |||||||
| Net cash used in operating activities from continuing operations | (4,026,340 | ) | (2,221,362 | ) | ||||
| Net cash provided by operating activities from discontinued operations | 276,719 | 426,044 | ||||||
| Net cash used in operating activities | (3,749,621 | ) | (1,795,318 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments for CMI business combination, net of cash acquired | (1,863,117 | ) | ||||||
| Cash acquired as part of General Extract asset acquisition | 4,506 | |||||||
| Net cash used in investing activities from continuing operations | (1,858,611 | ) | ||||||
| Net cash used in investing activities from discontinued operations | (693,255 | ) | (41,081 | ) | ||||
| Net cash used in investing activities | (693,255 | ) | (1,899,692 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | 537,850 | |||||||
| Proceeds from common stock subscribed and to be issued | 98,535 | |||||||
| Proceeds from loans payable, net of repayment | 412,560 | |||||||
| Proceeds from notes payable | 250,000 | |||||||
| Proceeds from sale of common stock pursuant to private placement, net of issuance costs | 7,104,732 | |||||||
| Net cash provided by financing activities from continuing operations | 1,298,945 | 7,104,732 | ||||||
| Net cash used in financing activities from discontinued operations | (100,000 | ) | ||||||
| Net cash provided by financing activities | 1,298,945 | 7,004,732 | ||||||
| Net increase / (decrease) in cash from continuing operations | (2,727,395 | ) | 3,024,759 | |||||
| Net increase / (decrease) in cash from discontinued operations | (416,536 | ) | 284,963 | |||||
| Effect of exchange rate changes on cash | (3,914 | ) | ||||||
| Cash at beginning of period | 3,473,770 | 167,962 | ||||||
| Cash at end of period | $ | 329,839 | $ | 3,473,770 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 162,810 | $ | 13,651 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued pursuant to separation agreement | $ | 150,000 | $ | |||||
| Common stock issued pursuant to vesting of restricted stock units | $ | 163,040 | $ | |||||
| Common stock issued in connection with conversion of debt | $ | $ | 503,475 | |||||
| Common stock issued in connection with conversion of accounts payable | $ | $ | 70,752 | |||||
| Disposal of First Colombia Devco S.A.S. | $ | $ | 20,467 | |||||
| Consolidation of variable interest entity | $ | $ | 1,192,234 | |||||
| Equity issued pursuant to CMI Transaction | $ | $ | 6,776,617 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Andina Gold Corp (“Andina Gold” or the “Company”) began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. Effective October 14, 2019, the Company changed its name to Redwood Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp.
On May 10, 2018, the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”) a Colombian company, and began to establish various business ventures in Colombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing to phase them out in April 2019.
On July 1, 2019, the Company acquired 100% of the membership interests in General Extract, LLC (“General Extract”), a Colorado limited liability company. General Extract was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp derivatives. The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts.
On July 15, 2019, the Company, through its wholly owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement to acquire cannabis brands and other assets of Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”), a Colorado limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement Division of Colorado Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing of infused products and retail distribution. At the time the Company entered into the Membership Interest Purchase Agreement, Colorado law prohibited public companies, including the Company, from owning cannabis licenses. Therefore, CMI spun off certain assets acquired by the Company. Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis license, inventory and accounts receivable (the “Cannabis License Assets”) and will continue to operate the cannabis business related to those assets. In consideration for the transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company common stock, in addition to $1,999,770 in cash to CMI. An additional 1,500,000 shares of Andina Gold common stock were held and retained by the Company until the Cannabis License Assets can be purchased (see Note 2 and Note 7).
Good Meds, the operating unit of CMI, is based in Denver, CO, and operates in a 60,000-square-foot cultivation and processing facility. Good Meds also owns and operates two medical cannabis dispensaries located in Lakewood, CO and Englewood, CO. The business has been in operation since 2009. The Denver facility produces cannabis for sale as dry flower and biomass input for processing into Marijuana-Infused Products (“MIP”), such as live resin, wax and budder.
Andina Gold operates two medical marijuana dispensaries and related businesses in Colorado (see Note 2). Our mission is to deliver high-quality, safely manufactured, sustainable, innovative, and accessible cannabis products which support individual well-being.
In August 2020, the Company merged with its wholly owned Nevada subsidiary, Andina Gold Corp., and changed its name into Andina Gold Corp. On October 21, 2020 FINRA issued an advisory accepting the company’s name change from Redwood Green Corp to Andina Gold Corp and ticker symbol change to AGOL effective as of October 22, 2020 at the opening of the U.S. OTC market. As of October 15, 2020 the Company has redirected its business strategy to seek financing for general operating expenses from the Company’s current shareholders in the form of share subscription and warrants as specifically authorized by the Board in writing on October 15, 2020. Further, the Company is actively pursuing divestiture of its Colorado-based subsidiaries, assets or receivables. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS. Subject to further discussions, obtaining the necessary local regulatory approvals and regulatory developments, the Company shall identify and pursue gold exploration in Colombia. The Company will need substantial additional capital in order to execute this strategy and there can be no assurance that such quantities of capital can be sourced on reasonable terms, if at all. In addition, there can be no assurance that the Company will be successful in pursuing this strategy. The Company has since determined that pursuit of gold exploration in Colombia is not longer a practical alternative and is considering other strategies to increase shareholder value.
F-8
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. VARIABLE INTEREST ENTITY
Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, Consolidation (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entity (“VIE”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders. As of July 15, 2019, the Company consolidates CMI as a VIE pursuant to certain intellectual property, administrative and consulting agreements in which the Company is deemed the primary beneficiary of CMI. Accordingly, the results of CMI have been included in the accompanying consolidated financial statements.
Furthermore, the Company notes it does not own the Cannabis License Assets; however, pursuant to accounting principles generally accepted in the United States (“GAAP”), the Cannabis License Assets are consolidated in the accompanying consolidated financial statements along with certain liabilities and the associated revenues and expenses of CMI. See Note 8 for further information regarding CMI.
F-9
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| CMI Statement of Operations | ||||||||
| For the Years Ended December 31, | ||||||||
| Description | 2020 | 2019 | ||||||
| Net sales | $ | 6,860,282 | $ | 3,460,566 | ||||
| Cost of goods sold, inclusive of depreciation | 4,901,237 | 2,237,004 | ||||||
| Gross profit | $ | 1,959,045 | $ | 1,223,562 | ||||
| Operating expenses | ||||||||
| Personnel costs | 402,389 | 266,165 | ||||||
| Sales and marketing | 908,502 | 414,210 | ||||||
| General and administrative | 231,376 | 132,894 | ||||||
| Legal and professional fees | 156,782 | 81,234 | ||||||
| Amortization expense | 26,901 | 16,653 | ||||||
| Total operating expenses | 1,725,950 | 911,156 | ||||||
| Gain from operations | $ | 233,095 | $ | 312,406 | ||||
| Other income / (expense) | ||||||||
| Interest expense | (153,592 | ) | (13,013 | ) | ||||
| Goodwill impairment | (4,663,514 | ) | - | |||||
| Intangibles impairment | (361,218 | ) | ||||||
| Other income | - | 3,092 | ||||||
| Total other income / (expense) | (5,178,324 | ) | (9,921 | ) | ||||
| Net income / (loss) | $ | (4,945,229 | ) | $ | 302,485 | |||
F-10
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The impact of these adjustments on the Company’s consolidated financial statements was as follows:
| December 31, 2019 | ||||||||||||
| Previously Reported | Non-controlling Interest Adjustment | Revised (1) | ||||||||||
| Inventory, net (2) | $ | 340,000 | $ | 768,633 | $ | 1,108,633 | ||||||
| Accounts receivable, net (2) | $ | $ | 113,599 | $ | 113,599 | |||||||
| Total current assets | $ | 3,933,047 | $ | 882,232 | $ | 4,815,279 | ||||||
| Goodwill | $ | 5,855,748 | $ | (1,192,234 | ) | $ | 4,663,514 | |||||
| Total assets | $ | 16,070,008 | $ | (310,002 | ) | $ | 15,760,006 | |||||
| Accounts payable and accrued expenses | $ | 754,850 | $ | 337,386 | $ | 1,092,236 | ||||||
| Total current liabilities | $ | 1,558,821 | $ | 337,386 | $ | 1,896,207 | ||||||
| Total liabilities | $ | 2,335,588 | $ | 337,386 | $ | 2,672,974 | ||||||
| Additional paid-in capital | $ | 16,246,645 | $ | 647,458 | $ | 16,894,103 | ||||||
| Non-controlling interests in consolidated variable interest entity | $ | 1,294,846 | $ | (1,294,846 | ) | $ | ||||||
| Total shareholders’ equity | $ | 13,734,420 | $ | (647,388 | ) | $ | 13,087,032 | |||||
| Total liabilities and shareholders’ equity | $ | 16,070,008 | $ | (310,002 | ) | $ | 15,760,006 | |||||
| (1) | There was no impact to the Company’s consolidated statements of operations. |
| (2) | The Company does not own the VIE’s portion of this asset. Amounts relating to the VIE are accounts receivable, net of $113,599 and inventory, net of $768,633. |
3. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
On the consolidated balance sheet for the year ended December 31, 2019 and the quarter ended September 30, 2019, the Cannabis License Assets of CMI, a VIE in which the Company is deemed the primary beneficiary (Note 2), was presented as non-controlling interest pursuant to and in conjunction with the CMI Transaction. The Company does not own the Cannabis License Assets; however, they are included in the accompanying consolidated financial statements for GAAP reporting purposes.
The Company revised its consolidated financial statements in which this line item was adjusted to correct the classification by reflecting accounts receivable, net of $113,599, inventory, net of $768,633, and accounts payable and accrued expenses of $337,386 in addition to a decrease in goodwill of $1,192,234 and an increase in additional-paid-in capital of $647,458.
F-11
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The impact of these adjustments on the Company’s consolidated financial statements was as follows:
| December 31, 2019 | ||||||||||||
| Previously Reported | Non-controlling Interest Adjustment | Revised (1) | ||||||||||
| Inventory, net (2) | $ | 340,000 | $ | 768,633 | $ | 1,108,633 | ||||||
| Accounts receivable, net (2) | $ | $ | 113,599 | $ | 113,599 | |||||||
| Total current assets | $ | 3,933,047 | $ | 882,232 | $ | 4,815,279 | ||||||
| Goodwill | $ | 5,855,748 | $ | (1,192,234 | ) | $ | 4,663,514 | |||||
| Total assets | $ | 16,070,008 | $ | (310,002 | ) | $ | 15,760,006 | |||||
| Accounts payable and accrued expenses | $ | 754,850 | $ | 337,386 | $ | 1,092,236 | ||||||
| Total current liabilities | $ | 1,558,821 | $ | 337,386 | $ | 1,896,207 | ||||||
| Total liabilities | $ | 2,335,588 | $ | 337,386 | $ | 2,672,974 | ||||||
| Additional paid-in capital | $ | 16,246,645 | $ | 647,458 | $ | 16,894,103 | ||||||
| Non-controlling interests in consolidated variable interest entity | $ | 1,294,846 | $ | (1,294,846 | ) | $ | ||||||
| Total shareholders’ equity | $ | 13,734,420 | $ | (647,388 | ) | $ | 13,087,032 | |||||
| Total liabilities and shareholders’ equity | $ | 16,070,008 | $ | (310,002 | ) | $ | 15,760,006 | |||||
| (1) | There was no impact to the Company’s consolidated statements of operations. |
| (2) | The Company does not own the VIE’s portion of this asset. Amounts relating to the VIE are accounts receivable, net of $113,599 and inventory, net of $768,633. |
4. GOING CONCERN UNCERTAINTY, FINANCIAL CONDITIONS AND MANAGEMENT’S PLANS
The Company believes that there is substantial doubt about the Company’s ability to continue as a going concern. The Company believes that its available cash balance as of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next twelve months. The Company believes that, at the present time, its ability to continue operations depends on the sale of assets as well as its ability to access capital markets when necessary to accomplish the Company’s strategic objectives. The Company believes that the Company will continue to incur losses for the immediate future. The Company expects to finance future cash needs from the results of operations and, depending on the results of operations, the Company will need additional equity, debt financing or assets sales until the Company can achieve profitability and positive cash flows from operating activities, if ever. There can be no assurance that the Company will be able to attract needed financing or be able to sell assets on reasonable terms, if at all.
On March 11, 2020, the 2019 novel coronavirus (“COVID-19) was characterized as a “pandemic.” The Company’s operations were impacted during the quarter in the United States. The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, the carrying value of the Company’s goodwill, intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2020 and through the date of this report. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Consolidated Financial Statements in future reporting periods.
F-12
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Our financial statements for the year ended December 31, 2020 have been prepared on a going concern basis and contain an additional explanatory paragraph which identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The continuation of our company as a going concern is dependent upon the continued financial support from its shareholders, the ability of our company to obtain necessary equity or debt financing to continue operations, the sale of assets, and ultimately the attainment of profitable operations. For the year ended December 31, 2020, our company used $3,749,621 of cash for operating activities, incurred a net loss of $11,815,907 and has an accumulated deficit of $15,729,194 since inception. These factors raise substantial doubt regarding our company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should our company be unable to continue as a going concern.
The (COVID-19) pandemic and responses to this crisis, including actions taken by federal, state and local governments, have had an impact on the operations of the company, including, without limitation, the following: reduced staffing due to employee suspected conditions and social distancing measures; constraints on productivity; management and staff non-essential business-related travel was constrained due to stay-at-home orders; most employees have shifted to remote work resulting in loss of productivity; consumers visiting dispensaries operated under license impacted by stay-at-home orders. Management continues to monitor the COVID-19 pandemic situation and federal, state and local recommendations and will provide updates as appropriate.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with GAAP. The consolidated financial statements include the accounts of the Andina Gold, General Extract, and CMI, a VIE for which the Company is deemed to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates as one segment from its corporate headquarters in Colorado.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, determining the fair value and potential impairment of inventory, determining the useful lives and potential impairment of long-lived assets and potential impairment of goodwill. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Reclassifications
Certain items in the consolidated financial statements were reclassified from prior periods for presentation purposes.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.
F-13
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Accounting for Business Combinations and Acquisitions
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. Management evaluates the relationship between the Company and VIEs and the economic benefit flow of the contractual arrangement with the VIEs. Management determines if the Company is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. As a result of such evaluation, management concluded that the Company is the primary beneficiary of CMI and consolidates the financial results of this entity.
Accounts Receivable, net
Accounts receivable, net is comprised of balances due from customers and are recorded at the invoiced amount. Past due balances are determined based on the contractual terms of the arrangements. Accounts receivable are accrued against when management determines, after considering economic and business conditions and all means of collection efforts have been exhausted and the potential for recovery is considered remote, that the collection of receivables is doubtful. Accounts receivable amounts, net of allowance for doubtful accounts, were $606,043 and $113,599 as of December 31, 2020 and 2019, respectively. This includes $66,043 and $113,599, respectively, related to the VIE, which is classified as held for sale. Uncollectible accounts previously recorded as receivables are recognized as bad debt expense, with a corresponding decrease to accounts receivable. Bad debt expense was $188,548 and $15,615 for the years ended December 31, 2020 and 2019, respectively. This amount includes $4,548 and $15,615, respectively, related to the VIE, which is classified as discontinued operations.
F-14
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Inventory, net
Inventory, net is comprised of work-in-process and finished goods consisting of cannabis and cannabidiol products. Cost includes expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Inventory, net is stated at the lower of cost or net realizable value. The Company compares the cost of inventory with market value and writes down inventories to net realizable value, if lower. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories on hand, physical deterioration, obsolescence, changes in price levels, estimated time to sell such inventories and current market conditions. Due to changing market conditions, management conducted a thorough review of its inventory. As a result, a provision for inventory losses of $400,787 and $163,800 was charged against cost of goods sold during the years ended December 31, 2020 and 2019, respectively, due to a write down of inventory to its net realizable value. This was based on the Company’s best estimates of product sales prices and customer demand patterns. It is at least reasonably possible that the estimates used by the Company to determine its provision for inventory losses will be materially different from the actual amounts or results. These differences could result in materially higher than expected inventory provisions, which could have a materially adverse effect on the Company’s results of operations and financial conditions in the near term.
Revenue Recognition
Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company’s revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers is recognized upon completion of the transaction in the point of sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance of the physical goods and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting compliance (“METRC”) system. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
Retail customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized. Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the years ended December 31, 2020 and 2019.
The Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being able to purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado Department of Public Health and Environment for medical patients.
Expenses
Cost of Goods Sold, Net of Depreciation and Amortization
Cost of goods sold primarily consisted of allocated salaries and wages of employees directly related with the production process, allocated depreciation and amortization directly related to the production process, cultivation supplies, rent and utilities.
F-15
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Operating Expenses
Operating expenses encompass personnel costs, sales and marketing expenses, general and administrative expenses, professional and legal fees and depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition of CMI. Personnel costs consist primarily of consulting expense and administrative salaries and wages. Sales and marketing expenses consist primarily of advertising and marketing, and salaries related to sales and marketing employees. General and administrative expenses are comprised of travel expenses, accounting expenses, and board fees. Professional services are principally comprised of outside legal and professional fees.
Other Expense, net
Other expense, net consisted of interest expense, loss on impairment of goodwill, other income and (loss) gain on foreign exchange.
Stock-Based Compensation
We account for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation. The fair value of restricted stock units (“RSUs”) granted is measured on the grant date using the closing price of the Company’s common shares on the grant date. The fair value of stock options is measured on the grant date using the Black-Scholes model. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. All stock-based compensation costs are recorded in general and administrative expenses in the consolidated statements of operations.
Property and Equipment, net
Purchase of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the consolidated statements of operations. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
| Estimated Useful Life | |||
| Computer equipment | 3 – 5 years | ||
| Furniture and fixtures | 5 – 7 years | ||
| Machinery and equipment | 5 – 8 years | ||
| Leasehold improvements | Shorter of lease term or 15 years |
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.
Indefinite-lived intangible assets established in connection with business combinations consist of trademarks, trade names and developed manufacturing processes. Intangible assets with indefinite lives are recorded at their estimated fair value at the date of acquisition.
Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful lives of intangible assets are detailed in the table below:
| Estimated Useful Life | |||
| Customer relationships | 6 years | ||
| Trademark/trade name | Indefinite | ||
| Developed manufacturing process | Indefinite |
F-16
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Goodwill and Intangible Assets
Goodwill
Goodwill is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Update 2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” and FASB Accounting Standards Codification (ASC) 350-20-35, Intangibles – Goodwill and Other - Goodwill.
The Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if yes to step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3) recognize impairment, limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying value of a reporting unit over its fair value.
As of December 31, 2020, management concluded that the goodwill resulting from the CMI transaction (Note 7) was impaired. See Note 11.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets are not amortized, but instead are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill. Following this guidance, the Company compares the estimated fair value of the indefinite-lived intangible assets to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that indefinite-lived intangible assets were impaired. See Note 11.
Intangible Assets Subject to Amortization
Intangible assets subject to amortization are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment. Following this guidance, the Company compares the estimated fair value of the intangible assets subject to amortization to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that intangible assets subject to amortization were impaired. See Note 11.
Contingencies
An initial right-of-use (“ROU”) asset and corresponding liability of $1,411,461 was recognized upon the CMI Transaction. The Company adopted ASU Topic 842 January 1, 2019, but had no reportable operating leases at that point in time.
F-17
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is likely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive income (loss) and its components in the consolidated financial statements. The Company’s only component of comprehensive loss was foreign currency translation adjustments for the year ended December 31, 2019 pertaining to the Company’s former subsidiary Devco. The Company had no comprehensive loss for the year ended December 31, 2020.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| ● | Level 1 — Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. | |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, notes payable, and taxes payable approximate fair values because of the immediate or short-term maturities of these financial instruments. There were no other assets or liabilities that require fair value to be recalculated on a recurring basis.
The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. There were 2,453,172 unvested RSU’s considered potentially dilutive securities outstanding as of December 31, 2020 and no potentially dilutive items outstanding as of December 31, 2019. Diluted net loss per share is the same as basic net loss per share for each period.
F-18
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities of Discontinued Operations Held for Sale
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation as held for sale. See Note 8.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The accounting model for beneficial conversion features is removed. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company determined that this update will impact its financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company has evaluated that this update will not have a material impact on its financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (ASC 350), which simplifies the test for goodwill impairment. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company adopted this new standard on January 1, 2020.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASC 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases (ASU 2018- 10), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, Leases (Topic 842)-Targeted Improvements (ASU 2018-11), which addressed implementation issues related to the new lease standard. Under ASC 842, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 was effective for annual reporting periods beginning after December 15, 2018 and interim periods within that reporting period. The Company adopted ASC 842 on January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Prior period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods.
F-19
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. REVENUE RECOGNITION
Disaggregated Revenue
| For the Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Types of Revenues: | ||||||||
| Medical retail (amounts related to VIE discontinued operations of $4,698,428 and $2,324,024, respectively) | $ | 4,709,628 | $ | 2,337,024 | ||||
| Medical wholesale (amounts related to VIE discontinued operations of $1,319,944 and $374,458, respectively) | 1,320,644 | 379,706 | ||||||
| Recreational wholesale (amounts related to VIE discontinued operations of $837,414 and $753,405, respectively) | 1,606,969 | 753,405 | ||||||
| Other revenues (amounts related to VIE discontinued operations of $4,496 and $8,679, respectively) | 4,496 | 8,679 | ||||||
| Total revenues | $ | 7,641,737 | $ | 3,478,814 | ||||
7. BUSINESS COMBINATION
Effective July 15, 2019, the Company acquired cannabis brands and other assets of CMI. In consideration of the sale and transfer of the acquired assets, the Company delivered 13,553,233 shares of Andina Gold common stock, in addition to $1,999,770 in cash to the members of CMI.
The CMI Transaction was accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). The Company’s allocation of the purchase price was calculated as follows:
| Cash | $ | 1,999,770 | ||
| Common stock | 6,776,617 | |||
| Total purchase price | $ | 8,776,387 |
| Description | Fair Value | Weighted average useful life (in years) | |||||
| Assets acquired: | |||||||
| Cash | $ | 136,654 | |||||
| Other current assets | 74 | ||||||
| Property and equipment, net | 1,985,738 | ||||||
| Intangible assets: | |||||||
| Customer relationships | 215,900 | 6 | |||||
| Trademark/trade name | 1,340,000 | Indefinite | |||||
| Developed manufacturing process | 1,330,000 | Indefinite | |||||
| Goodwill | 4,663,514 | ||||||
| Right of use asset | 1,411,461 | ||||||
| Deposits | 12,348 | ||||||
| Total assets acquired | $ | 11,095,689 | |||||
| Liabilities assumed: | |||||||
| Notes payable | $ | 147,268 | |||||
| Notes payable, related parties | 760,573 | ||||||
| Right of use liability | 1,411,461 | ||||||
| Total liabilities assumed | 2,319,302 | ||||||
| Estimated fair value of net assets acquired | $ | 8,776,387 | |||||
F-20
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Results
CMI contributed a net loss of $4,945,229 for the year ended December 31, 2020 and contributed net income of $302,485 for the year ended December 31, 2019. CMI is included in discontinued operations in the Company’s consolidated statements of operations.
The following table below represents the revenue, net loss and loss per share effect of the acquired company, as reported in our pro forma basis as if the acquisition occurred on January 1, 2019. These pro forma results are not necessarily indicative of the results that actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods.
| For the Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net Sales | $ | 7,641,737 | $ | 6,798,227 | ||||
| Net loss | $ | (11,815,907 | ) | $ | (2,459,275 | ) | ||
| Net loss per common share | $ | (0.12 | ) | $ | (0.02 | ) | ||
8. DISCONTINUED OPERATIONS
In April 2019, the Company began to reposition itself into the cannabis industry. On July 1, 2019, the Company disposed of its Colombian subsidiary, Devco, in exchange for its acquisition of 100% of the membership units of General Extract. Devco’s net assets primarily consisted of approximately 13 hectares of undeveloped land. The operations of the Colombian business and land were accounted for as discontinued operations through the date of divestiture.
The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to these Devco discontinued operations:
| As of December 31, 2020 | As of December 31, 2019 | As of July 1, 2019* | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | 18,472 | ||||||||
| Prepaid expenses and advances | 29,980 | |||||||||||
| Current assets held for sale | 48,452 | |||||||||||
| Property and equipment, net | 456,762 | |||||||||||
| Total assets held for sale | 505,214 | |||||||||||
| Liabilities | ||||||||||||
| Accounts payable and accrued liabilities | 23,123 | |||||||||||
| Total liabilities held for sale | 23,123 | |||||||||||
| Net assets | $ | $ | $ | 482,091 | ||||||||
| * | - Date of Devco disposition |
F-21
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated statements of operations include the following operating results related to these Devco discontinued operations:
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Selling, marketing and administrative | $ | $ | 19,716 | |||||
| Impairment loss | 903 | |||||||
| Interest expense | 310 | |||||||
| Net loss from discontinued operations, before taxes | (20,929 | ) | ||||||
| Income taxes | 1,350 | |||||||
| Net loss from discontinued operations, net of tax | $ | $ | (22,279 | ) | ||||
| Foreign currency translation adjustments | (5,370 | ) | ||||||
| Comprehensive loss from discontinued operations, net of tax | $ | $ | (27,649 | ) | ||||
For the year ended December 31, 2019, statements of cash flows include non-cash impairment charges of $903 and depreciation expense of $368 related to these Devco discontinued operations.
In June 2020, the Company’s board of directors adopted a plan to exit the cultivation, manufacturing of infused products and retail distribution businesses through the sale of Good Meds. The Company determined that the intended sale represented a strategic shift that will have a major effect on the Company’s operations and financial results and therefore, for financial statement reporting purposes classified Good Meds and its consolidated VIE CMI as held for sale at December 31, 2020 and December 31, 2019.
The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to these CMI discontinued operations:
| December 31, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Accounts receivable, net | $ | 66,043 | $ | 113,599 | ||||
| Prepaid expenses | 7,601 | 11,588 | ||||||
| Inventory, net | 791,868 | 768,633 | ||||||
| Property and equipment, net | 2,714,771 | 2,152,626 | ||||||
| Goodwill | 4,663,514 | |||||||
| Intangible assets, net | 2,481,128 | 2,869,247 | ||||||
| Security deposits | 11,522 | 15,608 | ||||||
| Right of use asset, net | 794,907 | 1,243,732 | ||||||
| Total current assets held for sale | 6,867,840 | 11,838,547 | ||||||
| Total assets held for sale | $ | 6,867,840 | $ | 11,838,547 | ||||
| Liabilities | ||||||||
| Accounts payable and accrued expenses | 211,463 | 337,386 | ||||||
| Taxes payable | 22,645 | 24,865 | ||||||
| Notes payable, related parties | 458,599 | 307,450 | ||||||
| Right of use liability | 771,578 | 1,243,732 | ||||||
| Total liabilities held for sale | 1,464,285 | 1,913,433 | ||||||
| Net assets | $ | 5,403,555 | $ | 9,925,114 | ||||
F-22
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated statements of operations include the following operating results related to these CMI discontinued operations:
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net sales | $ | 6,860,282 | $ | 3,460,566 | ||||
| Cost of goods sold, inclusive of depreciation | 4,901,237 | 2,237,004 | ||||||
| Gross profit | 1,959,045 | 1,223,562 | ||||||
| Operating expenses: | ||||||||
| Personnel costs | 402,389 | 266,165 | ||||||
| Sales and marketing | 908,502 | 414,210 | ||||||
| General and administrative | 231,376 | 132,894 | ||||||
| Legal and professional fees | 156,782 | 81,234 | ||||||
| Amortization expense | 26,901 | 16,653 | ||||||
| Total operating expenses | 1,725,950 | 911,156 | ||||||
| Gain from operations | 233,095 | 312,406 | ||||||
| Other income (expenses): | ||||||||
| Interest expense | (153,592 | ) | (13,013 | ) | ||||
| Goodwill impairment | (4,663,514 | ) | ||||||
| Intangibles impairment | (361,218 | ) | ||||||
| Other income | 3,092 | |||||||
| Total other income (expenses) | (5,178,324 | ) | (9,921 | ) | ||||
| Net gain / (loss) from discontinued operations, before taxes | (4,945,229 | ) | 302,485 | |||||
| Income taxes | ||||||||
| Net gain / (loss) from discontinued operations | $ | (4,945,229 | ) | $ | 302,485 | |||
9. INVENTORY, NET
Inventory, net consisted of the following:
| December 31, 2020 | December 31, 2019 | |||||||
| Finished goods (amounts related to VIE discontinued operations of $431,466 and $416,871, respectively) | $ | 431,466 | $ | 920,671 | ||||
| Work-in-process inventory grow (amounts related to VIE discontinued operations of $360,402 and $351,762, respectively) | 360,402 | 351,762 | ||||||
| Provision for inventory losses (amounts related to VIE discontinued operations of $0 and $0, respectively) | (163,800 | ) | ||||||
| $ | 791,868 | $ | 1,108,633 | |||||
The Company re-negotiated the purchase price of General Extract’s cannabidiol finished goods inventory, resulting in a $240,000 reduction in cost as of December 31, 2019 and resulting in an additional $220,800 reduction in cost as of December 31, 2020. All remaining cannabidiol finished goods inventory was sold in 2020 Q2.
F-23
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following. All property and equipment is owned by CMI and classified as held for sale.
| December 31, 2020 | December 31, 2019 | |||||||
| Leasehold improvements | $ | 2,770,385 | $ | 2,223,609 | ||||
| Machinery and equipment | 1,065,885 | 888,786 | ||||||
| Furniture and fixtures | 43,331 | 43,331 | ||||||
| Construction in progress | 227,995 | 258,615 | ||||||
| 4,107,596 | 3,414,341 | |||||||
| Less: Accumulated depreciation | (1,392,825 | ) | (1,261,715 | ) | ||||
| $ | 2,714,771 | $ | 2,152,626 | |||||
Depreciation expense for the years ended December 31, 2020 and 2019 was $131,110 and $129,067, respectively. Depreciation expense was recorded in cost of goods sold and general and administrative expense and is included in discontinued operations.
11. GOODWILL AND INTANGIBLE ASSETS
The Company tests goodwill and intangible assets for impairment annually as of December 31st, or more frequently whenever events or changes in circumstances indicate that the asset might be impaired. As the Company marketed CMI for sale, management determined it was more likely than not that the fair value was less than the carrying value. Therefore, the Company recorded an impairment loss of $4,663,514 related to goodwill in accordance with ASC 350-20-35, Intangibles – Goodwill and Other - Goodwill. Additionally, the Company recorded an impairment loss of $334,195 related to indefinite-lived intangible assets in accordance with ASC 350-30-35 Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill and an impairment loss of $27,023 related to intangible assets subject to amortization in accordance with ASC 360-10-35, Property, Plant, and Equipment. The fair value of CMI was the expected sales price, which management determined based on offers received and sales negotiations.
The carrying value of goodwill was $0 and $4,663,514 as of December 31, 2020 and 2019, respectively. Goodwill is classified as held for sale as Of December 31, 2019.
The following tables summarize information relating to the Company’s identifiable intangible assets, which are classified as held for sale, as of December 31, 2020 and 2019:
| December 31, 2020 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Impairment | Carrying Value | ||||||||||||||
| Amortized | ||||||||||||||||||
| Customer relationships | 6 years | $ | 215,900 | $ | (43,554 | ) | $ | (27,023 | ) | $ | 145,323 | |||||||
| Total amortized | 215,900 | (43,554 | ) | (27,023 | ) | 145,323 | ||||||||||||
| Indefinite-lived | ||||||||||||||||||
| Trademark/trade name | Indefinite | 1,340,000 | (167,723 | ) | 1,172,277 | |||||||||||||
| Developed manufacturing process | Indefinite | 1,330,000 | (166,472 | ) | 1,163,528 | |||||||||||||
| Total indefinite-lived | 2,670,000 | (334,195 | ) | 2,335,805 | ||||||||||||||
| Total identifiable intangible assets | $ | 2,885,900 | $ | (43,554 | ) | $ | (361,218 | ) | $ | 2,481,128 | ||||||||
F-24
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| December 31, 2019 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Impairment | Carrying Value | ||||||||||||||
| Amortized | ||||||||||||||||||
| Customer relationships | 6 years | $ | 215,900 | $ | (16,653 | ) | $ | $ | 199,247 | |||||||||
| Total amortized | 215,900 | (16,653 | ) | 199,247 | ||||||||||||||
| Indefinite-lived | ||||||||||||||||||
| Trademark/trade name | Indefinite | 1,340,000 | 1,340,000 | |||||||||||||||
| Developed manufacturing process | Indefinite | 1,330,000 | 1,330,000 | |||||||||||||||
| Total indefinite-lived | 2,670,000 | 2,670,000 | ||||||||||||||||
| Total identifiable intangible assets | $ | 2,885,900 | $ | (16,653 | ) | $ | $ | 2,869,247 | ||||||||||
Amortization expense, which is included in discontinued operations, was $26,901 and $16,653 for the years ended December 31, 2020 and 2019, respectively. Amortization of intangible assets with a finite useful life ceased upon held-for-sale classification.
12. DEBT
On July 27, 2020, the Company entered into a subscription agreement consisting of 1) a convertible note and 2) warrants. The 1) convertible note has a face value of $250,000, matures August 1, 2022, and accrues interest at 8% per annum. The note is convertible into 2,500,000 shares of the Company’s common stock at a conversion price of $0.10 per share. The beneficial conversion feature is accounted for in accordance with ASC 470-20 Debt with Conversion and Other Options and the resulting debt discount is amortized over the life of the note. As of December 31, 2020, the net carrying amount is $52,083, which consists of the $250,000 convertible note and $197,917 unamortized debt discount. The 2) warrants are exercisable to purchase an additional 2,500,000 shares of common stock at $0.25 per share.
On August 26, 2020, the Company entered into a $600,000 loan agreement, which accrues interest at 84% per annum. The loan is repaid on a weekly basis up to the maturity date of April 7, 2021. The loan balance as of December 31, 2020 is $412,560.
The Company underwent a capital raise in 2020 and issued 3,535,665 subscription units, each containing one share of common stock and one warrant share. The warrants have an exercise price of $0.30 and expire November 1, 2022. The fair value of the warrants is $0 as of December 31, 2020. No warrants were exercised during the year ended December 31, 2020.
13. RELATED PARTY TRANSACTIONS
In conjunction with the CMI Transaction, the Company assumed a note payable in which the note holder, John Knapp (“Knapp”) is a significant shareholder in the Company. Additionally, Knapp is a former executive and board director, as well as current shareholder in PharmaCielo Ltd. (“PharmaCielo”), a supplier of naturally grown and processed medicinal-grade cannabis oil extracts. Effective February 25, 2020, Knapp resigned as a director of Andina Gold, at which time 200,000 Restricted Stock Units were deemed to have vested and were converted into 200,000 common shares. Refer to Note 2 for additional details on the relationship of CMI as a VIE. On August 6, 2020, the Company formalized the terms of a note payable to John Knapp. The note bears interest on an annual basis of 25% and is convertible into shares of common stock at a price of $0.25 per share. The note matures on January 31, 2021. The outstanding balance of the notes payable, related party was $458,599 and $307,450 as of December 31, 2020 and 2019, respectively.
F-25
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. SHAREHOLDERS’ EQUITY
From June to August 2019, the Company completed a private placement for the sale of its common stock. The Company issued 14,325,005 shares of common stock for gross proceeds of $7,162,503, or $0.50 per share, minus equity issuance costs of $72,096.
In July 2019, the Company issued 13,553,233 shares of common stock in connection with the CMI Transaction (refer to Note 7).
During the year ended December 31, 2019, the Company issued 790,000 shares of common stock pursuant to advisory agreements. The fair value of $395,000 was included in legal and professional fees in the consolidated statements of operations.
In February 2020, the Company issued 400,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation of a former executive.
In February 2020, the Company issued 200,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation of a former board member.
In March 2020, the Company issued 1,175,549 shares of common stock to a former executive per a separation agreement.
In June 2020, four shareholders submitted 15,050,000 shares of common stock for cancellation pursuant to prior agreements among certain shareholders. Accordingly, the Company cancelled 15,050,000 shares of common stock.
In July 2020, the Company issued 10,000 shares of common stock to a former employee per a separation agreement.
In July 2020, one shareholder submitted 300,000 shares of common stock for cancellation pursuant to prior agreements. Accordingly, the Company cancelled 300,000 shares of common stock.
In August 2020, the Company issued 60,000 shares of common stock in order to raise capital.
In August 2020, the Company issued 757,895 shares of common stock to former board members per a separation agreement.
From October to December 2020, the Company issued 3,535,665 shares of common stock in order to raise capital.
Stock Incentive Plan
The Company adopted its 2019 Omnibus Stock Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options, stock grants and RSUs to employees, directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract, motivate, and retain the services of qualified employees, officers and directors. Any RSUs or stock options granted under the 2019 Plan will be at the discretion of the Compensation Committee of the Board of Directors. For the year ended December 31, 2020, the total stock compensation expense was $1,440,284 and consisted of $734,752 related to RSUs, $150,000 related to a separation agreement, and $555,532 related to stock options. Expenses for stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative expense. No cash was used to settle equity instruments granted under share-based payment arrangements.
F-26
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Unit Awards
A summary of the Company’s RSU award activity for the year ended December 31, 2020 is as follows:
| Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at December 31, 2019 | $ | |||||||
| Granted | 6,603,962 | 0.44 | ||||||
| Vested | (1,367,895 | ) | 0.23 | |||||
| Forfeited | (2,782,895 | ) | 0.57 | |||||
| Outstanding at December 31, 2020 | 2,453,172 | $ | 0.42 | |||||
The requisite service period for RSUs is two years. RSUs will be converted to common stock within 74 days following fulfillment of the service period. The fair value of RSUs is calculated using the grant date stock price. The total fair value of RSUs vested during the years ending December 31, 2020 and 2019 was $309,790 and $0, respectively. As of December 31, 2020 and 2019, there was $600,241 and $0, respectively, of unrecognized stock-based compensation cost related to non-vested RSU’s. The weighted-average period over which the $600,241 is expected to be recognized is 1.19 years.
Stock-based compensation expense relating to RSU’s was $734,752 and $0 for the years ending December 31, 2020 and 2019, respectively. Stock-based compensation relating to RSU’s for the year ending December 31, 2020 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $145,183, $518,043, and $71,526, respectively.
Stock Options
A summary of the Company’s stock options activity for the year ended December 31, 2020 is as follows:
| Stock Option Shares | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2019 | $ | |||||||
| Granted | 3,500,000 | 0.16 | ||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding at December 31, 2020 | 3,500,000 | $ | 0.16 | |||||
On October 29, 2020, the Company awarded stock options for 3,500,000 shares at an exercise price of $0.16 per share. These options vested immediately, expire October 29, 2030, and were exercisable at the end of the year. As of December 31, 2020, the aggregate intrinsic value was $140,000 and the weighted average remaining contractual term was zero years for the share options outstanding and exercisable.
The fair value of the options was calculated using the Black-Scholes model and was $555,532 as of the grant date. The following assumptions were used to estimate fair value:
| Expected term | 5 years | |||
| Expected volatility | 237.0 | % | ||
| Expected dividends | 0.0 | % | ||
| Risk-free rate | 0.4 | % | ||
| Discount for post-vesting restrictions | ||||
F-27
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates on the date of enactment. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense.
The provision (benefit) for income taxes for the years ended December 31, 2020 and 2019 consists of:
| 2020 | 2019 | |||||||
| Current (benefit) provision | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Total Current | ||||||||
| Deferred (benefit) provision | ||||||||
| Federal | $ | 3,724 | $ | 1,707 | ||||
| State | 6,511 | 2,984 | ||||||
| Total Deferred | $ | 10,235 | $ | 4,691 | ||||
| Total Provision | $ | 10,235 | $ | 4,691 | ||||
The statutory federal income tax rate (21 percent) for the years ended December 31, 2020 and 2019 is reconciled to the effective income tax rate as follows:
| 2020 | 2019 | |||||||||||||||
| Tax | Percentage | Tax | Percentage | |||||||||||||
| Income Taxes At Statutory Federal Income Tax Rate | $ | (2,517,221 | ) | 21.00 | % | $ | (638,414 | ) | 21.00 | % | ||||||
| State Taxes, Net Of Federal Income Tax Benefit | 6,511 | (0.05 | ) | 2,984 | (0.10 | ) | ||||||||||
| Meals & Entertainment | 261 | 0.00 | 1,250 | (0.04 | ) | |||||||||||
| Penalties and Fines | 0.00 | 0.00 | ||||||||||||||
| Return to Provision Adjustment - Permanent Items | 0.00 | 0.00 | ||||||||||||||
| Deferred Only Adjustment | (228,539 | ) | 1.91 | 64,018 | (2.11 | ) | ||||||||||
| Change in Valuation Allowance | 200,791 | (1.68 | ) | 242,204 | (7.97 | ) | ||||||||||
| Section 280E Expense Disallowance | 2,548,431 | (21.26 | ) | 324,745 | (10.68 | ) | ||||||||||
| Other | 0.00 | 7,904 | (0.26 | ) | ||||||||||||
| Effective tax | $ | 10,235 | (0.09 | )% | $ | 4,691 | (0.16 | )% | ||||||||
F-28
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities by type at December 31, 2020 and 2019 are as follows:
| Deferred Tax Assets (Liabilities): | 2020 | 2019 | ||||||
| Stock Compensation | $ | 62,606 | $ | |||||
| Fixed Assets - Depreciation - COGS | (60,244 | ) | ||||||
| Fixed Assets - Depreciation - Non COGS | 456 | |||||||
| Trademark/Trade Name | (4,765 | ) | (1,498 | ) | ||||
| Developed Manufacturing Process - Extraction | (31,884 | ) | (10,021 | ) | ||||
| Customer Relationships | 1,158 | 368 | ||||||
| Cannabis Licenses | 1,257 | |||||||
| Goodwill - CMI | 168,688 | 10,567 | ||||||
| IPR&D | 105,985 | 113,836 | ||||||
| NOL - Federal Pre-2018 | 43,367 | 43,368 | ||||||
| NOL - Federal Post-2017 | 377,529 | 295,034 | ||||||
| NOL - State | 294,183 | 119,215 | ||||||
| Deferred Tax Assets (Liabilities) | $ | 1,016,867 | $ | 512,338 | ||||
| Valuation Allowance | (1,031,792 | ) | (517,029 | ) | ||||
| Net Deferred Tax Assets (Liabilities) | $ | (14,926 | ) | $ | (4,691 | ) | ||
At December 31, 2020 and 2019, the Company had federal net operating loss carryforwards of approximately $2,004,266 and $1,094,388 that may be offset against future taxable income from the years 2021 through 2040. State net operating losses were approximately $8,042,840 and $2,057,792 at December 31, 2020 and 2019. However, as a result of the 2017 Tax Cuts and Jobs Act (“TCJA”) and the 2020 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), any federal net operating losses generated in years beginning after December 31, 2017 and before January 1, 2021 can be carried forward indefinitely to offset taxable income in future periods. The amount of NOLs with no expiration totaled $1,797,757 as of December 31, 2020. The deferred tax assets before valuation allowance for the net operating losses were $715,079 and $325,097 as of December 31, 2020 and 2019.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of December 31, 2020, the Company has recorded a full valuation allowance against its net deferred tax assets. The valuation allowance is estimated to be approximately $1,031,792 and $384,510 for the years ended December 31, 2020 and 2019, respectively. However, because deferred tax liabilities related to indefinite lived intangibles cannot be used as a source of income to recognize deferred tax assets with definite lives, the recorded valuation allowance exceeded the net deferred assets resulting in an overall net deferred tax liability, as reflected in the table above.
The Company has adopted the provisions of ASC 740 which prescribe the procedures for recognition and measurement of tax positions taken or expected to be taken in income tax returns. As of December 31, 2020, the Company does not have an accrual relating to uncertain tax positions. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date.
16. COMMITMENTS & CONTINGENCIES
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
F-29
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Lease Commitments
The Company accounts for lease transactions in accordance with Topic 842, Leases (“ASC 842”), which requires an entity to recognize a right-of-use (“ROU”) asset and a lease liability for virtually all leases. The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset.
Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets.
Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Management determined that there were no variable lease costs during the years ended December 31, 2020 and 2019.
Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Operating Leases
The Company adopted ASU Topic 842 January 1, 2019, but had no reportable operating leases at that point in time. Upon the CMI transaction, an initial right-of-use (“ROU”) asset of $1,411,461 was recognized. The present value of this lease liability decreased by $472,154 for the year ended December 31, 2020 and decreased by $167,729 for the period from the acquisition to December 31, 2019. This activity is included in operating activities from discontinued operations line item of the statement of cash flows. Operating lease cost was $627,132 for the year ended December 31, 2020 and was $252,290 for the period from the acquisition to December 31, 2019 and. The CMI transaction ROU leases consist of the following:
The Company leases its Englewood retail location from an unrelated third party. The lease expires in May 2022 and lease payments increase approximately 5% of base rent annually. The Company has the option to extend the lease for an additional five years. The rent during the extended lease term will be determined at the time of renewal.
The Company leases its production facility location from an unrelated third party. The lease expires in April 2022 and lease payments increase approximately 5% of base rent annually. The Company has the option to extend the lease for an additional five-year term, commencing May 1, 2022 through April 30, 2027. Rent shall increase at the rate of 4% per year compounded during the extended lease term.
The Company leases its Lakewood retail location from an unrelated third party. The lease expires in March 2021 and lease payments increase approximately 5% of base rent annually.
F-30
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease commitments under operating leases as of December 31, 2020 are as follows:
| Years Ending December 31, | ||||
| 2021 | $ | 638,586 | ||
| 2022 | 218,168 | |||
| Total undiscounted operating lease payments | 856,754 | |||
| Less: imputed interest | (85,176 | ) | ||
| Present value of operating lease liability | $ | 771,578 | ||
| Weighted-average remaining lease term (years) | 1.25 | |||
| Weighted-average remaining discount rate | 15 | % | ||
There are no other leases that meet the reporting standards of ASU Topic 842 as the Company does not have any other leases with a term exceeding twelve months. Lease payments for leases with terms less than twelve months are not accounted for under ASU Topic 842 and were $73,777 and $23,322 for the years ended December 31, 2020 and 2019, respectively. The Company does not have any leases that have not yet commenced which are significant.
Legal Proceedings
Legal proceedings covering a dispute arising from a past employment agreements is pending against our principal business partner, CMI. In Gaudio v. Critical Mass Industries, LLC et al, the defendant CMI has recently filed an ex-parte application for a Scheduling Order re: motion to set aside entry of default. On March 14, 2021, Plaintiff filed an opposition to CMI’s ex parte application. On March 15, 2021, the court issued an order granting CMI’s ex parte application. CMI’s motion to set aside a default judgment will be heard on April 26, 2021. It is possible that there could be adverse developments in the Gaudio case. An unfavorable outcome or settlement of pending litigation would have a significant impact on our ability to collect receivables from CMI, to complete any of the pending transactions involving our Colorado assets and agreements, and could encourage the commencement of additional litigation against CMI or the Company. We and our subsidiaries will record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in the Gaudio case may occur, (i) management is unable to estimate the possible loss or range of loss that our Company would undergo that could result from an unfavorable outcome or settlement in Gaudio; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for an unfavorable outcome in this case, if applicable. Any applicable legal advice costs are expensed as incurred.
It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is subject to uncertainty, we and each of our subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of adverse verdicts, if any. All such cases are, and will continue to be, vigorously defended. However, we and our subsidiaries may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.
F-31
ANDINA GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT EVENTS
On February 25, 2021, the board of directors determined that further efforts in the strategy to enter the gold exploration business in Colombia were inadvisable due to restricted travel as a result of Covid-19, local pandemic-related restrictions and the demise of our local expert.
On February 25, 2021 the Company entered into a non-binding letter of intent (“LOI”) with CryoCann USA Corporation (“CryoCann”), a California company headquartered in Santa Ana, California, for a proposed asset purchase transaction (the “Proposed Transaction”). CryoCann is a designer and seller of equipment developed on the basis of patented technology for cannabis varieties (including hemp) harvesting, drying, refinement, and extraction. The purchase would include all assets of CryoCann.
On February 26, 2021, Carlos Hernandez Nunez resigned from the board of directors. His resignation was not the result of any disagreements with the Company.
On March 19, 2021, Gary Artmont resigned from the board of directors. His resignation was not the result of any disagreements with the Company.
On March 29, 2021, the Company entered into an employment agreement with Christian Noel effective April 1, 2021, to serve as our Chief Executive Officer, replacing Christopher Hansen, whose term ends on March 31, 2021. Mr. Noel will also serve on the board of directors as a director, replacing Mr. Hernandez.
The Company raised, as of the date of this filing, via a unit offering of convertible notes and warrants, $500,000 to 2 investors. The convertible notes mature on March 31, 2022 and may be prepaid at any after six months. The note holders may convert at any time at a conversion price of $0.20 per share. The warrants expire two years from issuance and are exercisable at a price of $0.40 per share. The offering has been extended to April 15, 2021.
F-32
CRYOMASS TECHNOLOGIES INC
CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2021 and 2020
(EXPRESSED IN UNITED STATES DOLLARS)
TABLE OF CONTENTS
F-33
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30,
2021 | December 31,
2020 | |||||||
| As restated, see Note 3 | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 237,552 | $ | 329,839 | ||||
| Accounts receivable, net | 540,000 | 540,000 | ||||||
| Prepaid expenses | 117,604 | 60,475 | ||||||
| Related party note receivable | 281,771 | |||||||
| Assets held for sale, current | 7,313,798 | 6,867,840 | ||||||
| Total current assets | 8,490,725 | 7,798,154 | ||||||
| Property and equipment, net | 135,000 | |||||||
| Intangible assets, net | 4,060,431 | |||||||
| Goodwill | 1,190,000 | |||||||
| Total assets | $ | 13,876,156 | $ | 7,798,154 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 3,124,652 | $ | 2,248,235 | ||||
| Loans payable | 286,441 | 412,560 | ||||||
| Taxes payable | 771 | 771 | ||||||
| Note payable, related party | 1,457,669 | |||||||
| Liabilities held for sale, current | 677,084 | 1,464,285 | ||||||
| Total current liabilities | 5,546,617 | 4,125,851 | ||||||
| Notes payable (Note 3) | 4,132,483 | 52,083 | ||||||
| Deferred tax liability | 14,926 | 14,926 | ||||||
| Total liabilities | 9,694,026 | 4,192,860 | ||||||
| Commitments and contingencies (Note 16) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $0.001 par value, 100,000 shares authorized, shares issued and outstanding respectively | ||||||||
| Common stock, $0.001 par value, 500,000,000 shares authorized, 120,058,181 and 97,005,817 shares issued and outstanding on September 30, 2021 and December 31, 2020, respectively | 120,058 | 97,006 | ||||||
| Additional paid-in capital (Note 3) | 25,981,647 | 19,138,947 | ||||||
| Common stock to be issued | 98,535 | |||||||
| Accumulated deficit | (21,919,575 | ) | (15,729,194 | ) | ||||
| Total shareholders’ equity | 4,182,130 | 3,605,294 | ||||||
| Total liabilities and shareholders’ equity | $ | 13,876,156 | $ | 7,798,154 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-34
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| As restated, see Note 3 | As restated, see Note 3 | |||||||||||||||
| Net sales | $ | $ | $ | $ | 781,455 | |||||||||||
| Cost of goods sold, inclusive of provision for inventory loss of $0 and $400,787 for the three and nine months, respectively, ended September 30, 2020 | 744,279 | |||||||||||||||
| Gross profit | 37,176 | |||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | 1,204,621 | 509,031 | 2,004,417 | 1,925,716 | ||||||||||||
| Sales and marketing | 44,049 | 44,063 | 14,854 | |||||||||||||
| General and administrative | 445,748 | 382,869 | 2,821,541 | 2,182,631 | ||||||||||||
| Amortization expense | 21,832 | 21,832 | ||||||||||||||
| Legal and professional fees | 340,226 | 289,484 | 797,772 | 1,216,799 | ||||||||||||
| Total operating expenses | 2,056,476 | 1,181,384 | 5,689,625 | 5,340,000 | ||||||||||||
| Loss from operations | (2,056,476 | ) | (1,181,384 | ) | (5,689,625 | ) | (5,302,824 | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense (Note 3) | (590,061 | ) | (85,040 | ) | (1,152,858 | ) | (85,040 | ) | ||||||||
| Gain / (loss) on foreign exchange | 23,170 | (36,500 | ) | 46,708 | (52,511 | ) | ||||||||||
| Total other expenses | (567,431 | ) | (121,540 | ) | (1,106,150 | ) | (137,551 | ) | ||||||||
| Net loss from continuing operations, before taxes | (2,623,907 | ) | (1,302,924 | ) | (6,795,775 | ) | (5,440,375 | ) | ||||||||
| Income taxes | 2,559 | 7,676 | ||||||||||||||
| Net loss from continuing operations | (2,623,907 | ) | (1,305,483 | ) | (6,795,775 | ) | (5,448,051 | ) | ||||||||
| Net gain / (loss) from discontinued operations, net of tax | 250,092 | (4,634,506 | ) | 605,394 | (4,862,255 | ) | ||||||||||
| Net loss | $ | (2,373,815 | ) | $ | (5,939,989 | ) | $ | (6,190,381 | ) | $ | (10,310,306 | ) | ||||
| Comprehensive loss from discontinued operations | ||||||||||||||||
| Comprehensive loss | $ | (2,373,815 | ) | $ | (5,939,989 | ) | $ | (6,190,381 | ) | $ | (10,310,306 | ) | ||||
| Net loss per common share: | ||||||||||||||||
| Loss from continuing operations - basic and diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.05 | ) | ||||
| Gain / (loss) from discontinued operations - basic and diluted | $ | 0.00 | $ | (0.05 | ) | $ | 0.01 | $ | (0.05 | ) | ||||||
| Loss per common share - basic and diluted | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.05 | ) | $ | (0.10 | ) | ||||
| Weighted average common shares outstanding—basic and diluted | 118,939,488 | 93,060,753 | 107,846,167 | 101,611,540 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-35
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-In | Common Stock to | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Be Issued | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2019 (Revised) | 106,216,708 | $ | 106,216 | $ | 16,894,103 | $ | $ | (3,913,287 | ) | $ | 13,087,032 | |||||||||||||
| Issuance of common stock pursuant to separation agreement | 1,175,549 | 1,176 | 763,049 | 764,225 | ||||||||||||||||||||
| Issuance of common stock pursuant to accelerated vesting of RSU’s | 600,000 | 600 | 389,460 | 390,060 | ||||||||||||||||||||
| Stock-based compensation | - | 159,529 | 159,529 | |||||||||||||||||||||
| Net loss | - | (3,597,309 | ) | (3,597,309 | ) | |||||||||||||||||||
| Balance at March 31, 2020 | 107,992,257 | $ | 107,992 | $ | 18,206,141 | $ | $ | (7,510,596 | ) | $ | 10,803,537 | |||||||||||||
| Share cancellations | (15,050,000 | ) | ||||||||||||||||||||||
| Stock-based compensation | - | 58,842 | 58,842 | |||||||||||||||||||||
| Net loss | - | (773,008 | ) | (773,008 | ) | |||||||||||||||||||
| Balance at June 30, 2020 | 92,942,257 | 107,992 | 18,264,983 | (8,283,604 | ) | 10,089,371 | ||||||||||||||||||
| Share cancellations | (300,000 | ) | (15,350 | ) | 15,350 | |||||||||||||||||||
| Share issuance | 70,000 | 70 | 14,930 | 15,000 | ||||||||||||||||||||
| Stock-based compensation | 757,895 | 758 | 219,641 | 220,399 | ||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | 250,000 | 250,000 | |||||||||||||||||||||
| Net loss | - | (5,939,989 | ) | (5,939,989 | ) | |||||||||||||||||||
| Balance at September 30, 2020 | 93,470,152 | 93,470 | 18,764,904 | (14,223,593 | ) | 4,634,781 | ||||||||||||||||||
| Balance at December 31, 2020 | 97,005,817 | $ | 97,006 | $ | 19,138,947 | $ | 98,535 | $ | (15,729,194 | ) | $ | 3,605,294 | ||||||||||||
| Share issuance | 1,491,819 | 1,492 | 207,043 | (98,535 | ) | 110,000 | ||||||||||||||||||
| Stock-based compensation | - | 250,817 | 250,817 | |||||||||||||||||||||
| Net loss | - | (1,046,927 | ) | (1,046,927 | ) | |||||||||||||||||||
| Balance at March 31, 2021 | 98,497,636 | $ | 98,498 | $ | 19,596,807 | $ | $ | (16,776,121 | ) | $ | 2,919,184 | |||||||||||||
| Share issuance | 201,586 | 202 | 202 | |||||||||||||||||||||
| Share issuance related to Cryocann asset purchase | 10,000,000 | 10,000 | 1,794,500 | 1,804,500 | ||||||||||||||||||||
| Share issuance pursuant to employment agreements | 6,701,586 | 6,701 | 894,000 | 900,701 | ||||||||||||||||||||
| Share issuance in exchange for extinguishment of debt | 2,500,000 | 2,500 | 505,902 | 508,402 | ||||||||||||||||||||
| Share issuance in exchange for services | 633,125 | 633 | 56,867 | 57,500 | ||||||||||||||||||||
| Stock-based compensation | - | 190,026 | 190,026 | |||||||||||||||||||||
| Stock options issued and outstanding | - | 710,202 | 710,202 | |||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | 391,958 | 391,958 | |||||||||||||||||||||
| Warrants issued in conjunction with Convertible Notes Payable | - | 888,371 | 888,371 | |||||||||||||||||||||
| Net loss | - | (2,769,639 | ) | (2,769,639 | ) | |||||||||||||||||||
| Balance at June 30, 2021 | 118,533,933 | $ | 118,534 | $ | 25,028,633 | $ | $ | (19,545,760 | ) | $ | 5,601,407 | |||||||||||||
| Share issuance | 798,414 | 798 | 199,000 | 199,798 | ||||||||||||||||||||
| Share issuance in exchange for services | 633,707 | 634 | 239,853 | 240,487 | ||||||||||||||||||||
| Share issuance for interest payment on note payable | 92,127 | 92 | 23,317 | 23,409 | ||||||||||||||||||||
| Stock-based compensation | - | 68,628 | 68,628 | |||||||||||||||||||||
| Stock options issued and outstanding | - | 258,003 | 258,003 | |||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable (Note 3) | - | 123,805 | 123,805 | |||||||||||||||||||||
| Warrants issued in conjunction with Convertible Notes Payable (Note 3) | - | 40,408 | 40,408 | |||||||||||||||||||||
| Net loss | - | (2,373,815 | ) | (2,373,815 | ) | |||||||||||||||||||
| Balance at September 30, 2021 (As restated, see Note 3) | 120,058,181 | $ | 120,058 | $ | 25,981,647 | $ | $ | (21,919,575 | ) | $ | 4,182,130 | |||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-36
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| As restated, see Note 3 | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (6,795,775 | ) | $ | (5,448,051 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: | ||||||||
| Depreciation and amortization expense | 21,832 | |||||||
| Amortization of debt discount (Note 3) | 539,692 | 20,833 | ||||||
| Provision for inventory loss | 400,787 | |||||||
| Stock-based compensation expense | 2,400,976 | 1,593,055 | ||||||
| Deferred income tax expense | 2,985 | |||||||
| Fair value of common stock issued pursuant to service and advisory agreements | 291,096 | 15,000 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (684,000 | ) | ||||||
| Prepaid expenses | (57,129 | ) | (71,408 | ) | ||||
| Inventory, net | (60,787 | ) | ||||||
| Assets held for sale | 7,134 | |||||||
| Accounts payable and accrued expenses | 876,417 | 843,353 | ||||||
| Taxes payable | 771 | |||||||
| Net cash used in operating activities from continuing operations | (2,722,891 | ) | (3,380,328 | ) | ||||
| Net cash provided by / (used in) operating activities from disc ops | (347,204 | ) | 132,937 | |||||
| Net cash used in operating activities | (3,070,095 | ) | (3,247,391 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash payment for Cryocann asset purchase | (1,000,000 | ) | ||||||
| Issuance of other payable related to Cryocann asset purchase | (1,247,684 | ) | ||||||
| Purchase of property and equipment | (135,000 | ) | ||||||
| Net cash used in investing activities from continuing operations | (2,382,684 | ) | ||||||
| Net cash used in investing activities from discontinued operations | (280,561 | ) | (462,174 | ) | ||||
| Net cash used in investing activities | (2,663,245 | ) | (462,174 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from note payable, related parties | 237,590 | |||||||
| Proceeds from issuance of common stock | 320,000 | |||||||
| Repayment of loans payable, current | (40,668 | ) | ||||||
| Proceeds from loans payable | 600,000 | |||||||
| Proceeds from notes payable | 4,900,000 | 250,000 | ||||||
| Related party note disbursement | (281,771 | ) | ||||||
| Net cash provided by financing activities from continuing operations | 5,135,151 | 850,000 | ||||||
| Net cash provided by financing activities from discontinued operations | 505,902 | |||||||
| Net cash provided by financing activities | 5,641,053 | 850,000 | ||||||
| Net increase / (decrease) in cash from continuing operations | 29,576 | (2,530,328 | ) | |||||
| Net increase / (decrease) in cash from discontinued operations | (121,863 | ) | (329,237 | ) | ||||
| Cash at beginning of period | 329,839 | 3,473,770 | ||||||
| Cash at end of period | $ | 237,552 | $ | 614,205 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 283,330 | $ | 46,038 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued pursuant to separation agreement | $ | $ | 764,225 | |||||
| Common stock issued pursuant to vesting of restricted stock units | $ | 2,851,103 | $ | 390,060 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
Cryomass Technologies Inc (“Cryomass Technologies” or the “Company”) began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. Effective October 14, 2019, the Company changed its name to Redwood Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. On July 15, 2021, the Company entered into a plan of merger with a wholly-owned subsidiary, the effect of which was to change its name to Cryomass Technologies Inc Our ticker symbol changed from AGOL to CRYM.
On May 10, 2018, the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”) a Colombian company and began to establish various business ventures in Colombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing to phase them out in April 2019.
On July 1, 2019, the Company acquired 100% of the membership interests in General Extract, LLC (“General Extract”), a Colorado limited liability company. General Extract was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp derivatives. The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts. Effective August 27, 2021, General Extract became Cryomass LLC.
On July 15, 2019, the Company, through its wholly owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement to acquire cannabis brands and other assets of Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”), a Colorado limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement Division of Colorado Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing of infused products and retail distribution. At the time the Company entered into the Membership Interest Purchase Agreement, Colorado law prohibited public companies, including the Company, from owning cannabis licenses. Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis license, inventory and accounts receivable (the “Cannabis License Assets”) and will continue to operate the cannabis business related to those assets. In consideration for the transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company common stock, in addition to $1,999,770 in cash to CMI. (See Note 2 and Note 7).
Good Meds, the operating unit of CMI, is based in Denver, CO, and operates in a 60,000-square-foot cultivation and processing facility. The Denver facility produces cannabis for sale as dry flower and biomass input for processing into Marijuana-Infused Products (“MIP”), such as live resin, wax and budder. Good Meds also operates two medical marijuana dispensaries and related businesses in Colorado (see Note 2). The business has been in operation since 2009. Its mission is to deliver high-quality, safely manufactured, sustainable, innovative, and accessible cannabis products which support individual well-being.
The Company is actively pursuing divestiture of its Colorado-based subsidiaries and assets.
In August 2020, the Company merged with its wholly owned Nevada subsidiary, Andina Gold Corp., and changed its name into Andina Gold Corp. On October 21, 2020, FINRA issued an advisory accepting the company’s name change from Redwood Green Corp to Andina Gold Corp and ticker symbol change to AGOL effective as of October 22, 2020. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS for the purpose of pursuing opportunities in the gold exploration business in Colombia. In December 2020, due to the death of the top geologist exploring opportunities on behalf of the Company, and the effects of the ongoing Coronavirus pandemic, the Company determined that pursuit of gold exploration in Colombia was no longer a practical alternative.
On June 22, 2021, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Cryocann USA Corp, a California corporation (“Cryocann”), pursuant to which Company acquired substantially all the assets of Cryocann, (the “Cryocann Acquisition”). The Acquisition was consummated on June 23, 2021. The aggregate purchase price for substantially all the assets of Cryocann was $3,500,000 million in cash and 10,000,000 shares of Company common stock (the “Purchase Price”), of which $1,000,000 in cash and 10,000,000 shares of Company common stock were paid at closing and a promissory note was issued for $1,252,316 payable by Company to Cryocann on October 15, 2021, which represents the remaining Purchase Price of $2,500,000 minus the amount owed by Cryocann under a Loan Agreement dated April 23, 2021 by and between Cryocann and Company.
F-38
As part of the Cryocann Acquisition, we retained both Cryocann employees, who have expert knowledge of the industry, related participants, customers and the acquired patented technology. Under these employment agreements, each employee may receive compensation if specific performance targets are met in association with our future operating performance once the Cryocann technology enters the market.
Cryocann is a designer and seller of equipment developed on the basis of patented technology for cannabis varieties harvesting, refinement, and extraction. The technology reduces processing costs, increases the quality of the extracted compounds and has potential for other agricultural applications including hemp and hops. The Company is exploring the application of the underlying technology to a broad range of industries that handle high-value materials and that could benefit from our precision capture methods. We anticipate that cannabis and hemp will be the first in a series of such industries. Further, we expect to begin field-testing in the fourth quarter of this year and to start commercialization early in 2022.
2. Variable Interest Entity
Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, Consolidation (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entity (“VIE”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders. As of July 15, 2019, the Company consolidates CMI as a VIE pursuant to certain intellectual property, administrative and consulting agreements in which the Company is deemed the primary beneficiary of CMI. Accordingly, the results of CMI have been included in the accompanying consolidated financial statements.
Furthermore, the Company notes it does not own the Cannabis License Assets; however, pursuant to accounting principles generally accepted in the United States (“GAAP”), the Cannabis License Assets are consolidated in the accompanying consolidated financial statements along with certain liabilities and the associated revenues and expenses of CMI. See Note 8 for further information regarding CMI.
| Balance Sheet | As of September 30, 2021 | As of December 31, 2020 | ||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 117,113 | $ | 196,445 | ||||
| Accounts receivable, net | 38,188 | 66,043 | ||||||
| Inventory, net | 1,311,197 | 791,868 | ||||||
| Total current assets | 1,466,498 | 1,054,356 | ||||||
| Total assets | $ | 1,466,498 | $ | 1,054,356 | ||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 252,882 | $ | 211,463 | ||||
| Total current liabilities | 252,882 | 211,463 | ||||||
| Total liabilities | 252,882 | 211,463 | ||||||
| Net assets | $ | 1,213,616 | $ | 842,893 | ||||
F-39
| Three Months
Ended September 30, | Nine Months
Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Income Statement | ||||||||||||||||
| Net sales | $ | 1,399,505 | $ | 1,858,202 | $ | 4,713,077 | $ | 5,187,069 | ||||||||
| Cost of goods sold, inclusive of depreciation | 857,281 | 1,354,626 | 2,982,974 | 3,982,677 | ||||||||||||
| Gross profit | 542,224 | 503,576 | 1,730,103 | 1,204,392 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | 71,085 | 104,021 | 335,182 | 286,788 | ||||||||||||
| Sales and marketing | 186,190 | 224,382 | 621,765 | 699,080 | ||||||||||||
| General and administrative | 29,307 | 54,904 | 82,144 | 186,614 | ||||||||||||
| Legal and professional fees | 5,550 | 56,436 | 35,815 | 77,667 | ||||||||||||
| Amortization expense | 8,967 | 26,901 | ||||||||||||||
| Total operating expenses | 292,132 | 448,710 | 1,074,906 | 1,277,050 | ||||||||||||
| Gain / (loss) from operations | 250,092 | 54,866 | 655,197 | (72,658 | ) | |||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | (25,858 | ) | (49,803 | ) | (126,083 | ) | ||||||||||
| Goodwill impairment | (4,663,514 | ) | (4,663,514 | ) | ||||||||||||
| Total operating expenses | 292,132 | (4,689,372 | ) | (49,803 | ) | (4,789,597 | ) | |||||||||
| Net income from discontinued operations | $ | 250,092 | $ | (4,634,506 | ) | $ | 605,394 | $ | (4,862,255 | ) | ||||||
F-40
3. Revision of Prior Period Financial Statements
The Company revised its consolidated financial statements for the three and nine months ended and as of September 30, 2021, in which notes payable, additional paid-in capital, and interest expense were impacted.
The impact of these adjustments on the Company’s consolidated financial statements was as follows:
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
F-41
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended September 30, 2021 | ||||||||||||
| Previously Reported | Adjustments | Revised | ||||||||||
| Operating expenses: | ||||||||||||
| Personnel costs | $ | 1,204,621 | $ | $ | 1,204,621 | |||||||
| Sales and marketing | 44,049 | 44,049 | ||||||||||
| General and administrative | 445,748 | 445,748 | ||||||||||
| Amortization expense | 21,832 | 21,832 | ||||||||||
| Legal and professional fees | 340,226 | 340,226 | ||||||||||
| Total operating expenses | 2,056,476 | 2,056,476 | ||||||||||
| Loss from operations | (2,056,476 | ) | (2,056,476 | ) | ||||||||
| Other income (expenses): | ||||||||||||
| Interest expense | (270,552 | ) | (320,049 | ) | (590,601 | ) | ||||||
| Gain on foreign exchange | 23,170 | 23,170 | ||||||||||
| Total other expenses | (247,382 | ) | (320,049 | ) | (567,431 | ) | ||||||
| Net loss from continuing operations, before taxes | (2,303,858 | ) | (320,049 | ) | (2,623,907 | ) | ||||||
| Income taxes | ||||||||||||
| Net loss from continuing operations | (2,303,858 | ) | (320,049 | ) | (2,623,907 | ) | ||||||
| Net loss from discontinued operations, net of tax | 250,092 | 250,092 | ||||||||||
| Net loss | $ | (2,053,766 | ) | $ | (320,049 | ) | $ | (2,373,815 | ) | |||
| Comprehensive loss from discontinued operations | ||||||||||||
| Comprehensive loss | $ | (2,053,766 | ) | $ | (320,049 | ) | $ | (2,373,815 | ) | |||
| Net loss per common share: | ||||||||||||
| Loss from continuing operations - basic and diluted | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.02 | ) | |||
| Loss from discontinued operations - basic and diluted | $ | 0.00 | $ | $ | 0.00 | |||||||
| Loss per common share - basic and diluted | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.02 | ) | |||
| Weighted average common shares outstanding—basic and diluted | 118,939,488 | 118,939,488 | ||||||||||
F-42
| For the Nine Months Ended September 30, 2021 | ||||||||||||
| Previously Reported | Adjustments | Revised | ||||||||||
| Operating expenses: | ||||||||||||
| Personnel costs | $ | 2,004,417 | $ | $ | 2,004,417 | |||||||
| Sales and marketing | 44,063 | 44,063 | ||||||||||
| General and administrative | 2,821,541 | 2,821,541 | ||||||||||
| Amortization expense | 21,832 | 21,832 | ||||||||||
| Legal and professional fees | 797,772 | 797,772 | ||||||||||
| Total operating expenses | 5,689,625 | 5,689,625 | ||||||||||
| Loss from operations | (5,689,625 | ) | (5,689,625 | ) | ||||||||
| Other income (expenses): | ||||||||||||
| Interest expense | (644,027 | ) | (508,831 | ) | (1,152,858 | ) | ||||||
| Gain on foreign exchange | 46,708 | 46,708 | ||||||||||
| Total other expenses | (597,319 | ) | (508,831 | ) | (1,106,150 | ) | ||||||
| Net loss from continuing operations, before taxes | (6,286,944 | ) | (508,831 | ) | (6,795,775 | ) | ||||||
| Income taxes | ||||||||||||
| Net loss from continuing operations | (6,286,944 | ) | (508,831 | ) | (6,795,775 | ) | ||||||
| Net loss from discontinued operations, net of tax | 605,394 | 605,394 | ||||||||||
| Net loss | $ | (5,681,550 | ) | $ | (508,831 | ) | $ | (6,190,381 | ) | |||
| Comprehensive loss from discontinued operations | ||||||||||||
| Comprehensive loss | $ | (5,681,550 | ) | $ | (508,831 | ) | $ | (6,190,381 | ) | |||
| Net loss per common share: | ||||||||||||
| Loss from continuing operations - basic and diluted | $ | (0.06 | ) | $ | (0.00 | ) | $ | (0.06 | ) | |||
| Loss from discontinued operations - basic and diluted | $ | 0.01 | $ | $ | 0.01 | |||||||
| Loss per common share - basic and diluted | $ | (0.05 | ) | $ | (0.00 | ) | $ | (0.05 | ) | |||
| Weighted average common shares outstanding—basic and diluted | 107,846,167 | 107,846,167 | ||||||||||
F-43
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-In | Common Stock to | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Be Issued | Deficit | Equity | |||||||||||||||||||
| Balance at March 31, 2021 | 98,497,636 | $ | 98,498 | $ | 19,596,807 | $ | $ | (16,776,121 | ) | $ | 2,919,184 | |||||||||||||
| Share issuance | 201,586 | 202 | 202 | |||||||||||||||||||||
| Share issuance related to Cryocann asset purchase | 10,000,000 | 10,000 | 1,794,500 | 1,804,500 | ||||||||||||||||||||
| Share issuance pursuant to employment agreements | 6,701,586 | 6,701 | 894,000 | 900,701 | ||||||||||||||||||||
| Share issuance in exchange for extinguishment of debt | 2,500,000 | 2,500 | 505,902 | 508,402 | ||||||||||||||||||||
| Share issuance in exchange for services | 633,125 | 633 | 56,867 | 57,500 | ||||||||||||||||||||
| Stock-based compensation | - | 190,026 | 190,026 | |||||||||||||||||||||
| Stock options issued and outstanding | - | 710,202 | 710,202 | |||||||||||||||||||||
| Net loss | - | (2,580,857 | ) | (2,580,857 | ) | |||||||||||||||||||
| Previously reported balance at June 30, 2021 | 118,533,933 | $ | 118,534 | $ | 23,748,304 | $ | $ | (19,356,978 | ) | $ | 4,509,860 | |||||||||||||
| Adjustments: | ||||||||||||||||||||||||
| Interest expense from debt discount amortization related to Beneficial Conversion Feature | - | (188,782 | ) | (188,782 | ) | |||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | 391,958 | 391,958 | |||||||||||||||||||||
| Warrants issued in conjunction with Convertible Notes Payable | - | 888,371 | 888,371 | |||||||||||||||||||||
| Adjusted balance at June 30, 2021 | 118,533,933 | $ | 118,534 | $ | 25,208,633 | $ | $ | (19,545,760 | ) | $ | 5,601,407 | |||||||||||||
| Share issuance | 798,414 | 798 | 199,000 | 199,798 | ||||||||||||||||||||
| Share issuance in exchange for services | 633,707 | 634 | 239,853 | 240,487 | ||||||||||||||||||||
| Share issuance for interest payment on note payable | 92,127 | 92 | 23,317 | 23,409 | ||||||||||||||||||||
| Stock-based compensation | - | 68,628 | 68,628 | |||||||||||||||||||||
| Stock options issued and outstanding | - | 258,003 | 258,003 | |||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | 85,250 | 85,250 | |||||||||||||||||||||
| Net loss | - | (2,053,766 | ) | (2,053,766 | ) | |||||||||||||||||||
| Balance at September 30, 2021 | 120,058,181 | $ | 120,058 | $ | 25,902,684 | $ | $ | (21,599,526 | ) | $ | 4,423,216 | |||||||||||||
| Adjustments: | ||||||||||||||||||||||||
| Interest expense from debt discount amortization related to Beneficial Conversion Feature | - | (320,049 | ) | (320,049 | ) | |||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | 38,555 | 38,555 | |||||||||||||||||||||
| Warrants issued in conjunction with Convertible Notes Payable | - | 40,408 | 40,408 | |||||||||||||||||||||
| Adjusted balance at September 30, 2021 | 120,058,181 | $ | 120,058 | $ | 25,981,647 | $ | $ | (21,919,575 | ) | $ | 4,182,130 | |||||||||||||
F-44
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, 2021 | ||||||||||||
| Previously Reported | Adjustments | Revised | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (6,286,944 | ) | $ | (508,831 | ) | $ | (6,795,775 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: | ||||||||||||
| Depreciation and amortization expense | 21,832 | 21,832 | ||||||||||
| Amortization of debt discount | 30,861 | 508,831 | 539,692 | |||||||||
| Stock-based compensation expense | 2,400,976 | 2,400,976 | ||||||||||
| Fair value of common stock issued pursuant to service and advisory agreements | 291,096 | 291,096 | ||||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Prepaid expenses | (57,129 | ) | (57,129 | ) | ||||||||
| Accounts payable and accrued expenses | 876,417 | 876,417 | ||||||||||
| Net cash used in operating activities from continuing operations | (2,722,891 | ) | (2,722,891 | ) | ||||||||
| Net cash provided by operating activities from discontinued operations | (347,204 | ) | (347,204 | ) | ||||||||
| Net cash used in operating activities | (3,070,095 | ) | (3,070,095 | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Cash Payment for CryoCann asset purchase | (1,000,000 | ) | (1,000,000 | ) | ||||||||
| Issuance of other payable related to CryoCann asset purchase | (1,247,684 | ) | (1,247,684 | ) | ||||||||
| Purchase of property and equipment | (135,000 | ) | (135,000 | ) | ||||||||
| Net cash used in investing activities from continuing operations | (2,382,684 | ) | (2,382,684 | ) | ||||||||
| Net cash used in investing activities from discontinued operations | (280,561 | ) | (280,561 | ) | ||||||||
| Net cash used in investing activities | (2,663,245 | ) | (2,663,245 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from note payable, related parties | 237,590 | 237,590 | ||||||||||
| Proceeds from issuance of common stock | 320,000 | 320,000 | ||||||||||
| Repayment of loans payable, current | (40,668 | ) | (40,668 | ) | ||||||||
| Proceeds from notes payable | 4,900,000 | 4,900,000 | ||||||||||
| Related party note disbursement | (281,771 | ) | (281,771 | ) | ||||||||
| Net cash provided by financing activities from continuing operations | 5,135,151 | 5,135,151 | ||||||||||
| Net cash provided by financing activities from discontinued operations | 505,902 | 505,902 | ||||||||||
| Net cash provided by financing activities | 5,641,053 | 5,641,053 | ||||||||||
| Net decrease in cash from continuing operations | 29,576 | 29,576 | ||||||||||
| Net decrease in cash from discontinued operations | (121,863 | ) | (121,863 | ) | ||||||||
| Cash at beginning of period | 329,839 | 329,839 | ||||||||||
| Cash at end of period | $ | 237,552 | $ | $ | 237,552 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Cash paid for interest | $ | 283,330 | $ | $ | 283,330 | |||||||
| Supplemental disclosure of non-cash investing and financing activities: | - | |||||||||||
| Common stock issued pursuant to vesting of restricted stock units | $ | 2,851,103 | $ | $ | 2,851,103 | |||||||
F-45
On the consolidated balance sheet for the year ended December 31, 2019 and the quarter ended September 30, 2019, the Cannabis License Assets of CMI, a VIE in which the Company is deemed the primary beneficiary (Note 2), was presented as non-controlling interest pursuant to and in conjunction with the CMI Transaction. The Company does not own the Cannabis License Assets; however, they are included in the accompanying consolidated financial statements for GAAP reporting purposes.
The Company revised its consolidated financial statements for the fiscal year ended December 31, 2019, in which this line item was adjusted to correct the classification by reflecting accounts receivable, net of $113,599, inventory, net of $768,633, and accounts payable and accrued expenses of $337,386 in addition to a decrease in goodwill of $1,192,234 and an increase in additional-paid-in capital of $647,458.
The impact of these adjustments on the Company’s consolidated financial statements was as follows:
| December 31, 2019 | ||||||||||||
| Previously Reported | Non-controlling Interest Adjustment | Revised (1) | ||||||||||
| Inventory, net (2) | $ | 340,000 | $ | 768,633 | $ | 1,108,633 | ||||||
| Accounts receivable, net (2) | $ | $ | 113,599 | $ | 113,599 | |||||||
| Total current assets | $ | 3,933,047 | $ | 882,232 | $ | 4,815,279 | ||||||
| Goodwill | $ | 5,855,748 | $ | (1,192,234 | ) | $ | 4,663,514 | |||||
| Total assets | $ | 16,070,008 | $ | (310,002 | ) | $ | 15,760,006 | |||||
| Accounts payable and accrued expenses | $ | 754,850 | $ | 337,386 | $ | 1,092,236 | ||||||
| Total current liabilities | $ | 1,558,821 | $ | 337,386 | $ | 1,896,207 | ||||||
| Total liabilities | $ | 2,335,588 | $ | 337,386 | $ | 2,672,974 | ||||||
| Additional paid-in capital | $ | 16,246,645 | $ | 647,458 | $ | 16,894,103 | ||||||
| Non-controlling interests in consolidated variable interest entity | $ | 1,294,846 | $ | (1,294,846 | ) | $ | ||||||
| Total shareholders’ equity | $ | 13,734,420 | $ | (647,388 | ) | $ | 13,087,032 | |||||
| Total liabilities and shareholders’ equity | $ | 16,070,008 | $ | (310,002 | ) | $ | 15,760,006 | |||||
| (1) | There was no impact to the Company’s consolidated statements of operations. |
| (2) | The Company does not own the VIE’s portion of this asset. Amounts relating to the VIE are accounts receivable, net of $113,599 and inventory, net of $768,633. |
4. Going Concern Uncertainty, Financial Conditions and Management’s Plans
The Company believes it has sufficient cash available (most of which was received subsequent to the end of the quarter) to fund its anticipated level of operations for at least the next twelve months. During the quarter and subsequent to quarter end, the Company raised a total of $9,954,000 in private placements, and reduced debt by $4,900,000 in debt -to-equity conversions. Approximately $3,000,000 is required by management to operate the parent company for the next twelve months and the capital expenditures and startup costs associated with Cryomass LLC are anticipated to be approximately $3,000,000. Therefore, management believes that it has sufficient cash available to support this level of operations for the foreseeable future.
Our unaudited financial statements for the three and nine months ended September 30, 2021 have been prepared on a going concern basis. The continuation of our company as a going concern is dependent upon the continued financial support from its shareholders, the ability of our company to obtain necessary equity or debt financing to continue operations, the sale of assets, and ultimately the attainment of profitable operations. For the nine months ended September 30, 2021, our company used $3,070,095 of cash for operating activities, incurred a net loss of $5,645,288 and has an accumulated deficit of $21,374,482 since inception. While management believes the Company has sufficient cash available to support an anticipated level of operations for at least the next twelve months, there can be no assurance that it will continue to be able to obtain necessary equity or debt funding, or funding through the sale of assets, or attainment of sufficient levels of profitability to sustain operations beyond that time.
F-46
On March 11, 2020, the 2019 novel coronavirus (“COVID-19) was characterized as a “pandemic.” The Company’s operations were impacted in the United States. The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, the carrying value of the Company’s goodwill, intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 30, 2021 and through the date of this report. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Consolidated Financial Statements in future reporting periods.
The COVID-19 pandemic and responses to this crisis, including actions taken by federal, state and local governments, have had an impact on the operations of the company, including, without limitation, the following: reduced staffing due to employee suspected conditions and social distancing measures; constraints on productivity; management and staff non-essential business-related travel was constrained due to stay-at-home orders; most employees have shifted to remote work resulting in loss of productivity; consumers visiting dispensaries operated under license impacted by stay-at-home orders. Management continues to monitor the COVID-19 pandemic situation and federal, state and local recommendations and will provide updates as appropriate.
5. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include certain footnotes and financial presentations normally required under GAAP for complete financial statements. The consolidated financial statements include the accounts of Cryomass Technologies Inc, Cryomass Inc. and CMI, a VIE for which the Company is deemed to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates as one segment from its corporate headquarters in Colorado. The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements, with exception to the revision as described in Note 3 and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position and the results of operations and cash flows. The results for the three and nine-month periods ended September 30, 2021 and 2020 are not necessarily indicative of the results to be expected for any subsequent period or the entire year ending December 31, 2021. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Form 10-K filed on March 30, 2021 with the SEC.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, determining the fair value and potential impairment of inventory, determining the useful lives and potential impairment of long-lived assets and potential impairment of goodwill. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Reclassifications
Certain items in the interim consolidated financial statements were reclassified from prior periods for presentation purposes.
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Variable Interest Entities
The Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. Management evaluates the relationship between the Company and VIEs and the economic benefit flow of the contractual arrangement with the VIEs. Management determines if the Company is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. As a result of such evaluation, management concluded that the Company is the primary beneficiary of CMI and consolidates the financial results of this entity.
Purchase Accounting for Acquisitions
We apply the acquisition method of accounting for a business combination. In general, this methodology requires us to record assets acquired and liabilities assumed at their respective fair values at the date of acquisition. Any amount of the purchase price paid that is in excess of the estimated fair value of the net assets acquired is recorded as goodwill. For certain acquisitions, we also record a liability for contingent consideration based on estimated future business performance. We monitor our assumptions surrounding these estimated future cash flows and, if there is a significant change, would record an adjustment to the contingent consideration liability and a corresponding adjustment to either income or expense. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses. These types of analyses require us to make assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.
If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future. If the contingent consideration paid for any of our acquisitions differs from the amount initially recorded, we would record either income or expense associated with the change in liability.
Accounts Receivable, net
Accounts receivable, net is comprised of balances due from customers and are recorded at the invoiced amount. Past due balances are determined based on the contractual terms of the arrangements. Accounts receivable are accrued against when management determines, after considering economic and business conditions and all means of collection efforts have been exhausted and the potential for recovery is considered remote, that the collection of receivables is doubtful. Accounts receivable amounts, net of allowance for doubtful accounts, were $578,188 and $606,043 as of September 2021 and December 31, 2020, respectively. This includes $38,188 and $66,043, respectively, related to the VIE, which is classified as held for sale. Uncollectible accounts previously recorded as receivables are recognized as bad debt expense, with a corresponding decrease to accounts receivable. Bad debt expense was $2,415 and $954 for the three and nine months ended September 30, 2021, respectively. This amount includes $2,415 and $954, respectively, related to the VIE, which is classified as discontinued operations. Bad debt expense was $34,765 and $42,118 for the three and nine months ended September 30, 2020, respectively. This amount includes $(1,235) and $2,118, respectively, related to the VIE.
Inventory, net
Inventory, net is comprised of work-in-process and finished goods consisting of cannabis and cannabidiol products. Cost includes expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Inventory, net is stated at the lower of cost or net realizable value. The Company compares the cost of inventory with market value and writes down inventories to net realizable value, if lower. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories on hand, physical deterioration, obsolescence, changes in price levels, estimated time to sell such inventories and current market conditions. Due to changing market conditions, management conducted a thorough review of its inventory. As a result, a provision for inventory loss of $0 and $400,787 was charged against cost of goods sold during the nine months ended September 30, 2021 and 2020, respectively, due to a write down of inventory to its net realizable value. This was based on the Company’s best estimates of product sales prices and customer demand patterns. It is at least reasonably possible that the estimates used by the Company to determine its provision for inventory losses will be materially different from the actual amounts or results. These differences could result in materially higher than expected inventory provisions, which could have a materially adverse effect on the Company’s results of operations and financial conditions in the near term.
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Revenue Recognition
Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company’s revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers is recognized upon completion of the transaction in the point-of-sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance of the physical goods and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting compliance (“METRC”) system. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
Retail customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized. Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the three and nine months ended September 30, 2021 and 2020.
The Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being able to purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado Department of Public Health and Environment for medical patients.
Cost of Goods Sold, Net of Depreciation and Amortization
Cost of goods sold primarily consisted of allocated salaries and wages of employees directly related with the production process, allocated depreciation and amortization directly related to the production process, cultivation supplies, rent and utilities.
Operating Expenses
Operating expenses encompass personnel costs, sales and marketing expenses, general and administrative expenses, professional and legal fees and depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition of CMI. Personnel costs consist primarily of consulting expense and administrative salaries and wages. Sales and marketing expenses consist primarily of advertising and marketing, and salaries related to sales and marketing employees. General and administrative expenses are comprised of travel expenses, accounting expenses, and board fees. Professional services are principally comprised of outside legal and professional fees.
Other Expense, net
Other expense, net consisted of interest expense and gain on foreign exchange.
Stock-Based Compensation
The fair value of restricted stock units (“RSUs”) granted are measured on the grant date using the closing price of the Company’s common shares on the grant date. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. All stock-based compensation costs are recorded in general and administrative expenses in the consolidated statements of operations.
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Property and Equipment, net
Purchase of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the consolidated statements of operations. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
| Estimated Useful Life | |||
| Computer equipment | 3 – 5 years | ||
| Furniture and fixtures | 5 – 7 years | ||
| Machinery and equipment | 5 – 8 years | ||
| Leasehold improvements | Shorter of lease term or 15 years |
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.
Indefinite-lived intangible assets established in connection with business combinations consist of trademarks, trade names and developed manufacturing processes. Intangible assets with indefinite lives are recorded at their estimated fair value at the date of acquisition.
Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful lives of intangible assets are detailed in the table below:
| Estimated Useful Life | |||
| Customer relationships | 6 years | ||
| Trademark/trade name | Indefinite | ||
| Developed manufacturing process | Indefinite | ||
| In process research and development | Indefinite | ||
| Patent | 10 years |
Intangible assets associated with in process research and development are indefinite lived until the research and development is finalized, at which point we will assess an estimated useful life.
Impairment of Goodwill and Intangible Assets
Goodwill
Goodwill is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Update 2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” and FASB Accounting Standards Codification (ASC) 350-20-35, Intangibles – Goodwill and Other - Goodwill.
The Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if yes to step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3) recognize impairment, limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying value of a reporting unit over its fair value.
As of December 31, 2020, management concluded that the goodwill resulting from the CMI transaction (Note 7) was impaired. See Note 11.
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Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets are not amortized, but instead are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill. Following this guidance, the Company compares the estimated fair value of the indefinite-lived intangible assets to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that indefinite-lived intangible assets were impaired. See Note 11.
Intangible Assets Subject to Amortization
Intangible assets subject to amortization are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment. Following this guidance, the Company compares the estimated fair value of the intangible assets subject to amortization to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that intangible assets subject to amortization were impaired. See Note 11.
Contingencies
An initial right-of-use (“ROU”) asset and corresponding liability of $1,411,461 was recognized upon the CMI Transaction. The Company adopted ASU Topic 842 January 1, 2019, but had no reportable operating leases at that point in time.
Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is likely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| ● | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. | |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
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The carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, notes payable, and taxes payable approximate fair values because of the immediate or short-term maturities of these financial instruments. There were no other assets or liabilities that require fair value to be recalculated on a recurring basis.
The fair value of beneficial conversion features associated with convertible notes and the fair value of warrants are calculated utilizing level 2 inputs.
When multiple instruments are issued in a single transaction, the total proceeds from the transaction should be allocated among the individual freestanding instruments identified. The allocation occurs after identifying (1) all the freestanding instruments and (2) the subsequent measurement basis for those instruments. The subsequent measurement basis helps inform how the proceeds should be allocated. After the proceeds are allocated to the freestanding instruments, those instruments should be further evaluated for embedded features that may need to be bifurcated or separated.
If debt or stock is issued with detachable warrants, the guidance in ASC 470-20-25-2 (applied by analogy to stock) requires that the proceeds be allocated to the two instruments based on their relative fair values. This method is generally appropriate if debt or stock is issued with any other freestanding instrument that is classified in equity (such as a detachable forward contract) or as a liability but not subject to subsequent fair value accounting.
Given that the Notes and Warrants that were issued in the singular transaction are both not subject to subsequent fair value accounting treatment, Management determined the relative fair value method shall be used for allocating the proceeds of the transaction. Under the relative fair value method, the instrument being analyzed is allocated a portion of the proceeds based on its fair value to the sum of the fair value of all the instruments covered int the allocation.
Management additionally evaluated the facts and circumstances to determine whether the principal balance of the Notes ($4.9 million and $250K) approximated their fair value. The Notes were issued entirely to unrelated third parties which were deemed to be arm’s length transactions. In addition, the comparable interest rates for loans of similar companies as of the date of the Note issuances range from 10-15% given the liquidity concerns of the Company. The term of the Notes issued range from 8-15 months, which would support the conclusion that the principal balance approximates their fair value given the short-term maturities of each Note. Finally, the Warrants issued in connection with the Notes were included akin to a “sweetener” in the offering as opposed to compensation for adjusting the interest rate or other key terms within the Convertible Term Loan Agreements. As such, the Company concluded that the principal balance of the Notes approximated their fair value.
The Warrants were initially measured at fair value and subsequent fair value measurement is not required as long as the instrument continues to be classified in equity. The proceeds from the transaction will be allocated between the Notes and Warrants based on the relative fair value method.
Net Loss per Share
The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. There were 2,185,000 unvested RSU’s considered potentially dilutive securities outstanding as of September 30, 2021 and 2,453,172 unvested RSU’s considered potentially dilutive securities outstanding as of December 31, 2020. Diluted net loss per share is the same as basic net loss per share for each period.
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Assets and Liabilities of Discontinued Operations Held for Sale
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation as held for sale. See Note 8.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The accounting model for beneficial conversion features is removed. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company determined that this update will impact its financial statements.
6. Revenue Recognition
Disaggregated Revenue
| For the Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Types of Revenues: | ||||||||
| Medical retail (amounts related to VIE discontinued operations of $943,012 and $1,259,120) | $ | 943,012 | $ | 1,259,120 | ||||
| Medical wholesale (amounts related to VIE discontinued operations of $456,540 and $455,521) | 456,540 | 455,521 | ||||||
| Recreational wholesale (amounts related to VIE discontinued operations of $(47) and $143,561) | (47 | ) | 143,561 | |||||
| Other revenues (amounts related to VIE discontinued operations of $0 and $0) | ||||||||
| Total revenues | $ | 1,399,505 | $ | 1,858,202 | ||||
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Types of Revenues: | ||||||||
| Medical retail (amounts related to VIE discontinued operations of $3,196,912 and $3,531,304) | $ | 3,196,912 | $ | 3,542,504 | ||||
| Medical wholesale (amounts related to VIE discontinued operations of $1,525,132 and $1,054,748) | 1,525,132 | 1,055,448 | ||||||
| Recreational wholesale (amounts related to VIE discontinued operations of $8,963 and $598,276) | 8,963 | 1,367,831 | ||||||
| Other revenues (amounts related to VIE discontinued operations of $(17,930) and $2,741) | (17,930 | ) | 2,741 | |||||
| Total revenues | $ | 4,713,077 | $ | 5,968,524 | ||||
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7. Business Combination
Effective July 15, 2019, the Company acquired cannabis-related brands and other assets of CMI. In consideration of the sale and transfer of the acquired assets, the Company delivered 13,553,233 shares of Cryomass Technologies common stock, in addition to $1,999,770 in cash to the members of CMI, and to CMI, respectively.
The CMI Transaction was accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). The Company’s allocation of the purchase price was calculated as follows:
| Cash | $ | 1,999,770 | ||
| Common stock | 6,776,617 | |||
| Total purchase price | $ | 8,776,387 |
| Description | Fair Value | Weighted
average useful life (in years) | |||||
| Assets acquired: | |||||||
| Cash | $ | 136,654 | |||||
| Other current assets | 74 | ||||||
| Property and equipment, net | 1,985,738 | ||||||
| Intangible assets: | |||||||
| Customer relationships | 215,900 | 6 | |||||
| Trademark/trade name | 1,340,000 | Indefinite | |||||
| Developed manufacturing process | 1,330,000 | Indefinite | |||||
| Goodwill | 4,663,514 | ||||||
| Right of use asset | 1,411,461 | ||||||
| Deposits | 12,348 | ||||||
| Total assets acquired | $ | 11,095,689 | |||||
| Liabilities assumed: | |||||||
| Notes payable | $ | 147,268 | |||||
| Notes payable, related parties | 760,573 | ||||||
| Right of use liability | 1,411,461 | ||||||
| Total liabilities assumed | 2,319,302 | ||||||
| Estimated fair value of net assets acquired | $ | 8,776,387 | |||||
Effective June 23, 2021, the Company acquired substantially all the assets of Cryocann for $3,500,000 million in cash and 10,000,000 shares of Company common stock, of which $1,000,000 in cash and 10,000,000 shares of Company common stock were paid at closing and a promissory note was issued for $1,252,316 payable by Company to Cryocann on October 15, 2021, which represents the remaining Purchase Price of $2,500,000 minus the amount owed by Cryocann under a Loan Agreement dated April 23, 2021 by and between Cryocann and the Company.
The Company concluded that the Cryocann Acquisition qualified as a business combination under ASC 805. The Company’s allocation of the purchase price was calculated as follows:
| Cash | $ | 2,247,684 | ||
| Common stock | 1,804,500 | |||
| Promissory Note | 1,220,079 | |||
| Total purchase price | $ | 5,272,263 |
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|
Description | Fair Value | Weighted
average useful life (in years) | |||||
| Assets acquired: | |||||||
| Intangible assets: | |||||||
| In process research and development | 3,209,000 | Indefinite | |||||
| Patent | 873,263 | 10 | |||||
| Goodwill | 1,190,000 | ||||||
| Total assets acquired | $ | 5,272,263 | |||||
The estimates of the fair value of the assets acquired assumed at the date of the Cryocann Acquisition are subject to adjustment during the measurement period (up to one year from each acquisition date). The primary areas of the accounting for the Cryocann Acquisition that are not yet finalized relate to the fair value of intangible assets acquired, residual goodwill and any related tax impact. The fair value of these net assets acquired is based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired, it evaluates any necessary information prior to finalization of the fair value. During the measurement period, the Company will adjust assets if new information is obtained about facts and circumstances that existed as of the date of the Cryocann Acquisition that, if known, would have resulted in the revised estimated values of those assets as of that date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to a possible impairment of the intangible assets or goodwill or require acceleration of the amortization expense of intangible assets in subsequent periods.
8. Discontinued Operations
In June 2020, the Company’s board of directors adopted a plan to end its involvement through the various 2019 CMI contracts with the cultivation, manufacturing of infused products and retail distribution businesses through the sale of Good Meds. The Company determined that the intended sale represented a strategic shift that will have a major effect on the Company’s operations and financial results and therefore, for financial statement reporting purposes classified Good Meds and its consolidated VIE CMI as held for sale at September 30, 2021 and December 31, 2020.
The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to these CMI discontinued operations:
| September 30, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Accounts receivable, net | $ | 38,188 | $ | 66,043 | ||||
| Prepaid expenses | 11,696 | 7,601 | ||||||
| Inventory, net | 1,311,197 | 791,868 | ||||||
| Property and equipment, net | 2,995,332 | 2,714,771 | ||||||
| Intangible assets, net | 2,481,128 | 2,481,128 | ||||||
| Security deposits | 11,522 | 11,522 | ||||||
| Right of use asset, net | 464,735 | 794,907 | ||||||
| Total current assets held for sale | 7,313,798 | 6,867,840 | ||||||
| Total assets held for sale | $ | 7,313,798 | $ | 6,867,840 | ||||
| Liabilities | ||||||||
| Accounts payable and accrued expenses | 252,882 | 211,463 | ||||||
| Taxes payable | 16,331 | 22,645 | ||||||
| Notes payable, related parties | 458,599 | |||||||
| Right of use liability | 407,871 | 771,578 | ||||||
| Total liabilities held for sale | 677,084 | 1,464,285 | ||||||
| Net assets | $ | 6,636,714 | $ | 5,403,555 | ||||
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The consolidated statements of operations include the following operating results related to these CMI discontinued operations:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | 1,399,505 | $ | 1,858,202 | $ | 4,713,077 | $ | 5,187,069 | ||||||||
| Cost of goods sold, inclusive of depreciation | 857,281 | 1,354,626 | 2,982,974 | 3,982,677 | ||||||||||||
| Gross profit | 542,224 | 503,576 | 1,730,103 | 1,204,392 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | 71,085 | 104,021 | 335,182 | 286,788 | ||||||||||||
| Sales and marketing | 186,190 | 224,382 | 621,765 | 699,080 | ||||||||||||
| General and administrative | 29,307 | 54,904 | 82,144 | 186,614 | ||||||||||||
| Legal and professional fees | 5,550 | 56,436 | 35,815 | 77,667 | ||||||||||||
| Amortization expense | 8,967 | 26,901 | ||||||||||||||
| Total operating expenses | 292,132 | 448,710 | 1,074,906 | 1,277,050 | ||||||||||||
| Gain / (loss) from operations | 250,092 | 54,866 | 655,197 | (72,658 | ) | |||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | (25,858 | ) | (49,803 | ) | (126,083 | ) | ||||||||||
| Goodwill impairment | (4,663,514 | ) | (4,663,514 | ) | ||||||||||||
| Total other expenses | (4,689,372 | ) | (49,803 | ) | (4,789,597 | ) | ||||||||||
| Net gain / (loss) from discontinued operations, before taxes | 250,092 | (4,634,506 | ) | 605,394 | (4,862,255 | ) | ||||||||||
| Income taxes | ||||||||||||||||
| Net loss from discontinued operations | $ | 250,092 | $ | (4,634,506 | ) | $ | 605,394 | $ | (4,862,255 | ) | ||||||
9. Inventory, Net
Inventory, net consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Finished goods (amounts related to VIE discontinued operations of $1,003,985 and $431,466) | $ | 1,003,985 | $ | 431,466 | ||||
| Work-in-process inventory grow (amounts related to VIE discontinued operations of $307,212 and $360,402) | 307,212 | 360,402 | ||||||
| $ | 1,311,197 | $ | 791,868 | |||||
The Company re-negotiated the selling price of the cannabidiol finished goods inventory from Cryomass LLC in 2019 and 2020. All remaining cannabidiol finished goods inventory was sold in 2020 Q2.
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10. Property and Equipment, Net
Property and equipment, net consisted of the following. All property and equipment is classified as held for sale, except for $135,000 of machinery and equipment held by Cryomass Inc.
| September 30, 2021 | December 31, 2020 | |||||||
| Leasehold improvements | $ | 2,770,385 | $ | 2,770,385 | ||||
| Machinery and equipment | 1,207,443 | 1,065,885 | ||||||
| Furniture and fixtures | 43,331 | 43,331 | ||||||
| Construction in progress | 501,998 | 227,995 | ||||||
| 4,523,157 | 4,107,596 | |||||||
| Less: Accumulated depreciation | (1,392,825 | ) | (1,392,825 | ) | ||||
| $ | 3,130,332 | $ | 2,714,771 | |||||
Depreciation expense for the three and nine months ended September 30, 2021 was $0 and $0, respectively. Depreciation expense for the three and nine months ended September 30, 2020 was $0, and $131,110, respectively. Depreciation expense was recorded in cost of goods sold and general and administrative expense.
11. Goodwill and Intangible Assets
The Company tests goodwill and intangible assets for impairment annually as of December 31st, or more frequently whenever events or changes in circumstances indicate that the asset might be impaired. As the Company marketed CMI’s subsidiaries and the Company’s related assets for sale, management determined it was more likely than not that the fair value was less than the carrying value. Therefore, in 2020, the Company recorded an impairment loss of $4,663,514 related to goodwill in accordance with ASC 350-20-35, Intangibles – Goodwill and Other - Goodwill. Additionally, in 2020, the Company recorded an impairment loss of $334,195 related to indefinite-lived intangible assets in accordance with ASC 350-30-35 Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill and an impairment loss of $27,023 related to intangible assets subject to amortization in accordance with ASC 360-10-35, Property, Plant, and Equipment. The fair value of CMI was the expected sales price, which management determined based on offers received and sales negotiations.
The carrying value of goodwill was $1,190,000 and $0, as of September 30, 2021 and December 31, 2020, respectively.
The following tables summarize information relating to the Company’s identifiable intangible assets, which are classified as held for sale, as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Impairment | Carrying Value | ||||||||||||||
| Amortized | ||||||||||||||||||
| Customer relationships | 6 years | $ | 215,900 | $ | (43,554 | ) | $ | (27,023 | ) | $ | 145,323 | |||||||
| Patent | 10 years | 873,263 | (21,832 | ) | 851,431 | |||||||||||||
| Total amortized | 1,089,163 | (65,386 | ) | (27,023 | ) | 996,754 | ||||||||||||
| Indefinite-lived | ||||||||||||||||||
| In-process research and development | Indefinite | 3,209,000 | 3,209,000 | |||||||||||||||
| Trademark/trade name | Indefinite | 1,340,000 | (167,723 | ) | 1,172,277 | |||||||||||||
| Developed manufacturing process | Indefinite | 1,330,000 | (166,472 | ) | 1,163,528 | |||||||||||||
| Total indefinite-lived | 5,879,000 | (334,195 | ) | 5,544,805 | ||||||||||||||
| Total identifiable intangible assets | $ | 6,968,163 | $ | (65,386 | ) | $ | (361,218 | ) | $ | 6,541,559 | ||||||||
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| December 31, 2020 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Impairment | Carrying Value | ||||||||||||||
| Amortized | ||||||||||||||||||
| Customer relationships | 6 years | $ | 215,900 | $ | (43,554 | ) | $ | (27,023 | ) | $ | 145,323 | |||||||
| Total amortized | 215,900 | (43,554 | ) | (27,023 | ) | 145,323 | ||||||||||||
| Indefinite-lived | ||||||||||||||||||
| Trademark/trade name | Indefinite | 1,340,000 | (167,723 | ) | 1,172,277 | |||||||||||||
| Developed manufacturing process | Indefinite | 1,330,000 | (166,472 | ) | 1,163,528 | |||||||||||||
| Total indefinite-lived | 2,670,000 | (334,195 | ) | 2,335,805 | ||||||||||||||
| Total identifiable intangible assets | $ | 2,885,900 | $ | (43,554 | ) | $ | (361,218 | ) | $ | 2,481,128 | ||||||||
Amortization expense, which is included in continuing operations, was $21,832 and $21,832 for the three and nine months ended September 30, 2021, respectively, and was $8,967 and $26,901 for the three and nine months ended September 30, 2020, respectively. Amortization expense included in discontinued operations was $8,967 and $26,901 for the three and nine months ended September 30, 2020, respectively.
12. Debt
On July 27, 2020, the Company entered into a subscription agreement consisting of 1) a convertible note and 2) warrants. The 1) convertible note has a face value of $250,000, matures August 1, 2022, and accrues interest at 8% per annum. The note is convertible into 2,500,000 shares of the Company’s common stock at a conversion price of $0.10 per share. The beneficial conversion feature is accounted for in accordance with ASC 470-20 Debt with Conversion and Other Options and the resulting debt discount is amortized over the life of the note. As of September 30, 2021, the net carrying amount is $145,833, which consists of the $250,000 convertible note and $104,167 unamortized debt discount. As of December 31, 2020, the net carrying amount is $52,083, which consists of the $250,000 convertible note and $197,917 unamortized debt discount. The warrants are exercisable to purchase an additional 2,500,000 shares of common stock at $0.25 per share.
On August 26, 2020, the Company entered into a $600,000 loan agreement, which accrues interest at 84% per annum. On January 25, 2021, the Company refinanced this loan at 93.6%, to obtain additional funding. The loan was fully repaid on April 27, 2021, with a $412,560 loan balance as of December 31, 2020.
On March 18, 2021, the Company entered into a $225,000 note payable, which accrued interest at 15% per annum. The note was fully repaid on May 7, 2021.
Between March 29, 2021 and July 6, 2021, the Company entered into a series of similar subscription agreements with either domestic or non-US accredited investors, respectively (each, a “Initial Tranche Subscription Agreement (US)” and, respectively, “Initial Tranche Subscription Agreement (non-US)”) pursuant to which the Company issued and sold to certain accredited investors, in the initial tranche of a non-brokered private placement (the “Private Placement”), an aggregate 3,000 units (“Units”), each Unit representing (i) one $1,000 principal amount term note providing for an optional conversion into shares of Company common stock at a price of $0.20 per share (each the “Initial Convertible Term Note”) and (ii) a common share warrant for the purchase of 5,000 shares of Company common stock at an exercise price of $0.40 per share (each an “Initial Warrant”), for aggregate net proceeds of $3,000,000. Between May and July 6, 2021, the Company entered into a series of substantially similar subscription agreements with either domestic or non-US investors (each, a “Subscription Agreement (US)”, and, respectively, “Subscription Agreement (non-US)”) pursuant to which the Company issued and sold to certain accredited investors, in the second tranche of the Private Placement, an aggregate 1,900 units (“Units”), each Unit representing (i) one $1,000 principal amount term note (each a “Convertible Term Note”) providing for an optional conversion into shares of Company common stock at a price of $0.20 per share and (ii) a common share warrant for the purchase of 5,000 shares of Company common stock at an exercise price of $0.40 per share (each a “Warrant”), for additional aggregate net proceeds of $1,900,000. During the nine months ended September 30, 2021, the Company received $4,900,000 of proceeds from the Private Placement.
On August 20, 2021, the Company entered into a $300,000 loan agreement, which accrues interest at 91.23% per annum. Payment is due on a weekly basis up to the maturity date of May 27, 2021. The loan had an outstanding balance of $286,441 as of September 30, 2021. The loan was fully repaid on October 19, 2021. See Note 17 for further detail regarding the loan repayment.
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13. Related Party Transactions
In conjunction with the CMI Transaction, the Company assumed a note payable in which the note holder, John Knapp (“Knapp”) is a significant shareholder in the Company. In the second quarter of 2021, the Company issued 2,500,000 shares to pay off the balance of the note. Effective February 25, 2020, Knapp resigned as a director of Cryomass Technologies, at which time 200,000 Restricted Stock Units were deemed to have vested and were converted into 200,000 common shares. Refer to Note 2 for additional details on the relationship of CMI as a VIE. The outstanding balance of the notes payable, related party was $0 and $458,599 as of September 30, 2021 and December 31, 2020, respectively.
In conjunction with the Cryocann Acquisition, the Company received a promissory note from Matt Armstrong, an employee of the Company, for $281,771. This note receivable was issued as part of an employment agreement with Matt Armstrong, effective June 22, 2021, and was offset against his signing bonus on October 15, 2021. There was no interest associated with the note.
On August 19, 2021, the Company entered into a loan agreement of $237,590 with its Chief Executive Officer, Christian Noel. The note accrues interest at 14% per annum and was repaid on October 22, 2021.
14. Shareholders’ Equity
From June to August 2019, the Company completed a private placement for the sale of its common stock. The Company issued 14,325,005 shares of common stock for gross proceeds of $7,162,503, or $0.50 per share, minus equity issuance costs of $72,096.
In July 2019, the Company issued 13,553,233 shares of common stock in connection with the CMI Transaction (refer to Note 7).
During the year ended December 31, 2019, the Company issued 790,000 shares of common stock pursuant to advisory agreements. The fair value of $395,000 was included in legal and professional fees in the consolidated statements of operations.
In February 2020, the Company issued 400,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation of a former executive.
In February 2020, the Company issued 200,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation of a former board member.
In March 2020, the Company issued 1,175,549 shares of common stock to a former executive per a separation agreement.
In June 2020, four shareholders submitted 15,050,000 shares of common stock for cancellation pursuant to prior agreements among certain shareholders. Accordingly, the Company cancelled 15,050,000 shares of common stock.
In July 2020, the Company issued 10,000 shares of common stock to a former employee per a separation agreement.
In July 2020, one shareholder submitted 300,000 shares of common stock for cancellation pursuant to prior agreements. Accordingly, the Company cancelled 300,000 shares of common stock.
In August 2020, the Company issued 60,000 shares of common stock in order to raise capital.
In August 2020, the Company issued 757,895 shares of common stock to former board members per a separation agreement.
From October to December 2020, the Company issued 3,535,665 shares of common stock in order to raise capital.
From January to March 2021, the Company issued 1,491,819 shares of common stock in order to raise capital.
From April to June 2021, the Company issued 10,000,000 shares of common stock related to the CryoCann transaction, 6,903,172 shares of common stock pursuant to employment agreements, 2,500,000 shares of common stock in exchange for the extinguishment of debt, and 633,125 shares of common stock in exchange for services.
From July to September 2021, the Company issued 798,414 shares of common stock in order to raise capital, 633,707 shares of common stock in exchange for services, and 92,127 shares of common stock for interest payment on a note payable.
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Restricted Stock Unit Awards
The Company adopted its 2019 Omnibus Stock Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options, stock grants and RSUs to employees, directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract, motivate, and retain the services of qualified employees, officers and directors. Any RSUs granted under the 2019 Plan will be at the discretion of the Compensation Committee of the Board of Directors. In April 2021 Board of Directors cancelled the 2019 Plan.
A summary of the Company’s RSU award activity for the nine months ended September 30, 2021 is as follows:
| Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at December 31, 2020 | 2,453,175 | $ | 0.42 | |||||
| Granted | 500,000 | 0.14 | ||||||
| Vested | (903,172 | ) | 0.16 | |||||
| Forfeited | ||||||||
| Outstanding at March 31, 2021 | 2,050,003 | $ | 0.46 | |||||
| Granted | 6,135,000 | 0.15 | ||||||
| Vested | (6,000,000 | ) | 0.15 | |||||
| Forfeited | ||||||||
| Outstanding at June 30, 2021 | 2,185,003 | 0.45 | ||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Outstanding at September 30, 2021 | 2,185,003 | 0.45 | ||||||
The total fair value of RSUs vested during the three and nine months ending September 30, 2021 was $0 and $2,851,102, respectively. The total fair value of RSUs vested during the three and nine months ending September 30, 2020 was $144,000 and $536,810, respectively. As of September 30, 2021, there was $202,069 of unrecognized stock-based compensation cost related to non-vested RSU’s, which is expected to be recognized over the remaining vesting period.
Stock-based compensation expense relating to RSU’s was $68,328 and $1,410,173 for the three and nine months ending September 30, 2021, respectively. Stock-based compensation expense relating to RSU’s was $220,399 and $828,830 for the three and nine months ending September 30, 2020, respectively. Stock-based compensation for the three months ending September 30, 2021 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $(19,184), $71,259, and $16,253, respectively. Stock-based compensation for the nine months ending September 30, 2021 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $1,085,398, $276,016, and $48,759, respectively.
Expenses for stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative expense.
15. Income Taxes
In accordance with ASC 740-270, the Company calculates the interim tax expense based on an annual effective tax rate (“AETR”). The AETR represents the Company’s estimated effective tax rate for the year based on full year projection of tax expense, divided by the projection of full year pretax book loss, adjusted for discrete transactions occurring during the period. The annual effective tax rate for the nine months ended September 30, 2021 was 0.0%,
As of September 30, 2021, the Company has recorded a total income tax liability in the amount of $14,926. The total income tax liability recorded is in relation to the discontinued operations of the company and available for sale assets.
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16. Commitments & Contingencies
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Lease Commitments
The Company accounts for lease transactions in accordance with Topic 842, Leases (“ASC 842”), which requires an entity to recognize a right-of-use (“ROU”) asset and a lease liability for virtually all leases. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
There are no other leases that meet the reporting standards of ASU Topic 842 as the Company does not have any other leases with a term exceeding twelve months. Other lease payments not accounted for under ASU Topic 842 total $16,190 and $46,706 for the three and nine months ended September 30, 2021, respectively. Other lease payments not accounted for under ASU Topic 842 total $19,584 and $55,471 for the three and nine months ended September 30, 2020, respectively.
An ROU asset of $1,411,461 was recognized upon the CMI Transaction. The present value of the liabilities decreased by $150,259 and 363,707 for the three and nine months ended September 30, 2021, respectively. The present value of the liabilities decreased by $123,530 and $344,762 for the three and nine months ended September 30, 2020, respectively. This balance is included in the operating section of the statement of cash flows for the nine months ended September 30, 2021 and 2020. Operating lease cost was approximately $169,326 and $495,360 for the three and nine months ended September 30, 2021, respectively. Operating lease cost was approximately $159,525 and $467,607 for the three and nine months ended September 30, 2020, respectively.
The Company does not have any leases that have not yet commenced which are significant.
Legal Proceedings
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
17. Subsequent Events
On October 10, 2021, the Company issued 62,500 shares of common stock at $0.35 per share. On October 25, 2021 the Company issued 543,000 and 270,000 shares of common stock at $0.50 and $0.52 per share, respectively. These issuances were in exchange for services.
From October 10, 2021 to October 26, 2021, convertible note holders converted their notes into 24,614,500 shares of common stock at $0.20 per share. These conversions were associated with the Initial Convertible Term Note and Convertible Term Note defined in Note 12.
Between October 14, 2021 and November 3, 2021, the Company issued 13,590,000 shares of common stock at $0.20 per share in order to raise capital.
On October 15, 2021, the Company fully repaid the promissory note that was issued for $1,252,316 payable by the Company to Cryocann as part of the Cryocann Acquisition.
On October 15, 2021, our related party note receivable of $281,771 was relieved through offset of the signing bonus due to Matt Armstrong as part of his employment agreement.
On October 19, 2021, the Company fully repaid the remaining principal balance for the $286,441 note entered into on August 20, 2021.
On October 22, 2021, the Company fully repaid the related party note due to its Chief Executive Officer, Christian Noel.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses of the offering (assuming all shares are sold), all of which are to be paid by the Registrant, are as follows:
| SEC Registration Fee | US$ | xxxxx | ||
| Printing Expenses | US$ | 0 | ||
| Accounting Fees and Expenses | US$ | 54,000 | ||
| Legal Fees and Expenses | US$ | 10,000 | ||
| Blue Sky Fees/Expenses | 0 | |||
| Transfer Agent Fees | 0 | |||
| TOTAL | $ | xxxxx |
Item 14. Indemnification of Directors and Officers.
The only statute, charter provision, bylaw, contract, or other arrangement under which any controlling person, director or officer of the Registrant is insured or indemnified in any manner against any liability which he may incur in his capacity as such, is as follows:
Nevada Law
Section 78.7502 of the Nevada Revised Statutes permits a corporation to indemnify 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, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he:
| (a) | is not liable pursuant to Nevada Revised Statute 78.138, or | |
| (b) | acted in good faith and in a manner which he 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 his conduct was unlawful. |
In addition, Section 78.7502 permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he:
| (a) | is not liable pursuant to Nevada Revised Statute 78.138; or | |
| (b) | acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. |
To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter, the corporation is required to indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.
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Section 78.751 of the Nevada Revised Statutes provides that such indemnification may also include payment by the Company of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding upon receipt of an undertaking by the person indemnified to repay such payment if he shall be ultimately found not to be entitled to indemnification under Section 78.751. Indemnification may be provided even though the person to be indemnified is no longer a director, officer, employee or agent of the Company or such other entities.
Section 78.752 of the Nevada Revised Statutes allows a corporation to purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses.
Other financial arrangements made by the corporation pursuant to Section 78.752 may include the following:
| (a) | the creation of a trust fund; | |
| (b) | the establishment of a program of self-insurance; | |
| (c) | the securing of its obligation of indemnification by granting a security interest or other lien on any assets of the corporation; and | |
| (d) | the establishment of a letter of credit, guaranty or surety |
No financial arrangement made pursuant to Section 78.752 may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses or indemnification ordered by a court.
Any discretionary indemnification pursuant to NRS 78.7502, unless ordered by a court or advanced pursuant to an undertaking to repay the amount if it is determined by a court that the indemnified party is not entitled to be indemnified by the corporation, may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made:
| (a) | by the stockholders; |
| (b) | by the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; | |
| (c) | if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion, or | |
| (d) | if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. |
The articles of incorporation and bylaws limit director liability and provide for indemnification to the fullest extent provided by Nevada law.
Item 15. Recent Sales of Unregistered Securities
The information required by this item has previously been filed on Form 8-K.
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Item 17. Undertakings.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to:
(a) include any prospectus required by Section 10(a)(3) of the Securities Act;
(b) reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and
(c) include any additional or changed material information with respect to the plan of distribution.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the 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 the Registration Statement as of the time it was declared effective.
(5) For the purpose 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.
(6) For the purpose of determining liability under the Securities Act to any purchaser:
Each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§§230.430A of this chapter), shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided however, that no statement made in a registration statement or prospectus that is part of the Registration Statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first use.
(7) For the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of securities:
The Registrant undertakes that in a primary offering of securities of the Registrant pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
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(a) Any preliminary prospectus or prospectus of the Registrant relating to the offering required to be filed pursuant to Rule 424 of this chapter;
(b) Any free writing prospectus relating to the offering prepared by or on behalf of the Registrant or used or referred to by the Registrant;
(c) The portion of any other free writing prospectus relating to the offering containing material information about the Registrant or its securities provided by or on behalf of the Registrant; and
(d) Any other communication that is an offer in the offering made by the Registrant to the purchaser.
B. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission 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 small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer 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 Company 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.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, 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 the purpose of determining any liability under the Securities Act of 1933, 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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PART IV
ITEM 15. EXHIBITS.
The following documents are filed as part of this Registration Statement:
| * | filed herewith. |
| ** | to be filed by amendment |
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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 Landrum, South Carolina.
| Cryomass Technologies Inc | ||
| By: | /s/ Philip B. Mullin | |
| Philip B. Mullin | ||
| Chief Financial Officer | ||
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Philip B. Mullin and Joseph P. Galda, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, 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 connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitutes or substitute, 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, as of February 14, 2022, by the following persons in the capacities indicated below.
| BY: | /s/ Christian Noël | |
| Chief Executive Officer | ||
| BY: | /s/ Delon Human | |
| Chairman of the Board and Director | ||
| BY: | /s/ Philip B. Mullin | |
| Chief Financial Officer | ||
| BY: | /s/ Patricia Kovacevic | |
| General Counsel, Corporate Secretary | ||
| BY: | /s/ Mark Radke | |
| Director | ||
| BY: | /s/ Mario Gobbo | |
| Director | ||
| BY: | /s/ Simon Langelier | |
| Director |
II-6
Exhibit 10.2
ASSET PURCHASE AGREEMENT
Among
CRITICAL MASS INDUSTRIES LLC (“CMI”)
and
Critical Mass Industries, Inc the sole member of CMI (“CMI, Inc”),
and
JOHN KNAPP as controlling shareholder of CMI, Inc (“Knapp”)
and
GOOD MEDS, INC. (“Seller”)
and
CRYOMASS TECHNOLOGIES., formerly Redwood Green Corp.
and Andina Gold Corp., (“Parent”) dated as of
December 31, 2021
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement"), dated as of December 31, 2021, is entered into by and among Critical Mass Industries LLC, a Colorado limited liability company ("CMI" or “Buyer”), Critical Mass Industries, Inc., a Colorado Corporation, the sole member of CMI (“CMI, Inc.”), John Knapp, the sole or controlling shareholder of CMI, Inc. (“Knapp”), Good Meds, Inc., a Colorado corporation, formerly known as Good Acquisition Co. ("Seller") and wholly owned subsidiary of Andina Gold Corp., a Nevada corporation, formerly Redwood Green Corp., and formerly known as First Colombia Development Corp., (“Parent”). CMI, CMI, Inc. and Knapp are collectively referred to herein as the “Buyer Parties”, and all parties are hereto collectively referred to as “Parties.”
RECITALS
WHEREAS, on August 5, 2019, CMI, Inc. and its shareholders entered into a Plan of Partial Liquidation and Redemption Agreement (the “Plan”), resulting in Knapp remaining the sole shareholder of CMI, Inc., and no other CMI, Inc. former shareholder having any further rights or claims with respect to any form of ownership interest, economic or otherwise, in CMI, Inc.,
WHEREAS, on August 6, 2019, CMI, CMI Inc., and Seller (formerly known as Good Acquisition Co.) entered into a series of transactions pursuant to which Seller purchased all of CMI’s interest in Good Holdco LLC and Good IPCO LLC (the “Original Purchase Transaction”), together with certain assets, hereinafter referred to as the “Purchased Assets”)
WHEREAS, on August 5, 2019, CMI, Knapp and other parties entered into a Tax Indemnification Agreement with Parent and Buyer (“Tax Indemnification”),
WHEREAS, as part of the Original Purchase Transaction, CMI retained Seller to provide various services memorialized in a consulting agreement, a marketing agreement and an administrative services agreement (the “Transition Agreements”),
WHEREAS, on August 5, 2020, the Parties entered into an Asset Purchase Agreement (the “2020 APA”),
WHEREAS on May 13, 2021 the Parties mutually agreed to terminate and unwind the 2020 APA as a result of certain regulatory decisions beyond the Parties control by replacing it with that certain Asset Purchase Agreement dated May 13, 2021 (“May 2021 APA”),
WHEREAS, the parties hereby wish to terminate and unwind the May 2021 APA and, in lieu of it, the Parties are executing this Agreement, whereby Seller wishes to sell and assign to Buyers, and Buyers wishes to purchase and assume from Seller, the rights of Seller to the Purchased Assets and the Assumed Liabilities (as defined herein), subject to the terms and conditions set forth herein, and concurrently terminate or amend the Transition Agreements;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
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ARTICLE I
PURCHASE AND SALE
Section 1.01 Termination of the May 2021 APA. The May 2021 APA is hereby terminated and the assets transferred at the signing of the May 2021 APA hereby revert to Good Meds. Each of the Parties acknowledges and agrees that it hereby releases the other Parties of any obligations under the May 2021 APA and waive any rights accrued under the May 2021 APA
Section 1.02. Purchase and Sale of Assets. Subject to the terms and conditions set forth herein, (1) Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, all of Seller’s right, title and interest in the assets set forth on Section 1.01 of the disclosure schedules ("Disclosure Schedules") attached hereto (the "Purchased Assets"), and (2) Parent shall issue to Knapp 1,500,000 restricted shares of Parent common stock par value $0.001 per share (the "Parent Shares") free and clear of any mortgage, pledge, lien, charge, security interest, claim or other encumbrance ("Encumbrance"), which issuance shall be performed five working days from the date when the secured promissory note referenced in Section 1.04 (‘Note”) is paid in full to Seller. For avoidance of any doubt, no shares shall be issued or due to Buyer if the entire purchase price is not paid in full to Seller in satisfaction of the Note.
Section 1.03 Assumption of Liabilities. Subject to the terms and conditions set forth herein, Buyer shall assume and agree to pay, perform and discharge the liabilities and obligations set forth on 1.02 of the Disclosure Schedules arising after the Closing (as defined herein) connection with the Purchased Assets, but only to the extent that such liabilities and obligations do not relate to any breach, default or violation by Seller on or prior to the Closing (collectively, the "Assumed Liabilities"). The Purchased Assets are purchased “as is” and Buyer hereby waives any right to inspect or reject the Purchased Assets. Other than the Assumed Liabilities, Buyer shall not assume any liabilities or obligations of Seller, Parent or affiliates of any kind, whether known or unknown, including, without limitation, tax liabilities, contingent, matured or otherwise, whether currently existing or hereinafter created.
Section 1.04 Purchase Price. The aggregate purchase price (the “Purchase Price”) for the Purchased Assets shall be six million US dollars ($6,000,000) Concurrent with the execution hereof, Buyer shall issue the Note in the form attached hereto as Exhibit A to Seller’s satisfaction. Furthermore, any proceeds resulting from the disposition of any Buyer Parties assets after the date hereof shall be promptly placed by the respective Buyer Parties in an escrow account agreeable to Seller, in favor of Seller, and in satisfaction of the Note, even if such sale occurs before the Due Date of the Note. The terms of the escrow account agreement shall be in form and substance acceptable to Seller. Buyer Parties will execute such documents as needed to establish the escrow account agreement.
Section 1.05 Withholding Tax. Buyer shall be entitled to deduct and withhold from the Purchase Price all taxes that Buyer may be required to deduct and withhold under any applicable tax law. All such withheld amounts shall be treated as delivered to Seller hereunder.
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ARTICLE II
CLOSING
Section 2.01 Closing. This Agreement shall close on the earliest of on December 31, 2021 or concurrent with the last dated execution of the Agreement by a Party and exchange of necessary instruments provided herein ("Closing"). The effective date of the agreement shall be December 31, 2021. The consummation of a Closing under this Agreement shall be deemed to have occurred at 11:59 p.m. on the Closing Date or 11:59 of December 31, 2021, whichever earliest.
Section 2.02 Closing Deliverables.
| (a) | As of the date hereof, Seller shall transfer Buyer the Purchased Assets. |
| (b) | As of the date hereof Buyer shall execute and deliver the Note. |
| (c) | At Closing, and as it may be necessary and applicable from time to time, Buyer shall promptly execute such documents needed by Seller to perfect a security interest in Buyer’s assets, receivables, bank accounts, in any jurisdiction as requested by Seller from time to time. |
| (d) | At the Closing, Seller shall deliver to Buyer the following: |
| (i) | a bill of sale in form and substance satisfactory to Buyer (the "Bill of Sale") and duly executed by Good Meds, transferring the Purchased Assets to Buyer; | |
| (ii) | a certificate pursuant to Treasury Regulations Section 1.1445-2(b) that Knapp is not a foreign person within the meaning of Section 1445 of the Internal Revenue Code duly executed by Knapp; |
| (iii) | such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Seller, as may be required to give effect to this Agreement. |
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represent and warrant to Seller that the statements contained in this Article III are true and correct as of the date hereof. For purposes of this Article ARTICLE III, "Buyer’s knowledge," "knowledge of Buyer" and any similar phrases shall mean the actual or constructive knowledge of Knapp.
Section 3.01 Organization and Authority of CMI; Enforceability. Each of CMI and the Subsidiaries are limited liability companies duly organized, validly existing and in good standing under the laws of the state of Colorado. Knapp and CMI has full corporate power and authority to enter into this Agreement and the documents to be delivered hereunder, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by Knapp and CMI of this Agreement and the documents to be delivered hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of CMI. This Agreement and the documents to be delivered hereunder have been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by Seller) this Agreement and the documents to be delivered hereunder constitute legal, valid and binding obligations of Buyer Parties, enforceable against Buyer Parties in accordance with their respective terms.
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Section 3.02 No Conflicts; Consents. The execution, delivery and performance by Buyer Parties of this Agreement and the documents to be delivered hereunder, and the consummation of the transactions contemplated hereby, do not and will not: (a) violate or conflict with the certificate of formation, operating agreement or other organizational documents of CMI and the Subsidiaries; (b) violate or conflict with any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Buyer Parties, the Subsidiaries or the Purchased Assets; (c) conflict with, or result in (with or without notice or lapse of time or both) any violation of, or default under, or give rise to a right of termination, acceleration or modification of any obligation or loss of any benefit under any contract or other instrument to which CMI or any Subsidiary is a party or to which any of the Purchased Assets are subject; or (d) result in the creation or imposition of any Encumbrance on the Purchased Assets. No consent, approval, waiver or authorization is required to be obtained by any of the Parties from any person or entity (including any governmental authority) in connection with the execution, delivery and performance by such Seller of this Agreement and the consummation of the transactions contemplated hereby.
Section 3.03 Non-foreign Status. Knapp is not a "foreign person" as that term is used in Treasury Regulations Section 1.1445-2.
Section 3.04 Compliance with Laws. Knapp and CMI has complied, and is now complying, with all applicable state and local laws and regulations applicable to ownership and use of the Purchased Assets.
Section 3.05 Legal Proceedings. Except as set forth in Section 3.10 of the Disclosure Schedule, there is no claim, action, suit, proceeding or governmental investigation ("Action") of any nature pending or, to Buyer’s knowledge, threatened against or by any Buyer Parties that challenges or seeks to prevent, enjoin, or otherwise delay the transactions contemplated by this Agreement. No event has occurred, or circumstances exist that may give rise to, or serve as a basis for, any such Action.
Section 3.06 The Buyer Parties acknowledges that the Parent Shares will be issued pursuant to prospectus exemptions in the United States provided under the Securities Act and acknowledge that:
| (a) | no securities commission or similar regulatory authority has reviewed or passed on the merits of the Parent Shares; |
| (b) | there is no government or other insurance covering the Parent Shares; |
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| (c) | there are risks associated with the purchase of the Parent Shares; |
| (d) | there may be restrictions on Knapp’s ability to resell the Parent Shares or any Parent Shares issued upon conversion thereof, and it is the responsibility of Knapp to find out what those restrictions are and to comply with them before selling any of the Parent Shares or any Parent Shares issued upon conversion thereof; and |
| (e) | the Parent has advised that the Parent is relying on an exemption from the requirements to provide the Buyer Parties with a prospectus and to sell securities through a person registered to sell securities under the Securities Act and, as a consequence of acquiring securities pursuant to this exemption, certain protections, rights and remedies provided by the Securities Act, including statutory rights of rescission or damages, will not be available to the Buyer Parties; |
| (f) | no unusual effort has been made to prepare the market or to create a demand for the Parent Shares. |
| (g) | the Buyer Parties consent to the placement of a legend or legends on any certificate or other document evidencing any of the Parent Shares setting forth or referring to the restrictions on transferability and sale thereof imposed by law or by SEC. |
Section 3.07 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of any Buyer Party.
Section 3.08 Full Disclosure. No representation or warranty by Buyer Parties in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Seller pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Each of Seller and Parent represents and warrants to Buyer Parties that the statements contained in this Article ARTICLE IV are true and correct as of the date hereof. For purposes of this Article ARTICLE IV, "Seller's knowledge," "knowledge of Seller" and any similar phrases shall mean the actual or constructive knowledge of any director or officer of Seller and Parent, after due inquiry.
Section 4.01 Organization and Authority of Buyer; Enforceability. Each of Seller and Parent is a corporation duly organized, validly existing and in good standing under the laws of the state of their organization. Each of Seller and Parent has full corporate power and authority to enter into this Agreement and the documents to be delivered hereunder, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by Seller and Parent of this Agreement and the documents to be delivered hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Seller and Parent. This Agreement and the documents to be delivered hereunder have been duly executed and delivered by Selleer and Parent, and (assuming due authorization, execution and delivery by any Buyer Party) this Agreement and the documents to be delivered hereunder constitute legal, valid and binding obligations of Seller and Parent and enforceable against them in accordance with their respective terms.
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Section 4.02 Parent Capitalization; Valid Issuance. The entire authorized capital stock of the Parent, as at the date hereof, consists of 500,000,000 shares of common stock, par value $0.001 per share. All of the outstanding equity securities of the Parent have been duly authorized and validly issued and are fully paid and non-assessable. None of the outstanding equity securities of the Parent were issued in violation of any Applicable Securities Laws or any other Legal Requirement. The Parent does not own, or have any contract to acquire, any equity securities or other securities of any Person, or any direct or indirect equity or ownership interest in any other business, other than as contemplated by this Agreement. There are no contracts purporting to restrict the transfer of any of the issued and outstanding securities of the Parent, nor any contracts restricting or affecting the voting of any of the securities of the Parent, to which the Parent is a party or of which the Parent is aware. The Parent Shares to be issued at Closing will, upon issuance in accordance with the terms of this Agreement, be duly and validly issued, fully paid and non-assessable, and will not be subject to any Lien or encumbrance.
Section 4.03 SEC Reports. As of their respective dates, the Parent’s filings with the Securities and Exchange Commission (the “SEC”) (the “SEC Reports”) complied in all material respects with the requirements of the SEC. As of the time filed on EDGAR, none of the SEC Reports contained any untrue statement of a material fact or omitted 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, not misleading.
Section 4.04 No Conflicts; Consents. The execution, delivery and performance by Seller and Parent of this Agreement and the documents to be delivered hereunder, and the consummation of the transactions contemplated hereby, do not and will not: (a) violate or conflict with the certificate of incorporation, by-laws or other organizational documents of Seller or Parent; or (b) violate or conflict with any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Seller or Parent. No consent, approval, waiver or authorization is required to be obtained by Seller or Parent from any person or entity (including any governmental authority) in connection with the execution, delivery and performance by Seller or Parent of this Agreement and the consummation of the transactions contemplated hereby.
Section 4.05 Legal Proceedings. There is no Action of any nature pending or, to Seller's knowledge, threatened against or by Seller that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.
Section 4.06 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller.
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ARTICLE V
COVENANTS
Section 5.01 Public Announcements. Unless otherwise required by applicable law or stock exchange requirements, neither party shall make any public announcements regarding this Agreement or the transactions contemplated hereby without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed).
Section 5.02 Bulk Sales Laws. The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer.
Section 5.03 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added, and other such taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the documents to be delivered hereunder shall be borne and paid by Buyer when due. Seller shall, at Seller’s own expense, timely file any tax return or other document with respect to taxes or fees applicable to Seller’s capital gain or other taxable event (and Buyer shall cooperate with respect thereto as necessary). For avoidance of any doubt, no provision in this Agreement is intended to modify, cancel or suspend the Tax Indemnification, and the Tax Indemnification remains in full force and effect.
Section 5.05 Further Assurances. Following the Closing, each of the parties hereto shall execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the documents to be delivered hereunder.
ARTICLE
VI
INDEMNIFICATION
Section 6.01 Survival. All representations, warranties, covenants and agreements contained herein and all related rights to indemnification shall survive the Closing.
Section 6.02 Indemnification by Seller. Seller shall defend, indemnify and hold harmless the Buyer Parties, their affiliates and their respective stockholders, directors, officers and employees from and against all claims, judgments, damages, liabilities, settlements, losses, costs and expenses, including attorneys' fees and disbursements, arising from or relating to:
| (a) | any inaccuracy in or breach of any of the representations or warranties of Seller contained in this Agreement or any document to be delivered hereunder; |
| (b) | any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement or any document to be delivered hereunder; or |
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Section 6.03 Indemnification by Buyer Parties. Each of the Buyer Parties shall defend, indemnify and hold harmless Seller, Parent, their affiliates and their respective members, stockholders, directors, officers and employees from and against all claims, judgments, damages, liabilities, settlements, losses, costs and expenses, including attorneys' fees and disbursements, arising from or relating to:
| (a) | any inaccuracy in or breach of any of the representations or warranties of Buyer Parties contained in this Agreement or any document to be delivered hereunder; |
| (b) | any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer Parties pursuant to this Agreement or any document to be delivered hereunder; or |
| (c) | any Assumed Liability. |
Section 6.04 Indemnification Procedures. Whenever any claim shall arise for indemnification hereunder, the party entitled to indemnification (the "Indemnified Party") shall promptly provide written notice of such claim to the other party (the "Indemnifying Party"). In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any Action by a person or entity who is not a party to this Agreement, the Indemnifying Party, at its sole cost and expense and upon written notice to the Indemnified Party, may assume the defense of any such Action with counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party shall be entitled to participate in the defense of any such Action, with its counsel and at its own cost and expense. If the Indemnifying Party does not assume the defense of any such Action, the Indemnified Party may, but shall not be obligated to, defend against such Action in such manner as it may deem appropriate, including, but not limited to, settling such Action, after giving notice of it to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate and no action taken by the Indemnified Party in accordance with such defense and settlement shall relieve the Indemnifying Party of its indemnification obligations herein provided with respect to any damages resulting therefrom. The Indemnifying Party shall not settle any Action without the Indemnified Party's prior written consent (which consent shall not be unreasonably withheld or delayed).
Section 6.05 Tax Treatment of Indemnification Payments. All indemnification payments made by Seller under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for tax purposes, unless otherwise required by law.
Section 6.06 Cumulative Remedies. The rights and remedies provided in this Article ARTICLE VI are cumulative and are in addition to and not in substitution for any other rights and remedies available at law or in equity or otherwise.
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ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.
Section 7.02 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7.02):
| If to any of the Buyer Parties: |
CMI LLC 866 Navajo St, Denver, CO 80204 E-mail: juanpepeholdings@gmail.com
Alternate email: mandyprice@goodmeds,com | |
|
If to Seller or Parent: |
Cryomass Technologies Inc 1001 Bannock St Suite 612 Denver Co 80204 USA E-mail: p.kovacevic@cryomass.com Attention: Patricia Kovacevic, General Counsel and Head of External Affairs
With a copy to:
Franc Del Fosse, Esq. 1 E. Washington Street, Suite 2300 Phoenix, Arizona 85004
Email: delfossef@ballardspahr.com |
Section 7.03 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
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Section 7.04 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction.
Section 7.05 Entire Agreement. This Agreement and the documents to be delivered hereunder constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter.
Section 7.06 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Seller or Parent may assign its rights and obligations hereunder without any duty to inform the Parties and without the consent of the other parties. No assignment shall relieve the assigning party of any of its obligations hereunder.
Section 7.07 No Third-party Beneficiaries. Except as provided in ARTICLE VII, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 7.08 Amendment and Modification. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto.
Section 7.09 Waiver. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
Section 7.10 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Colorado without giving effect to any choice or conflict of law provision or rule (whether of the State of Colorado or any other jurisdiction).
Section 7.11 Submission to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of Colorado in each case located in the city of Denver, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.
Section 7.12 Waiver of Jury Trial. Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby.
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Section 7.13 Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
Section 7.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
| CRITICAL MASS INDUSTRIES, INC. | CRITICAL MASS INDUSTRIES LLC | |||
| By | By | |||
| Name: John Knapp | Name: John Knapp | |||
| Title: Authorized Signatory | Title: Authorized Signatory | |||
| JOHN KNAPP | GOOD MEDS, INC. | |||
| By | ||||
| John Knapp | Name: Philip Blair Mullin | |||
| Title: Authorized Signatory | ||||
| CRYOMASS TECHNOLOGIES INC | ||||
| By | ||||
| Name: Philip Blair Mullin | ||||
| Title: Chief Financial Officer | ||||
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DISCLOSURE SCHEDULES
Section 1. 01
Purchased Assets
In consideration for the transaction contemplated hereunder, Seller shall transfer to Buyer any and all manufacturing, grow equipment, retail-related assets and other assets Seller owns in the state of Colorado and are currently used by CMI subsidiaries in the course of business, including client lists and appertaining intellectual property, and no other Buyer or Parent assets.
Section 1. 02
Assumption of Liabilities
Buyer assumes all liabilities related to the acquisition of the Purchased Assets and no other liabilities.
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Exhibit A
SECURED PROMISSORY NOTE
On the 31st day of December, 2021, hereinafter known as the "Start Date", CMI LLC with its registered address at 866 Navajo St, Denver, CO 80204, hereinafter known as the “Borrower”, has received and promises to payback Good Meds Inc, a Colorado entity with registered address at 1001 Bannock St Suite 612 Denver CO 80204 or its successors or assigns, hereinafter known as the “Lender”, the principal sum of six million US Dollars ($6,000,000), hereinafter known as the "Borrowed Money", beginning as of the Start Date in the manner as follows:
1. PAYMENTS: The full balance of this Note is due and payable on the 31st day of December, 2023, hereinafter known as the "Due Date". Payment shall be made in a lump sum. There shall be no interest if paid in full on or before the Due Date. Partial payments shall be made promptly following any disposal of Buyer Parties’ assets.
2. SECURITY: There shall be Property described as all the assets, tangible or intangible, receivables, bank accounts, hereinafter known as the “Security”, which shall transfer to the possession and ownership of the Lender IMMEDIATELY pursuant to Section 6A of this Note. The Security may not be sold or transferred without the Lender’s consent until the Due Date. If Borrower breaches this provision, Lender may declare all sums due under this Note immediately due and payable, unless prohibited by applicable law. The Lender shall have the sole-option to accept the Security as full-payment for the Borrowed Money without further liabilities or obligations. If the market value of the Security does not exceed the Borrowed Money, the Borrower shall remain liable for the balance due while accruing interest at the maximum rate allowed by law.
3. INTEREST DUE IN THE EVENT OF DEFAULT: In the event the Borrower fails to pay the note in-full on the Due Date, unpaid principal shall accrue interest at the maximum rate allowed by law, until the Borrower is no longer in default.
4. ALLOCATION OF PAYMENTS: Payments shall be first credited any late fees due, then to interest due and any remainder will be credited to principal.
5. PREPAYMENT: Borrower may pre-pay this Note without penalty.
6. ACCELERATION: If the Borrower is in default under this Note or is in default under another provision of this Note, and such default is not cured within the minimum allotted time by law after written notice of such default, then Lender may, at its option and in its sole discretion, declare all outstanding sums owed on this Note to be immediately due and payable.
6A. SECURITY - This includes any rights of possession in relation to the Security described in Section 2.
7. ATTORNEYS’ FEES AND COSTS: Borrower shall pay all costs incurred by Lender in collecting sums due under this Note after a default, including reasonable attorneys’ fees. If Lender or Borrower sues to enforce this Note or obtain a declaration of its rights hereunder, the prevailing party in any such proceeding shall be entitled to recover its reasonable attorneys’ fees and costs incurred in the proceeding (including those incurred in any bankruptcy proceeding or appeal) from the non-prevailing party.
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8. WAIVER OF PRESENTMENTS: Borrower waives presentment for payment, notice of dishonor, protest and notice of protest.
9. NON-WAIVER: No failure or delay by Lender in exercising Lender’s rights under this Note shall be considered a waiver of such rights.
10. SEVERABILITY: In the event that any provision herein is determined to be void or unenforceable for any reason, such determination shall not affect the validity or enforceability of any other provision, all of which shall remain in full force and effect.
11. INTEGRATION: There are no verbal or other agreements which modify or affect the terms of this Note. This Note may not be modified or amended except by written agreement signed by Borrower and Lender.
12. CONFLICTING TERMS: The terms of this Note shall control over any conflicting terms in any referenced agreement or document.
13. NOTICE: Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested, (c) by facsimile, or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt, and such notices shall be made to the parties at the addresses listed below.
14. EXECUTION: The Borrower executes this Note as a principal and not as a surety.
16. GOVERNING LAW: This note shall be governed under the laws in the State of Colorado.
17. SIGNATURE AREA
| Lender | Borrower | |
| Good Meds Inc | CMI LLC | |
| By: Philip Blair Mullin | By: John Knapp | |
| Authorized Signatory | Authorized Signatory | |
| Date: December 31, 2021 | Date: December 31, 2021 | |
| Witnessed by | ||
| Patricia Kovacevic | ||
| Date: December 31, 2021 |
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Exhibit 10.3
MUTUAL TERMINATION AGREEMENT
THIS MUTUAL TERMINATION AGREEMENT (this “Termination Agreement”) is dated and effective as of December 31, 2021 (“Effective Date”) by and among Critical Mass Industries LLC, a Colorado limited liability company ("CMI"), Critical Mass Industries, Inc., a Colorado Corporation, the sole member of CMI (“CMI, Inc.”), John Knapp, the sole or controlling shareholder of CMI, Inc. (“Knapp”), on one hand, and Good Meds, Inc., a Colorado corporation, formerly known as Good Acquisition Co. (“Good Meds”), which is a wholly owned subsidiary of Cryomass Technologies Inc. (“Cryomass”), a Nevada corporation, formerly known, among other, as Andina Gold Corp, Redwood Green Corp and First Colombia Development Corp., (“Parent”). CMI, CMI, Inc., Knapp and Good Meds may each be individually referred to herein as a “Party,” and collectively, the “Parties.”
Recitals
Whereas, Good Meds predecessor companies, Good IP Co, Good Holdco LLC and Good Acquisition Co, each of them a Colorado entity, entered into the following agreements with CMI (the “Agreements”), which Agreements are hereby incorporated by reference: a. A consulting services agreement (the “Consulting Services Agreement”) entered into and effective as of the 5th day of August 2019 between CMI and Good Holdco LLC, a Colorado limited liability company, b. A marketing services agreement (the “Marketing Services Agreement”) entered into and effective as of the 5th day of August 2019, between CMI and Good Holdco LLC, a Colorado limited liability, c. An intellectual property license agreement (the “IP License Agreement”) between CMI and Good IPCO, a Colorado limited liability, and
WHEREAS on May 14, 2020, Good Acquisition Co changed its name to Good Meds, Inc. and articles of amendment were duly filed on that date with the Colorado Secretary of State to that effect,
WHEREAS, on May 22, 2020 an Agreement and Plan of Merger was entered into by and between Good IPco, LLC, Good Holdco, LLC and Good Meds (the ‘Good Acquisition Co Merger”), under which Good IPco, LLC, Good Holdco, LLC merged with and into Good Acquisition Co pursuant to the applicable provisions of the Colorado Corporations and Associations Act, and subsequently all necessary filings were executed with the Colorado Secretary of State to give effect to the Good Acquisition Co Merger, and
WHEREAS, CMI and Good Meds now wish to terminate the Agreements,
Now, Therefore, in consideration for the mutual promises and covenants set forth herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
Agreement
1. Definitions. Capital terms used herein that are not otherwise defined shall have the meanings as given to them in the Agreements.
2. Termination. As of the date hereof, subject to fulfillment of the condition precedent in Section 4, and subject to the performance of the obligations of the Parties as provided in this Termination Agreement, the Agreements are hereby terminated and no payments by CMI or CMI Inc are due to Good Meds or its successors or assigns.
3. Condition precedent. The Parties are negotiating a restatement to that Asset Purchase Agreement by and among the Parties dated as of May 13, 2021 (“APA Restatement”). The execution of the APA Restatement shall represent a condition precent to Good Meds obligations under this agreement.
4. Regulatory Approvals. The parties believe that no regulatory approvals (“Approvals”) are required for the consummation of the transactions herein. Should Approvals be necessary, the Termination Agreement shall be contingent upon the Parties obtaining such Approvals from any authority, including any marijuana business licensing authority, which has jurisdiction over CMI (each, a “Local Authority” and, collectively, the “Local Authorities”) in connection with the Assignment of the Subject Shares by the Assignors.). The Parties shall cooperate with each other in good faith and execute any and all reasonable and appropriate documents in connection with obtaining the Approvals.
5. Release. CMI, CMI, Inc. and Knapp hereby release Good Meds, its affiliated companies, officers, employees, directors, agents and representatives from and against any and all claims, losses, damages, liabilities, demands, costs and expenses attributable to, or arising out of, in any way the Agreements or this Termination Agreement.
6. Representations and Warranties. Each of the Parties hereby represents and warrants to the other that: (a) such Party has all requisite power and authority to enter into, execute, and deliver this Agreement, to carry out all obligations hereunder, and to consummate the transactions contemplated hereby; and (b) this Agreement constitutes a legal, valid, and binding obligation of such Party, enforceable against such party in accordance with its terms.
7. Covenant. Upon execution of this Termination Agreement, each of CMI, CMI, Inc. and Knapp covenants that it shall not take any actions that would adversely affect Good Meds, any of its affiliate companies, including its parent company Cryomass, or its business.
8. Further Assurances. From time-to-time hereafter, each of the Parties hereby agrees to do all such acts and things and to execute and deliver, or cause to be executed and delivered, all such documents, notices, instruments, and agreements as may be necessary or desirable to give effect to the provisions and intent of this Termination Agreement.
9. Successors and Assigns. This Agreement will be binding upon, inure to the benefit of, and be enforceable by and against the Parties and their respective successors and permitted assigns. Neither Party may assign either this Agreement or any of their rights, interests, or obligations hereunder without the prior written approval of the other Parties.
10. Amendments. This Agreement may be changed, modified, or terminated only by an instrument in writing signed by each of the Parties.
11. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance the laws of the State of Colorado, without regard to conflicts of laws principles.
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12. No Third-Party Beneficiaries. This Agreement is not intended to confer upon any person other than the Parties (and their respective successors and assigns) any rights or remedies hereunder.
13. Counterparts. This Agreement may be executed in one (1) or more counterparts (including by means of facsimile), each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
14. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
15. Reformation. This Agreement and the transaction contemplated herein may be subject to review and approval by one or more government agencies. If a Local Authority determines this Agreement must be reformed, the Parties shall negotiate in good faith to so reform this Agreement according to the respective Local Authority’s requirement while effectuating the original intent of this Agreement as near as possible.
In Witness Hereof, the Parties hereto have caused this Agreement to be duly executed as of the date first written above.
The undersigned have the power to bind their respective companies
[Signatures pages follows. The rest of this page is left intentionally blank]
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| CRITICAL MASS INDUSTRIES LLC | CRITICAL MASS INDUSTRIES, INC. | |||
| By | By | |||
| Name: | John Knapp | Name: | John Knapp | |
| Title: | Authorized Signatory | Title: | Authorized Signatory | |
| JOHN KNAPP | GOOD MEDS, INC. | |||
| John Knapp | By | |||
| Name: | Philip Blair Mullin | |||
| Title: | Authorized Signatory | |||
| CRYOMASS TECHNOLOGIES INC. | ||||
| By | ||||
| Name: | Philip Blair Mullin | |||
| Title: | Chief Financial Officer | |||
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Exhibit 10.4
RESTATED AND AMEDED ADMINISTRATIVE SERVICES AGREEMENT
THIS RESTATED AND AMENDED ADMINISTRATIVE SERVICES AGREEMENT (this “Agreement”) is entered into as of the 31st day of December 2021 (the "Effective Date"), between Critical Mass Industries LLC, a Colorado limited liability company (“Company”), and Good Meds Inc., a Colorado corporation and successor in interest to Good Acquisition Co (“Contractor”). Company and Contractor are sometimes hereinafter referred to singularly as a “Party,” and collectively as the “Parties.”
WHEREAS, on August 5, 2019, Good Acquisition Co and Company entered into an Administrative Services Agreement (the “2019 Agreement”), whereby Contractor has been continuously providing services to Company consistent with Exhibit A of the 2019 Agreement since the effective date of the 2019 Agreement and payment for such services was not collected,
WHEREAS, subsidiaries of the Company are licensed marijuana businesses operating pursuant to licenses duly issued by the Colorado Department of Revenue Marijuana Enforcement Division (“MED”) and applicable local licensing authority,
WHEREAS, Company hereby wishes to put all necessary contractual safeguards in place to expressly stipulate that Company does not intend for Contractor to manage Company, its business or become a beneficial owner of any activity, revenue or intangible deriving from or resulting from the Company’s or the Company subsidiaries’ licensed activities in the state of Colorado, and to confirm and reiterate that in fact Contractor never did, or will, manage Company, its business or become a beneficial owner of any activity, revenue or intangible deriving from or resulting from the Company’s or the Company subsidiaries’ licensed activities in the state of Colorado, and thus to ensure that no applicable provisions of any marijuana-related legislation or regulations in the state of Colorado were, or will be, breached; and
WHEREAS, because of the experiences and abilities of Contractor, Company wishes to continue to retain Contractor to perform amended services (collectively, the “Services”) as described in Exhibit A attached hereto and incorporated herein by this reference, and Contractor wishes to perform the Services for Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and undertakings cited herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
| 1. | Work To Be Performed. |
(a) Contractor will provide the Services to the best of its abilities. Contractor may accept additional assignments from Company at Contractor’s sole discretion; provided that no such assignment shall involve managing, operating or becoming a beneficial owner of the Company or of any of its licensed entity, and any such additional assignments shall be incorporated into Exhibit A. Company may assign other contractors to perform services similar to the Services. Contractor shall not perform any work for Company except pursuant to this Agreement or a subsequent written agreement.
(b) Except as otherwise specifically set forth herein, Contractor shall provide at its own cost and expense all of the materials and equipment necessary for Contractor to perform the Services. Company shall have no control or supervision over the hours worked or the manner in which Contractor performs the work; provided, however, that Company may specify deadlines by which time certain work needs to be completed.
(c) Contractor acknowledges that Contractor has no authority to negotiate any contract for or on behalf of Company, to manage the Company’s business, take any actions with material effect upon the Company’s business, to operate the Company or any of its subsidiaries, to become a beneficial owner of the Company or of any of the Company’s subsidiaries, or to bind Company to any contract, agreement, representation or understanding concerning Company, its subsidiaries, or Company’s products or services.
| 2. | Compensation of Contractor. |
(a) Past due compensation. Contractor waives past due compensation for services through December 31, 2022. Furthermore, beginning with January 1, 2022 and until such time this Agreement is terminated, and subject to the clauses agreed to herein, Company shall compensate Contractor for performance of the Services at a flat rate of Fifty Thousand Dollars ($50,000.00) per month, as shown on invoices delivered to the Company in accordance with Section 2(b), below. Contractor shall bill the Company only for the Services and reimbursable expenses as set forth below.
(b) Payment. Contractor shall invoice the Company on a monthly basis for the Services provided and reimbursable expenses incurred during such period. Payment shall be due within thirty (30) days after Company's receipt of an invoice.
(c) Expenses; No Additional Compensation. Any expenses incurred by Contractor in the performance of the Services shall be the sole responsibility of Contractor unless Company gives prior written approval of reimbursement of the expense. Contractor acknowledges that Contractor shall be responsible for paying all operating expenses it incurs pursuant to this Agreement, subject to the preceding sentence. Contractor will receive only the compensation described in this Agreement, and shall not receive any other form of compensation, benefits, or commission.
| 3. | Independent Contractor Status. |
(a) Contractor’s status shall at all times be that of an independent contractor. Neither Contractor, nor any of Contractor’s employees will be an employee of Company or of any of the Company’s subsidiaries for tax reasons or any other purpose. Contractor will not be entitled to unemployment compensation insurance benefits or worker’s compensation unless some entity other than Company provides such coverage. Contractor is aware, and acknowledges and agrees, that Company undertakes no responsibility for withholding Federal and State income taxes, F.I.C.A., worker’s compensation insurance, unemployment compensation insurance or the like for Contractor or any of its agents, subcontractors or their agents or employees, all of which shall remain the complete responsibility of Contractor. Contractor assumes full responsibility for the payment of all contributions, payroll taxes, income taxes, self employment taxes, withholdings and backup withholdings or assessments under state and federal law. Company shall only provide Contractor with, and shall file, an IRS Form 1099 on an annual basis.
(b) Contractor will be solely liable and responsible for compliance with all federal, state and local laws and regulations regarding (i) the payment of Contractor’s taxes; (ii) maintenance of workers’ compensation insurance; (iii) filing of all required reports; and (iv) health, safety, and all other employment matters.
(c) Nothing herein shall be construed to create a relationship between Company and Contractor in the nature of profit-sharing, company, joint venture, principal/agent, employment or any other relationship that might impose liability on Company for Contractor’s past, present or future debts, liabilities, obligations, acts or omissions.
| 4. | Agreement to Not Disclose Confidential Information. |
(a) Access to Confidential Information. Contractor acknowledges that by virtue of Contractor's performing the Services for Company, Contractor will have access to and will acquire Confidential Information (as defined below) relating to the business and operations of the Company.
| (b) | Definition of Confidential Information. |
(i) Regardless of whether tangible or intangible, how stored, compiled, or memorialized, whether physically, electronically, graphically, photographically, in writing or by some other means, and regardless of whether it has been marked or identified as “confidential”, the term “Confidential Information” means and includes any and all of the following provided by, belonging to or concerning the Company: (I) information, data, ideas, inventions, intellectual property, processes, materials, know-how, techniques, technologies, sketches, drawings, specifications, concepts, trade secrets, research and development activities, patent applications, compilations, devices, formulae, designs, prototypes, methods, procedures, strategies, programs, and codes; (II) financial, business, strategic, scientific, technical and economic information, plans, and sales, marketing and product information; (III) data and information about the Company’s current, former or prospective customers, suppliers, officers, directors and employees; (IV) copies or materials embodying or including any of the foregoing and any analyses, studies or reports that contain, are based on, or reflect any of the foregoing; and (V) any information traditionally or otherwise appropriately recognized as proprietary or a trade secret. Confidential Information does not include information that (A) at the time of disclosure by Company to Contractor, was published or known publicly or was otherwise in the public domain, (B) after disclosure by Company to Contractor, is published or becomes publicly known or otherwise in the public domain other than as a result of a breach of this Agreement, (C) was disclosed to Contractor in good faith by a third party who was not, and is not, under any obligation of confidence or secrecy to Company, or its clients or prospective clients at the time of such disclosure or (D) is independently developed by the Contractor without the use of any Confidential Information and without violation of this Agreement.
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(ii) Contractor acknowledges that (A) the Confidential Information is the sole property of Company, (B) disclosure thereof would cause substantial loss to the goodwill of Company, (C) disclosure thereof is being made by Company only because of the position of trust and confidence which Contractor will occupy and because of the agreement of Contractor to the restrictions contained herein, (D) the knowledge of Contractor of these matters would enable Contractor, upon termination of this Agreement, to compete with Company in a manner likely to cause Company irreparable harm, and (E) disclosure of such matters by Contractor would likewise cause such harm.
(c) Restrictions on Use and Disclosure of Confidential Information. Contractor shall hold all Confidential Information as a fiduciary, in strict confidence and trust for the benefit of Company. Contractor shall not at any time during the term of this Agreement or thereafter use, make known, or disclose, either directly or indirectly, intentionally or negligently, any of the Confidential Information to any person, company or other entity, for any purpose or reason, other than as required in the performance of the Services. Contractor understands that it is not allowed to use, sell, license, market or otherwise exploit any products or services which embody in whole or in part any Confidential Information. Except as necessary to perform Contractor's duties and responsibilities under this Agreement, Contractor shall not copy or duplicate any of the Confidential Information, nor remove any of the Confidential Information from the facilities of Company, either during the term of this Agreement or thereafter. Contractor will take all reasonable precautions to prevent disclosure of the Confidential Information to unauthorized persons or entities. Contractor will treat as confidential and proprietary any information or materials from outside Company which Company is obligated to treat as confidential or proprietary, in accordance with Company’s reasonable instructions to Contractor. In the event that any unauthorized disclosure of any Confidential Information shall occur as a result of Contractor’s actions or inactions, or the actions or inactions of an agent of Contractor, Contractor shall immediately notify Company in writing of the disclosure and the circumstances surrounding such disclosure.
(d) Delivery of Confidential Information to Company on Termination. Upon the expiration or termination of this Agreement, or at any time upon Company's request, Contractor will deliver to Company all tangible materials embodying the Confidential Information, including without limitation any documentation, records, listings, notes, data, sketches, drawings, customer lists, memoranda, models, data, reference materials, samples, human or machine-readable media and equipment and any other materials which in any way relate to the Confidential Information, to the Services, or to the customers of the Company. Contractor will not to retain any copies of any of the above materials. Contractor will provide to Company written certification of compliance with this Section 4(d) upon request.
(e) Reasonable Restrictions. Contractor acknowledges that the restrictions in this Section 4 are reasonable and reflect an appropriate balancing of the interests of Company and Contractor.
5. Term; Termination. This Agreement shall terminate on the date that is two (2) years after the Effective Date. Either Party may terminate this Agreement at any time for any reason or no reason, with or without cause, upon written notice to the other Party. The right of termination in this Agreement is absolute. Contractor waives any claim to the contrary and releases Company from any claim to damages, compensation or indemnification arising out of or relating to the termination of this business relationship.
6. Transfer of Contractor’s Duties; Return of Property upon Termination. Upon termination of the relationship established by this Agreement, and in the event that the Services have not been fully performed at the time of termination, Contractor shall reasonably assist Company in the smooth transition of Contractor’s duties and responsibilities to another contractor or representative of Company. Contractor shall also, upon termination, immediately return to Company all property in Contractor’s possession belonging to Company. In the event that Contractor does not return all Company property upon termination of the relationship with Company established by this Agreement, Company may reduce any payments owed to Contractor under this Agreement by the value of any property not returned. In addition, Company may take all appropriate action to recover its property (or the value of its property).
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7. Reservation of Rights. Company reserves and retains all rights, including, without limitation, the right to hire additional independent contractors to perform similar work to Contractor. Company shall manage its business according to its own judgment and shall be free to accept or reject any advice or suggestions of Contractor at any time in its sole discretion. Contractor shall provide the Services in an advisory capacity only and the Company shall retain full authority and responsibility for all decisions with respect to operation of the Company's business. Each Party acknowledges and agrees that nothing in this Agreement shall require the other Party to take any action that such Party reasonably determines will, or could be deemed to,violate any laws or regulations. Neither Party shall be responsible for any violation of the other Party’s rights hereunder by a third party.
8. Indemnification and Non-Infringement.
(a) Contractor Indemnification. Contractor shall indemnify, defend and hold Company and its subcontractors, independent contractors, agents, officers, shareholders, directors, members, managers and employees harmless from and against any and all claims, liabilities, losses, damages, expenses (including reasonable attorneys’ fees) (collectively, “Claims”) arising from or growing out of (i) a breach of any representation, warranty, covenant or agreement made by Contractor in connection with this Agreement, or (ii) Contractor’s gross negligence or willful misconduct.
(b) Non-Infringement Warranty. Contractor warrants and represents, to the best of its knowledge and belief and solely for the benefit of Company, that nothing in this Agreement or the performance of it by Contractor infringes any United States intellectual property right or any contractual covenant entered into by Contractor benefiting any third party.
(c) Company Indemnification. Company shall indemnify, defend and hold Contractor and its subcontractors, independent contractors, agents, officers, shareholders, directors, members, managers and employees harmless from and against any and all claims, liabilities, losses, damages, expenses (including reasonable attorneys’ fees) (collectively, “Claims against Contractor”) arising from or growing out of the performance in good faith of Contractor’s services under this Agreement, including, without limitation, paying attorney and other litigation costs in connection with any investigation by any local authority into the Contractor’s activities in connection with the Agreement.
9. Compliance with Laws. Each Party shall be responsible for obtaining any and all licenses, registrations, permits or approvals necessary or advisable for the operation of its business and the provision of the Services. Each Party shall comply with any and all conditions binding on it in any such licenses, registrations, permits or approvals. Each Party shall be subject to, and comply with, all laws, orders, regulations, directions, or requests, present and future, of any state or local government having jurisdiction over such Party, including without limitation, the Colorado Medical Marijuana Code (C.R.S. § 12-43.3-101 et. seq.), the Colorado Retail Marijuana Code (C.R.S. § 12-43.4-101 et. seq.) and all regulations, rules, orders, guidance and instructions promulgated by the MED or applicable local marijuana business licensing authority.
10. Representations and Warranties. Contractor hereby represents and warrants to Company that:
(a) Contractor is solely responsible for the satisfactory completion of the Services and is liable to Company for a failure to complete the Services.
| (b) | Contractor may realize a profit or a loss under this Agreement. |
| (c) | Contractor has continuing or recurring business liabilities and obligations. |
| (d) | Contractor has registered with applicable state agencies. |
| (e) | Contractor maintains its own set of books and records for its business. |
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11. Liability Insurance. Contractor will supply its own workmen’s compensation insurance and errors and omissions insurance coverage, which shall be in amounts and with insurance companies reasonably acceptable to Company, and will provide proof of such coverage to Company upon request.
12. Assignment. Contractor may not assign or delegate any of its rights or obligations under this Agreement without the prior written consent of Company. Company may assign this Agreement at its sole discretion by providing written notice to Contractor.
13. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding on, the Parties and their successors, permitted assigns, legal representatives, heirs, distributees, and transferees.
14. Notices. All notices, demands and other communications to be sent by one Party to the other under this Agreement shall be in writing and shall be deemed to have been validly made, given, served and received if given or served by delivery in person to the addressee, if receipt by email confirmed by recipient, or if sent by facsimile during normal business hours with delivery verification, or three (3) days after deposit in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed as follows:
| If to Company: | Critical Mass | ||
| Industries LLC. | |||
| 866 Navajo St,Denver, | |||
| Colorado 80204 | |||
| Attention: John Knapp | |||
| If to Contractor: | Good Meds Inc | ||
| 1001 Bannock St | |||
| Suite 612 | |||
| Denver, Colorado 80204 | |||
| Attention: Philip Blair Mullin |
15. Entire Agreement. This Agreement is the final integration of the agreement between the Parties with respect to the matters covered by it and supersedes any prior understandings or agreements, oral or written, with respect thereto.
16. Modification, Waiver. This Agreement may not be modified or supplemented except by written instrument signed by the Parties. No action or failure to act by either Party shall be deemed to be a waiver of any default or breach of any agreement or provision herein contained unless such waiver is set forth in writing. No waiver of any default or breach of any agreement or provision herein contained shall be deemed a waiver of any other default or breach thereof or of any other agreement or provision herein contained.
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17. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable for any reason: (i) such invalidity or unenforceability shall not affect any other provision of this Agreement, (ii) the remaining terms, covenants and conditions hereof shall remain in full force and effect and (iii) any court of competent jurisdiction may so modify the objectionable provision as to make it valid and enforceable.
18. Reformation. This Agreement and the transaction contemplated herein may be scrutinized by one or more instrumentalities of the Colorado government. If a Colorado government instrumentality determines this Agreement must be reformed, the Parties shall negotiate in good faith to so reform this Agreement according to the respective government instrumentality requirement while effectuating the original intent of this Agreement as near as possible
19. Governing Law, Jurisdiction and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado applicable to contracts to be performed entirely within such state. The District Court for the City and County of Denver shall have exclusive jurisdiction, including in personam jurisdiction, and shall be the exclusive venue for any and all controversies and claims arising out of or relating to this Agreement.
20. Captions. All captions, titles, headings, and divisions hereof are for purposes of convenience and reference only and shall not be construed to limit or affect the interpretation of this Agreement.
21. Legal Representation and Construction of Agreement. The Parties have had the opportunity to retain independent legal and financial counsel with respect to the negotiation of this Agreement. The Parties have independently, separately, and freely negotiated each and every provision of this Agreement as if all Parties drafted it, and therefore, waive any statutory or common-law presumption that would serve to have this document construed in favor of, or against, any Party.
22. Counterparts/Electronic Signatures. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. A facsimile or other electronic copy of a signature on this Agreement shall be acceptable as and deemed to be an original signature.
[Remainder of page intentionally left blank. Signature page follows.]
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IN WITNESS WHEREOF, the Company and Contractor have executed this Agreement effective as of the date first above written.
| COMPANY: | ||
| Critical Mass Industries LLC | ||
| By: | ||
| Name: John Knapp | ||
| Title: Manager | ||
| CONTRACTOR: | ||
| Good Meds, Inc. | ||
| By: | ||
| Name: Philip Blair Mullin | ||
| Title: Authorized Representative | ||
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EXHIBIT A
DESCRIPTION OF SERVICES
| ● | Human Resources (HR) services, |
| ● | General administrative services, and |
| ● | Bookkeeping services. |
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Exhibit 10.6
ANNEX F
CRYOMASS TECHNOLOGIES INC.
2022 OMNIBUS INCENTIVE PLAN
TABLE OF CONTENTS
i
CRYOMASS TECHNOLOGIES
INC.
2022 OMNIBUS INCENTIVE PLAN
| 1. | Purpose of Plan. |
The purpose of the Cryomass Technologies Inc. 2022 Omnibus Incentive Plan (this “Plan”) is to advance the interests of Cryomass Technologies Inc., a Nevada corporation (the “Company”), and its stockholders by enabling the Company and its Subsidiaries to attract and retain qualified individuals to perform services for the Company and its Subsidiaries, providing incentive compensation for such individuals that is linked to the growth and profitability of the Company and increases in stockholder value and aligning the interests of such individuals with the interests of its stockholders through opportunities for equity participation in the Company.
| 2. | Definitions. |
The following terms will have the meanings set forth below, unless the context clearly otherwise requires. Terms defined elsewhere in this Plan will have the same meaning throughout this Plan.
2.1 “Adverse Action” means any action or conduct by a Participant that the Committee, in its sole discretion, determines to be injurious, detrimental, prejudicial or adverse to the interests of the Company or any Subsidiary, including: (a) disclosing confidential information of the Company or any Subsidiary to any person not authorized by the Company or Subsidiary to receive it, (b) engaging, directly or indirectly, in any commercial activity that in the judgment of the Committee competes with the business of the Company or any Subsidiary or (c) interfering with the relationships of the Company or any Subsidiary and their respective employees, independent contractors, customers, prospective customers and vendors.
2.2 “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person where “control” will have the meaning given such term under Rule 405 of the Securities Act.
2.3 “Applicable Law” means any applicable law, including without limitation, (a) provisions of the Code, the Securities Act, the Exchange Act and any rules or regulations thereunder; (b) corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state, local or foreign; and (c) rules of any securities exchange, national market system or automated quotation system on which the shares of Common Stock are listed, quoted or traded.
2.4 “Award” means, individually or collectively, an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit, Deferred Stock Unit, Performance Award, Non-Employee Director Award, or Other Stock-Based Award, in each case granted to an Eligible Recipient pursuant to this Plan.
2.5 “Award Agreement” means either: (a) a written or electronic (as provided in Section 22.7) agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award granted under this Plan, including any amendment or modification thereof, or (b) a written or electronic (as provided in Section 22.7) statement issued by the Company to a Participant describing the terms and provisions of such an Award, including any amendment or modification thereof.
2.6 “Board” means the Board of Directors of the Company.
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2.7 “Broker Exercise Notice” means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares of Common Stock to pay all or a portion of the exercise price of the Option or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver shares of Common Stock to be issued upon such exercise directly to such broker or dealer or its nominee.
2.8 “Cause” means, unless otherwise provided in an Award Agreement, (a) “Cause” as defined in any employment, consulting, severance or similar agreement between the Participant and the Company or one of its Subsidiaries or Affiliates (an “Individual Agreement”), or (b) if there is no such Individual Agreement or if it does not define Cause: (i) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary; (ii) any unlawful or criminal activity of a serious nature; (iii) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant’s overall duties; (iv) any material breach by a Participant of any employment, service, confidentiality, non-compete or non-solicitation agreement entered into with the Company or any Subsidiary; or (v) before a Change in Control, such other events as will be determined by the Committee. Before a Change in Control, the Committee will, unless otherwise provided in an Individual Agreement, have the sole discretion to determine whether “Cause” exists with respect to subclauses (i), (ii), (iii), (iv) or (v) above, and its determination will be final.
2.9 “Change in Control” means, unless otherwise provided in an Award Agreement or any Individual Agreement, and except as provided in Section 18, an event described in Section 15.1 of this Plan.
2.10 “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be deemed to include a reference to any applicable regulations thereunder and any successor or amended section of the Code.
2.11 “Committee” means the Board or, if the Board so delegates, the Compensation Committee of the Board or a subcommittee thereof, or any other committee delegated authority by the Board to administer this Plan. If the Board determines appropriate, such committee may be comprised solely of directors designated by the Board to administer this Plan who are (a) “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act, and (b) “independent directors” within the meaning of the rules of the NYSE American (or other applicable exchange or market on which the Common Stock may be traded or quoted). The members of the Committee will be appointed from time to time by and will serve at the discretion of the Board. Any action duly taken by the Committee will be valid and effective, whether or not the members of the Committee at the time of such action are later determined not to have satisfied the requirements of membership provided herein.
2.12 “Common Stock” means the common stock of the Company, par value $0.001 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.4 of this Plan.
2.13 “Company” means Cryomass Technologies Inc., Inc., a Nevada corporation, and any successor thereto as provided in Section 22.5 of this Plan.
2.14 “Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to the Company or any Subsidiary that: (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities.
2.15 “Deferred Stock Unit” means a right granted to an Eligible Recipient pursuant to Section 8 of this Plan to receive shares of Common Stock (or the equivalent value in cash or other property if the Committee so provides) at a future time as determined by the Committee, or as determined by the Participant within guidelines established by the Committee in the case of voluntary deferral elections.
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2.16 “Director” means a member of the Board.
2.17 “Disability” means, unless otherwise provided in an Award Agreement, with respect to a Participant who is a party to an Individual Agreement, which agreement contains a definition of “disability” or “permanent disability” (or words of like import) for purposes of termination of employment thereunder by the Company, “disability” or “permanent disability” as defined in the most recent of such agreements; or in all other cases, means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.
2.18 “Dividend Equivalents” has the meaning set forth in Section 3.2(l) of this Plan.
2.19 “Effective Date” means January 1, 2022 or such later date as this Plan is initially approved by the Company’s stockholders.
2.20 “Eligible Recipients” means all Employees, all Non-Employee Directors and all Consultants.
2.21 “Employee” means any individual performing services for the Company or a Subsidiary and designated as an employee of the Company or a Subsidiary on the payroll records thereof. An Employee will not include any individual during any period he or she is classified or treated by the Company or Subsidiary as an independent contractor, a consultant, or any employee of an employment, consulting or temporary agency or any other entity other than the Company or Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified as a common-law employee of the Company or Subsidiary during such period. An individual will not cease to be an Employee in the case of: (a) any leave of absence approved by the Company, or (b) transfers between locations of the Company or between the Company or any Subsidiaries. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company or a Subsidiary, as applicable, is not so guaranteed, then three (3) months following the ninety-first (91st) day of such leave, any Incentive Stock Option held by a Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Non-Statutory Stock Option. Neither service as a Director nor payment of a Director’s fee by the Company will be sufficient to constitute “employment” by the Company.
2.22 “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference to a section of the Exchange Act herein will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Exchange Act.
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2.23 “Fair Market Value” means, with respect to the Common Stock, as of any date a price that is based on the opening, closing, actual, high, low, or average selling prices of a share of Common Stock as reported on the NYSE American or other established stock exchange (or exchanges) or if the Common Stock is not so listed, admitted to unlisted trading privileges or reported on any national exchange, then as reported by the OTC Bulletin Board, OTC Markets or other comparable quotation service, on the applicable date, the preceding trading day, the next succeeding trading day, or an average of trading days that is within thirty (30) days before or after the applicable valuation date, as determined by the Committee in its discretion, provided that with respect to establishing the exercise price of an Option or Stock Appreciation Right, the Committee shall irrevocably commit to grant such Award prior to the period during which the Fair Market Value is determined. Unless the Committee determines otherwise, Fair Market Value shall be deemed to be equal to the closing sale price of the Common Stock as of the immediately preceding trading date at the end of the regular trading session, as reported by the NYSE American or any national securities exchange on which the Common Stock is then listed (or, if no shares were traded on such date, as of the next preceding date on which there was such a trade) or if the Common Stock is not so listed, admitted to unlisted trading privileges or reported on any national exchange, the closing sale price as of the immediately preceding trading date at the end of the regular trading session, as reported by the OTC Bulletin Board, OTC Markets or other comparable quotation service (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote). In the event the Common Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of Fair Market Value shall be made by the Committee in such manner as it deems appropriate and in good faith in the exercise of its reasonable discretion, and consistent with the definition of “fair market value” under Section 409A of the Code. If determined by the Committee, such determination will be final, conclusive and binding for all purposes and on all persons, including the Company, the stockholders of the Company, the Participants and their respective successors-in-interest. No member of the Committee will be liable for any determination regarding the fair market value of the Common Stock that is made in good faith.
2.24 “Grant Date” means the date an Award is granted to a Participant pursuant to this Plan and as determined pursuant to Section 5 of this Plan.
2.25 “Incentive Stock Option” means a right to purchase Common Stock granted to an Employee pursuant to Section 6 of this Plan that is designated as and intended to meet the requirements of an “incentive stock option” within the meaning of Section 422 of the Code.
2.26 “Individual Agreement” has the meaning set forth in Section 2.8 of this Plan.
2.27 “Non-Employee Director” means a Director who is not an Employee.
2.28 “Non-Employee Director Award” means any Award granted, whether singly, in combination, or in tandem, to an Eligible Recipient who is a Non-Employee Director, pursuant to such applicable terms, conditions and limitations as the Board or Committee may establish in accordance with this Plan, including any Non-Employee Director Option.
2.29 “Non-Employee Director Option” means a Non-Statutory Stock Option granted to a Non-Employee Director pursuant to Section 10 of this Plan.
2.30 “Non-Statutory Stock Option” means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of this Plan that is not intended to meet the requirements of or does not qualify as an Incentive Stock Option.
2.31 “Option” means an Incentive Stock Option or a Non-Statutory Stock Option, including a Non-Employee Director Option.
2.32 “Other Stock-Based Award” means an Award, denominated in Shares, not otherwise described by the terms of this Plan, granted pursuant to Section 11 of this Plan.
2.33 “Participant” means an Eligible Recipient who receives one or more Awards under this Plan.
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2.34 “Performance Award” means a right granted to an Eligible Recipient pursuant to Section 9 of this Plan to receive an amount of cash, number of shares of Common Stock, or a combination of both, contingent upon and the value of which at the time it is payable is determined as a function of the extent of the achievement of one or more Performance Goals during a specified Performance Period or the achievement of other objectives during a specified period.
2.35 “Performance Goals” mean with respect to any applicable Award, one or more targets, goals or levels of attainment required to be achieved during the specified Performance Period, as set forth in the related Award Agreement.
2.36 “Performance Period” means the period of time, as determined by the Committee, during which the Performance Goals must be met in order to determine the degree of payout or vesting with respect to an Award.
2.37 “Period of Restriction” means the period when a Restricted Stock Award or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of Performance Goals, or upon the occurrence of other events as determined by the Committee, in its discretion), as provided in Section 8 of this Plan.
2.38 “Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or any other entity of whatever nature.
2.39 “Plan” means the Cryomass Technologies Inc. 2022 Omnibus Incentive Plan, as may be amended from time to time.
2.40 “Plan Year” means the Company’s fiscal year.
2.41 “Previously Acquired Shares” means shares of Common Stock that are already owned by the Participant or, with respect to any Award, that are to be issued to the Participant upon the grant, exercise, vesting or settlement of such Award.
2.42 “Restricted Stock Award” means an award of Common Stock granted to an Eligible Recipient pursuant to Section 8 of this Plan that is subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of such Section 8.
2.43 “Restricted Stock Unit” means an award denominated in shares of Common Stock granted to an Eligible Recipient pursuant to Section 8 of this Plan.
2.44 “Retirement,” means, unless otherwise defined in the Award Agreement or in an Individual Agreement between the Participant and the Company or one of its Subsidiaries or Affiliates, “Retirement” as defined from time to time for purposes of this Plan by the Committee or by the Company’s chief human resources officer or other person performing that function or, if not so defined, means voluntary termination of employment or service by the Participant on or after the date the Participant reaches age fifty-five (55) with the present intention to leave the Company’s industry or to leave the general workforce.
2.45 “Securities Act” means the Securities Act of 1933, as amended. Any reference to a section of the Securities Act herein will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Securities Act.
2.46 “Stock Appreciation Right” means a right granted to an Eligible Recipient pursuant to Section 7 of this Plan to receive a payment from the Company upon exercise, in the form of shares of Common Stock, cash or a combination of both, equal to the difference between the Fair Market Value of one or more shares of Common Stock and the grant price of such shares under the terms of such Stock Appreciation Right.
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2.47 “Stock-Based Award” means any Award, denominated in Shares, made pursuant to this Plan, including Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Deferred Stock Units, Performance Awards or Other Stock-Based Awards.
2.48 “Subsidiary” means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, an interest of more than fifty percent (50%) by reason of stock ownership or otherwise.
2.49 “Tax Date” means the date any withholding or employment related tax obligation arises under the Code or any Applicable Law for a Participant with respect to an Award.
2.50 “Tax Laws” has the meaning set forth in Section 22.8 of this Plan.
| 3. | Plan Administration. |
3.1 The Committee. The Plan will be administered by the Committee. The Committee will act by majority approval of the members at a meeting or by unanimous written consent, and a majority of the members of the Committee will constitute a quorum. The Committee may exercise its duties, power and authority under this Plan in its sole discretion without the consent of any Participant or other party, unless this Plan specifically provides otherwise. The Committee will not be obligated to treat Participants or Eligible Recipients uniformly, and determinations made under this Plan may be made by the Committee selectively among Participants or Eligible Recipients, whether or not such Participants and Eligible Recipients are similarly situated. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of this Plan will be final, conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to this Plan or any Award granted under this Plan.
3.2 Authority of the Committee. In accordance with and subject to the provisions of this Plan, the Committee will have full and exclusive discretionary power and authority to take such actions as it deems necessary and advisable with respect to the administration of this Plan, including the following:
(a) To designate the Eligible Recipients to be selected as Participants;
(b) To determine the nature, extent and terms of the Awards to be made to each Participant, including the amount of cash or number of shares of Common Stock to be subject to each Award, any exercise price or grant price, the manner in which Awards will vest, become exercisable, settled or paid out and whether Awards will be granted in tandem with other Awards, and the form of Award Agreement, if any, evidencing such Award;
(c) To determine the time or times when Awards will be granted;
(d) To determine the duration of each Award;
(e) To determine the terms, restrictions and other conditions to which the grant of an Award or the payment or vesting of Awards may be subject;
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(f) To construe and interpret this Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for its administration and in so doing, to correct any defect, omission, or inconsistency in this Plan or in an Award Agreement, in a manner and to the extent it will deem necessary or expedient to make this Plan fully effective;
(g) To determine Fair Market Value in accordance with Section 2.23 of this Plan;
(h) To amend this Plan or any Award Agreement, as provided in this Plan;
(i) To adopt subplans or special provisions applicable to Awards regulated by the laws of a jurisdiction other than, and outside of, the United States, which except as otherwise provided in this Plan, such subplans or special provisions may take precedence over other provisions of this Plan;
(j) To authorize any person to execute on behalf of the Company any Award Agreement or any other instrument required to effect the grant of an Award previously granted by the Committee;
(k) To determine whether Awards will be settled in shares of Common Stock, cash or in any combination thereof;
(l) To determine whether Awards will be adjusted for dividend equivalents, with “Dividend Equivalents” meaning a credit, made at the discretion of the Committee, to the account of a Participant in an amount equal to the cash dividends paid on one share of Common Stock for each share of Common Stock represented by an Award held by such Participant, subject to Section 12 of this Plan and any other provision of this Plan, and which Dividend Equivalents may be subject to the same conditions and restrictions as the Awards to which they attach and may be settled in the form of cash, shares of Common Stock, or in any combination of both; and
(m) To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any shares of Common Stock, including restrictions under an insider trading policy, stock ownership guidelines, restrictions as to the use of a specified brokerage firm for such resales or other transfers and other restrictions designed to increase equity ownership by Participants or otherwise align the interests of Participants with the Company’s stockholders.
3.3 Delegation. To the extent permitted by Applicable Law, the Committee may delegate to one or more of its members or to one or more officers of the Company or any Subsidiary or to one or more agents or advisors such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advice with respect to any responsibility the Committee or such individuals may have under this Plan. The Committee may, by resolution, authorize one or more directors of the Company or one or more officers of the Company to do one or both of the following on the same basis as can the Committee: (a) designate Eligible Recipients to be recipients of Awards pursuant to this Plan; and (b) determine the size of any such Awards; provided, however, that (x) the Committee will not delegate such responsibilities to any such director(s) or officer(s) for any Awards granted to an Eligible Recipient: (i) who is a Non-Employee Director or who is subject to the reporting and liability provisions of Section 16 under the Exchange Act, or (ii) to whom authority to grant or amend Awards has been delegated hereunder; provided, further; that any delegation of administrative authority will only be permitted to the extent it is permissible under Applicable Law; (y) the resolution providing such authorization will set forth the type of Awards and total number of each type of Awards such director(s) or officer(s) may grant; and (z) such director(s) or officer(s) will report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority delegated. At all times, the delegate appointed under this Section 3.3 will serve in such capacity at the pleasure of the Committee.
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3.4 No Re-pricing. Notwithstanding any other provision of this Plan, the Committee may not, without prior approval of the Company’s stockholders, seek to effect any re-pricing of any previously granted, “underwater” Option or Stock Appreciation Right by: (a) amending or modifying the terms of the Option or Stock Appreciation Right to lower the exercise price or grant price; (b) canceling the underwater Option or Stock Appreciation Right in exchange for (i) cash; (ii) replacement Options or Stock Appreciation Rights having a lower exercise price or grant price; or (iii) other Awards; or (c) repurchasing the underwater Options or Stock Appreciation Rights and granting new Awards under this Plan. For purposes of this Section 3.4, an Option or Stock Appreciation Right will be deemed to be “underwater” at any time when the Fair Market Value of the Common Stock is less than the exercise price of the Option or grant price of the Stock Appreciation Right.
| 4. | Shares Available for Issuance. |
4.1 Maximum Number of Shares Available. Subject to adjustment as provided in Section 4.4 of this Plan, the maximum number of shares of Common Stock that will be available for issuance under this Plan will be 30,000,000 shares.
4.2 Limits on Incentive Stock Options and Non-Employee Director Awards. Notwithstanding any other provisions of this Plan to the contrary and subject to adjustment as provided in Section 4.4 of this Plan,
(a) the maximum aggregate number of shares of Common Stock that will be available for issuance pursuant to Incentive Stock Options under this Plan may not exceed 30,000,000 shares; and
(b) the maximum aggregate number of shares of Common Stock granted as an Award to any Non-Employee Director in any one Plan Year will be 100,000 shares; provided that such limit will not apply to any election of a Non-Employee Director to receive shares of Common Stock in lieu of all or a portion of any annual Board, committee, chair or other retainer, or any meeting fees otherwise payable in cash.
4.3 Accounting for Awards. Shares of Common Stock that are issued under this Plan or that are subject to outstanding Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under this Plan only to the extent they are used; provided, however, that the full number of shares of Common Stock subject to a stock-settled Stock Appreciation Right or other Stock-Based Award will be counted against the shares authorized for issuance under this Plan, regardless of the number of shares actually issued upon settlement of such Stock Appreciation Right or other Stock-Based Award. Furthermore, any shares of Common Stock withheld to satisfy tax withholding obligations on Awards issued under this Plan, any shares of Common Stock withheld to pay the exercise price or grant price of Awards under this Plan and any shares of Common Stock not issued or delivered as a result of the “net exercise” of an outstanding Option pursuant to Section 6.5 or settlement of a Stock Appreciation Right in shares of Common Stock pursuant to Section 7.6 will be counted against the shares of Common Stock authorized for issuance under this Plan and will not be available again for grant under this Plan. Shares of Common Stock subject to Awards settled in cash will again be available for issuance pursuant to Awards granted under the Plan. Any shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award will not increase the number of shares of Common Stock available for future grant of Awards. Any shares of Common Stock related to Awards granted under this Plan that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of the shares of Common Stock, will be available again for grant under this Plan. To the extent permitted by Applicable Law, shares of Common Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or a Subsidiary pursuant to Section 20 of this Plan or otherwise will not be counted against shares of Common Stock available for issuance pursuant to this Plan. The shares of Common Stock available for issuance under this Plan may be authorized and unissued shares or treasury shares.
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4.4 Adjustments to Shares and Awards.
(a) In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin off) or any other similar change in the corporate structure or shares of Common Stock the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment or substitutions (which determination will be conclusive) as to: (i) the number and kind of securities or other property (including cash) available for issuance or payment under this Plan, including the sub-limits set forth in Section 4.2 of this Plan, and (ii) in order to prevent dilution or enlargement of the rights of Participants, the number and kind of securities or other property (including cash) subject to outstanding Awards and the exercise price of outstanding Awards; provided, however, that this Section 4.4 will not limit the authority of the Committee to take action pursuant to Section 15 of this Plan in the event of a Change in Control. The determination of the Committee as to the foregoing adjustments and/or substitutions, if any, will be final, conclusive and binding on Participants under this Plan.
(b) Notwithstanding anything else herein to the contrary, without affecting the number of shares of Common Stock reserved or available hereunder, the limits in Section 4.2 of this Plan, the Committee may authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with the rules under Sections 422, 424 and 409A of the Code, as and where applicable.
| 5. | Participation. |
Participants in this Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of the objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Awards, singly or in combination or in tandem with other Awards, as may be determined by the Committee in its sole discretion. Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the Grant Date of any related Award Agreement with the Participant.
| 6. | Options. |
6.1 Grant. An Eligible Recipient may be granted one or more Options under this Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion. Incentive Stock Options may be granted solely to eligible Employees of the Company or a Subsidiary. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option (or portion thereof) granted under this Plan ceases for any reason to qualify as an “incentive stock option” for purposes of Section 422 of the Code, such Incentive Stock Option (or portion thereof) will continue to be outstanding for purposes of this Plan but will thereafter be deemed to be a Non-Statutory Stock Option. Options may be granted to an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible Recipient, the underlying shares of Common Stock constitute “service recipient stock” within the meaning of Treas. Reg. Sec. 1.409A-1(b)(5)(iii) promulgated under the Code.
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6.2 Award Agreement. Each Option grant will be evidenced by an Award Agreement that will specify the exercise price of the Option, the maximum duration of the Option, the number of shares of Common Stock to which the Option pertains, the conditions upon which an Option will become vested and exercisable, and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan. The Award Agreement also will specify whether the Option is intended to be an Incentive Stock Option or a Non-Statutory Stock Option.
6.3 Exercise Price. The per share price to be paid by a Participant upon exercise of an Option granted pursuant to this Section 6 will be determined by the Committee in its sole discretion at the time of the Option grant; provided, however, that such price will not be less than one hundred percent (100%) of the Fair Market Value of one share of Common Stock on the Grant Date (one hundred and ten percent (110%) of the Fair Market Value if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).
6.4 Exercisability and Duration. An Option will become exercisable at such times and in such installments and upon such terms and conditions as may be determined by the Committee in its sole discretion at the time of grant, including (a) the achievement of one or more of the Performance Goals; or that (b) the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period; provided, however, that no Option may be exercisable after ten (10) years from the Grant Date (five (5) years from the Grant Date in the case of an Incentive Stock Option that is granted to a Participant who owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company). Notwithstanding the foregoing, if the exercise of an Option that is exercisable in accordance with its terms is prevented by the provisions of Section 17 of this Plan, the Option will remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the expiration date of such Option.
6.5 Payment of Exercise Price.
(a) The total purchase price of the shares of Common Stock to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by (i) tender of a Broker Exercise Notice; (ii) by tender, either by actual delivery or attestation as to ownership, of Previously Acquired Shares; (iii) a “net exercise” of the Option (as further described in paragraph (b), below); (iv) by a combination of such methods; or (v) any other method approved or accepted by the Committee in its sole discretion. Notwithstanding any other provision of this Plan to the contrary, no Participant who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act will be permitted to make payment with respect to any Awards granted under this Plan, or continue any extension of credit with respect to such payment with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.
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(b) In the case of a “net exercise” of an Option, the Company will not require a payment of the exercise price of the Option from the Participant but will reduce the number of shares of Common Stock issued upon the exercise by the largest number of whole shares that has a Fair Market Value on the exercise date that does not exceed the aggregate exercise price for the shares exercised under this method. Shares of Common Stock will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) shares used to pay the exercise price of an Option under the “net exercise,” (ii) shares actually delivered to the Participant as a result of such exercise and (iii) any shares withheld for purposes of tax withholding pursuant to Section 14 of this Plan.
(c) For purposes of such payment, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the exercise date of the Option.
6.6 Manner of Exercise. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in this Plan and in the Award Agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company at its principal executive office (or to the Company’s designee as may be established from time to time by the Company and communicated to Participants) and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.5 of this Plan.
| 7. | Stock Appreciation Rights. |
7.1 Grant. An Eligible Recipient may be granted one or more Stock Appreciation Rights under this Plan, and such Stock Appreciation Rights will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion. Stock Appreciation Rights may be granted to an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible Recipient, the underlying shares of Common Stock constitute “service recipient stock” within the meaning of Treas. Reg. Sec. 1.409A-1(b)(5)(iii) promulgated under the Code.
7.2 Award Agreement. Each Stock Appreciation Right will be evidenced by an Award Agreement that will specify the grant price of the Stock Appreciation Right, the term of the Stock Appreciation Right, and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan.
7.3 Grant Price. The grant price of a Stock Appreciation Right will be determined by the Committee, in its discretion, at the Grant Date; provided, however, that such price may not be less than one hundred percent (100%) of the Fair Market Value of one share of Common Stock on the Grant Date.
7.4 Exercisability and Duration. A Stock Appreciation Right will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Stock Appreciation Right may be exercisable after ten (10) years from its Grant Date. Notwithstanding the foregoing, if the exercise of a Stock Appreciation Right that is exercisable in accordance with its terms is prevented by the provisions of Section 17 of this Plan, the Stock Appreciation Right will remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the expiration date of such Stock Appreciation Right.
7.5 Manner of Exercise. A Stock Appreciation Right will be exercised by giving notice in the same manner as for Options, as set forth in Section 6.6 of this Plan, subject to any other terms and conditions consistent with the other provisions of this Plan as may be determined by the Committee in its sole discretion.
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7.6 Settlement. Upon the exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(a) The excess of the Fair Market Value of a share of Common Stock on the date of exercise over the per share grant price; by
(b) The number of shares of Common Stock with respect to which the Stock Appreciation Right is exercised.
7.7 Form of Payment. Payment, if any, with respect to a Stock Appreciation Right settled in accordance with Section 7.6 of this Plan will be made in accordance with the terms of the applicable Award Agreement, in cash, shares of Common Stock or a combination thereof, as the Committee determines.
| 8. | Restricted Stock Awards, Restricted Stock Units and Deferred Stock Units. |
8.1 Grant. An Eligible Recipient may be granted one or more Restricted Stock Awards, Restricted Stock Units or Deferred Stock Units under this Plan, and such Awards will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion. Restricted Stock Units will be similar to Restricted Stock Awards except that no shares of Common Stock are actually awarded to the Participant on the Grant Date of the Restricted Stock Units. Restricted Stock Units and Deferred Stock Units will be denominated in shares of Common Stock but paid in cash, shares of Common Stock or a combination of cash and shares of Common Stock as the Committee, in its sole discretion, will determine, and as provided in the Award Agreement.
8.2 Award Agreement. Each Restricted Stock Award, Restricted Stock Unit or Deferred Stock Unit grant will be evidenced by an Award Agreement that will specify the type of Award, the period(s) of restriction, the number of shares of restricted Common Stock, or the number of Restricted Stock Units or Deferred Stock Units granted, and such other provisions as the Committee will determine that are not inconsistent with the terms of this Plan.
8.3 Conditions and Restrictions. Subject to the terms and conditions of this Plan, the Committee will impose such conditions or restrictions on a Restricted Stock Award, Restricted Stock Units or Deferred Stock Units granted pursuant to this Plan as it may deem advisable including a requirement that Participants pay a stipulated purchase price for each share of Common Stock underlying a Restricted Stock Award, Restricted Stock Unit or Deferred Stock Unit, restrictions based upon the achievement of specific Performance Goals, time-based restrictions on vesting following the attainment of the Performance Goals, time-based restrictions, restrictions under Applicable Laws or holding requirements or sale restrictions placed on the shares of Common Stock by the Company upon vesting of such Restricted Stock Award, Restricted Stock Units or Deferred Stock Units.
8.4 Voting Rights. Unless otherwise determined by the Committee and set forth in a Participant’s Award Agreement, to the extent permitted or required by Applicable Law, as determined by the Committee, Participants holding a Restricted Stock Award granted hereunder will be granted the right to exercise full voting rights with respect to the shares of Common Stock underlying such Restricted Stock Award during the Period of Restriction. A Participant will have no voting rights with respect to any Restricted Stock Units or Deferred Stock Units granted hereunder.
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8.5 Dividend Rights.
(a) Unless otherwise determined by the Committee and set forth in a Participant’s Award Agreement, to the extent permitted or required by Applicable Law, as determined by the Committee, Participants holding a Restricted Stock Award granted hereunder will have the same dividend rights as the Company’s other stockholders. Notwithstanding the foregoing any such dividends as to a Restricted Stock Award that is subject to vesting requirements will be subject to forfeiture and termination to the same extent as the Restricted Stock Award to which such dividends relate and the Award Agreement may require that any cash dividends be reinvested in additional shares of Common Stock subject to the Restricted Stock Award and subject to the same conditions and restrictions as the Restricted Stock Award with respect to which the dividends were paid. In no event will dividends with respect to Restricted Stock Awards that are subject to vesting be paid or distributed until the vesting provisions of such Restricted Stock Award lapse.
(b) Unless otherwise determined by the Committee and set forth in a Participant’s Award Agreement, to the extent permitted or required by Applicable Law, as determined by the Committee, prior to settlement or forfeiture, any Restricted Stock Units or Deferred Stock Unit awarded under this Plan may, at the Committee’s discretion, carry with it a right to Dividend Equivalents. Such right entitles the Participant to be credited with an amount equal to all cash dividends paid on one share of Common Stock while the Restricted Stock Unit or Deferred Stock Unit is outstanding. Dividend Equivalents may be converted into additional Restricted Stock Units or Deferred Stock Units and may (and will, to the extent required below) be made subject to the same conditions and restrictions as the Restricted Stock Units or Deferred Stock Units to which they attach. Settlement of Dividend Equivalents may be made in the form of cash, in the form of shares of Common Stock, or in a combination of both. Dividend Equivalents as to Restricted Stock Units or Deferred Stock Units will be subject to forfeiture and termination to the same extent as the corresponding Restricted Stock Units or Deferred Stock Units as to which the Dividend Equivalents relate. In no event will Participants holding Restricted Stock Units or Deferred Stock Units be entitled to receive any Dividend Equivalents on such Restricted Stock Units or Deferred Stock Units until the vesting provisions of such Restricted Stock Units or Deferred Stock Units lapse.
8.6 Enforcement of Restrictions. To enforce the restrictions referred to in this Section 8, the Committee may place a legend on the stock certificates representing Restricted Stock Awards referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book entry stock account with the Company’s transfer agent. Alternatively, Restricted Stock Awards may be held in non-certificated form pursuant to such terms and conditions as the Company may establish with its registrar and transfer agent or any third-party administrator designated by the Company to hold Restricted Stock Awards on behalf of Participants.
8.7 Lapse of Restrictions; Settlement. Except as otherwise provided in this Plan, including without limitation this Section 8 and 16.4 of this Plan, shares of Common Stock underlying a Restricted Stock Award will become freely transferable by the Participant after all conditions and restrictions applicable to such shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations). Upon the vesting of a Restricted Stock Unit, the Restricted Stock Unit will be settled, subject to the terms and conditions of the applicable Award Agreement, (a) in cash, based upon the Fair Market Value of the vested underlying shares of Common Stock, (b) in shares of Common Stock or (c) a combination thereof, as provided in the Award Agreement, except to the extent that a Participant has properly elected to defer income that may be attributable to a Restricted Stock Unit under a Company deferred compensation plan or arrangement.
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8.8 Section 83(b) Election for Restricted Stock Award. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to a Restricted Stock Award, the Participant must file, within thirty (30) days following the Grant Date of the Restricted Stock Award, a copy of such election with the Company and with the Internal Revenue Service, in accordance with the regulations under Section 83 of the Code. The Committee may provide in the Award Agreement that the Restricted Stock Award is conditioned upon the Participant’s making or refraining from making an election with respect to the award under Section 83(b) of the Code.
| 9. | Performance Awards. |
9.1 Grant. An Eligible Recipient may be granted one or more Performance Awards under this Plan, and such Awards will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion, including the achievement of one or more Performance Goals.
9.2 Award Agreement. Each Performance Award will be evidenced by an Award Agreement that will specify the amount of cash, shares of Common Stock, other Awards, or combination of both to be received by the Participant upon payout of the Performance Award, any Performance Goals upon which the Performance Award is subject, any Performance Period during which any Performance Goals must be achieved and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan.
9.3 Vesting. Subject to the terms of this Plan, the Committee may impose such restrictions or conditions, not inconsistent with the provisions of this Plan, to the vesting of such Performance Awards as it deems appropriate, including the achievement of one or more of the Performance Goals.
9.4 Earning of Performance Award Payment. Subject to the terms of this Plan and the Award Agreement, after the applicable Performance Period has ended, the holder of Performance Awards will be entitled to receive payout on the value and number of Performance Awards earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved and such other restrictions or conditions imposed on the vesting and payout of the Performance Awards has been satisfied.
9.5 Form and Timing of Performance Award Payment. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Awards will be entitled to receive payment on the value and number of Performance Awards earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved. Payment of earned Performance Awards will be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Awards in the form of cash, in shares of Common Stock or other Awards (or in a combination thereof) equal to the value of the earned Performance Awards at the close of the applicable Performance Period. Payment of any Performance Award will be made as soon as practicable after the Committee has determined the extent to which the applicable Performance Goals have been achieved and not later than the fifteenth (15th) day of the third (3rd) month immediately following the later of the end of the Company’s fiscal year in which the Performance Period ends and any additional vesting restrictions are satisfied or the end of the calendar year in which the Performance Period ends and any additional vesting restrictions are satisfied, except to the extent that a Participant has properly elected to defer payment that may be attributable to a Performance Award under a Company deferred compensation plan or arrangement. The determination of the Committee with respect to the form and time of payment of Performance Awards will be set forth in the Award Agreement pertaining to the grant of the Performance Award. Any shares of Common Stock or other Awards issued in payment of earned Performance Awards may be granted subject to any restrictions deemed appropriate by the Committee, including that the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period.
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9.6 Evaluation of Performance. The Committee may provide in any such Award Agreement including Performance Goals that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) items related to a change in accounting principles; (b) items relating to financing activities; (c) expenses for restructuring or productivity initiatives; (d) other non-operating items; (e) items related to acquisitions; (f) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (g) items related to the disposal of a business or segment of a business; (h) items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; (i) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (j) any other items of significant income or expense which are determined to be appropriate adjustments; (k) items relating to unusual or extraordinary corporate transactions, events or developments; (l) items related to amortization of acquired intangible assets; (m) items that are outside the scope of the Company’s core, on-going business activities; (n) items related to acquired in-process research and development; (o) items relating to changes in tax laws; (p) items relating to major licensing or partnership arrangements; (q) items relating to asset impairment charges; (r) items relating to gains or losses for litigation, arbitration and contractual settlements; (s) foreign exchange gains and losses; or (t) items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.
9.7 Adjustment of Performance Goals, Performance Periods or other Vesting Criteria. The Committee may amend or modify the vesting criteria (including any Performance Goals or Performance Periods) of any outstanding Awards based in whole or in part on the financial performance of the Company (or any Subsidiary or division, business unit or other sub-unit thereof) in recognition of unusual or nonrecurring events (including the events described in Sections 9.6 or 4.4(a) of this Plan) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. The determination of the Committee as to the foregoing adjustments, if any, will be final, conclusive and binding on Participants under this Plan.
9.8 Dividend Rights. Participants holding Performance Awards granted under this Plan will not receive any cash dividends or Dividend Equivalents based on the dividends declared on shares of Common Stock that are subject to such Performance Awards during the period between the date that such Performance Awards are granted and the date such Performance Awards are settled.
| 10. | Non-Employee Director Awards. |
10.1 Automatic and Non-Discretionary Awards to Non-Employee Directors. Subject to such terms and conditions, consistent with the other provisions of this Plan, the Committee at any time and from time to time may approve resolutions providing for the automatic grant to Non-Employee Directors of Non-Employee Director Awards granted under this Plan and may grant to Non-Employee Directors such discretionary Non-Employee Director Awards on such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion, and set forth in an applicable Award Agreement.
10.2 Deferral of Award Payment; Election to Receive Award in Lieu of Retainers. The Committee may permit Non-Employee Directors the opportunity to defer the payment of an Award pursuant to such terms and conditions as the Committee may prescribe from time to time. In addition, the Committee may permit Non-Employee Directors to elect to receive, pursuant to the procedures established by the Board or a committee of the Board, all or any portion of their annual retainers, meeting fees, or other fees in Restricted Stock, Restricted Stock Units, Deferred Stock Units or other Stock-Based Awards as contemplated by this Plan in lieu of cash.
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| 11. | Other Stock-Based Awards. |
11.1 Other Stock-Based Awards. Subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion, the Committee may grant Other Stock-Based Awards to Eligible Recipients not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted shares of Common Stock) in such amounts and subject to such terms and conditions as the Committee will determine. Such Awards may involve the transfer of actual shares of Common Stock to Participants as a bonus or in lieu of obligations to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, or payment in cash or otherwise of amounts based on the value of shares of Common Stock, and may include Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
11.2 Value of Other Stock-Based Awards. Each Other Stock-Based Award will be expressed in terms of shares of Common Stock or units based on shares of Common Stock, as determined by the Committee. The Committee may establish Performance Goals in its discretion for any Other Stock-Based Award. If the Committee exercises its discretion to establish Performance Goals for any such Awards, the number or value of Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the Performance Goals are met.
11.3 Payment of Other Stock-Based Awards. Payment, if any, with respect to an Other Stock-Based Award will be made in accordance with the terms of the Award, in cash or shares of Common Stock for any Other Stock-Based Award, as the Committee determines, except to the extent that a Participant has properly elected to defer payment that may be attributable to an Other Stock-Based Award under a Company deferred compensation plan or arrangement.
| 12. | Dividend Equivalents. |
Subject to the provisions of this Plan and any Award Agreement, any Participant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on shares of Common Stock that are subject to any Award (including any Award that has been deferred), to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests, settles, is paid or expires, as determined by the Committee. Such Dividend Equivalents will be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee and the Committee may provide that such amounts (if any) will be deemed to have been reinvested in additional shares of Common Stock or otherwise reinvested. Notwithstanding the foregoing, the Committee may not grant Dividend Equivalents based on the dividends declared on shares of Common Stock that are subject to an Option or Stock Appreciation Right or unvested Performance Awards; and further, no dividend or Dividend Equivalents will be paid out with respect to any unvested Awards.
| 13. | Effect of Termination of Employment or Other Service. |
13.1 Termination Due to Cause. Unless otherwise expressly provided by the Committee in its sole discretion in an Award Agreement or the terms of an Individual Agreement between the Participant and the Company or one of its Subsidiaries or Affiliates or a plan or policy of the Company applicable to the Participant specifically provides otherwise, and subject to Sections 13.4 and 13.5 of this Plan, in the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated for Cause:
(a) All outstanding Options and Stock Appreciation Rights held by the Participant as of the effective date of such termination will be immediately terminated and forfeited;
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(b) All outstanding but unvested Restricted Stock Awards, Restricted Stock Units, Performance Awards and Other Stock-Based Awards held by the Participant as of the effective date of such termination will be terminated and forfeited; and
(c) All other outstanding Awards to the extent not vested will be immediately terminated and forfeited.
13.2 Termination Due to Death, Disability or Retirement. Unless otherwise expressly provided by the Committee in its sole discretion in an Award Agreement between the Participant and the Company or one of its Subsidiaries or Affiliates or the terms of an Individual Agreement or a plan or policy of the Company applicable to the Participant specifically provides otherwise, and subject to Sections 13.4, 13.5 and 15 of this Plan, in the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated by reason of death or Disability of a Participant, or in the case of a Participant that is an Employee, Retirement:
(a) All outstanding Options (excluding Non-Employee Director Options in the case of Retirement) and Stock Appreciation Rights held by the Participant as of the effective date of such termination or Retirement will, to the extent exercisable as of the date of such termination or Retirement, remain exercisable for a period of one (1) year after the date of such termination or Retirement (but in no event after the expiration date of any such Option or Stock Appreciation Right) and Options and Stock Appreciation Rights not exercisable as of the date of such termination or Retirement will be terminated and forfeited;
(b) All outstanding unvested Restricted Stock Awards held by the Participant as of the effective date of such termination or Retirement will be terminated and forfeited; and
(c) All outstanding unvested Restricted Stock Units, Performance Awards, and Other Stock-Based Awards held by the Participant as of the effective date of such termination or Retirement will be terminated and forfeited; provided, however, that with respect to any such Awards the vesting of which is based on the achievement of Performance Goals, if a Participant’s employment or other service with the Company or any Subsidiary, as the case may be, is terminated prior to the end of the Performance Period of such Award, but after the conclusion of a portion of the Performance Period (but in no event less than one year), the Committee may, in its sole discretion, cause shares of Common Stock to be delivered or payment made (except to the extent that a Participant has properly elected to defer income that may be attributable to such Award under a Company deferred compensation plan or arrangement) with respect to the Participant’s Award, but only if otherwise earned for the entire Performance Period and only with respect to the portion of the applicable Performance Period completed at the date of such event, with proration based on the number of months or years that the Participant was employed or performed services during the Performance Period. The Committee will consider the provisions of Section 13.5 of this Plan and will have the discretion to consider any other fact or circumstance in making its decision as to whether to deliver such shares of Common Stock or other payment, including whether the Participant again becomes employed.
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13.3 Termination for Reasons Other than Death, Disability or Retirement. Unless otherwise expressly provided by the Committee in its sole discretion in an Award Agreement or the terms of an Individual Agreement between the Participant and the Company or one of its Subsidiaries or Affiliates or a plan or policy of the Company applicable to the Participant specifically provides otherwise, and subject to Sections 13.4, 13.5 and 15 of this Plan, in the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated for any reason other than for Cause or death or Disability of a Participant, or in the case of a Participant that is an Employee, Retirement:
(a) All outstanding Options (including Non-Employee Director Options) and Stock Appreciation Rights held by the Participant as of the effective date of such termination will, to the extent exercisable as of such termination, remain exercisable for a period of three (3) months after such termination (but in no event after the expiration date of any such Option or Stock Appreciation Right) and Options and Stock Appreciation Rights not exercisable as of such termination will be terminated and forfeited. If the Participant dies within the three (3) month period referred to in the preceding sentence, the Option or Stock Appreciation Right may be exercised by those entitled to do so under the Participant’s will or by the laws of descent and distribution within a period of one (1) year following the Participant’s death (but in no event after the expiration date of any such Option or Stock Appreciation Right).
(b) All outstanding unvested Restricted Stock Awards held by the Participant as of the effective date of such termination will be terminated and forfeited;
(c) All outstanding unvested Restricted Stock Units, Performance Awards, and Other Stock-Based Awards held by the Participant as of the effective date of such termination will be terminated and forfeited; provided, however, that with respect to any such Awards the vesting of which is based on the achievement of Performance Goals, if a Participant’s employment or other service with the Company or any Subsidiary, as the case may be, is terminated by the Company without Cause prior to the end of the Performance Period of such Award, but after the conclusion of a portion of the Performance Period (but in no event less than one year), the Committee may, in its sole discretion, cause Shares to be delivered or payment made (except to the extent that a Participant has properly elected to defer income that may be attributable to such Award under a Company deferred compensation plan or arrangement) with respect to the Participant’s Award, but only if otherwise earned for the entire Performance Period and only with respect to the portion of the applicable Performance Period completed at the date of such event, with proration based on the number of months or years that the Participant was employed or performed services during the Performance Period.
13.4 Modification of Rights upon Termination. Notwithstanding the other provisions of this Section 13, upon a Participant’s termination of employment or other service with the Company or any Subsidiary, as the case may be, the Committee may, in its sole discretion (which may be exercised at any time on or after the Grant Date, including following such termination) cause Options or Stock Appreciation Rights (or any part thereof) held by such Participant as of the effective date of such termination to terminate, become or continue to become exercisable or remain exercisable following such termination of employment or service, and Restricted Stock, Restricted Stock Units, Deferred Stock Units, Performance Awards, Non-Employee Director Awards, and Other Stock-Based Awards held by such Participant as of the effective date of such termination to terminate, vest or become free of restrictions and conditions to payment, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that (a) no Option or Stock Appreciation Right may remain exercisable beyond its expiration date; and (b) any such action by the Committee adversely affecting any outstanding Award will not be effective without the consent of the affected Participant (subject to the right of the Committee to take whatever action it deems appropriate under Section 4.4, 13.5, 15 or 19 of this Plan).
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13.5 Additional Forfeiture Events.
(a) Effect of Actions Constituting Cause or Adverse Action. Notwithstanding anything in this Plan to the contrary and in addition to the other rights of the Committee under this Plan, including this Section 13.5, if a Participant is determined by the Committee, acting in its sole discretion, to have taken any action that would constitute Cause or an Adverse Action during or within one (1) year after the termination of employment or other service with the Company or a Subsidiary, irrespective of whether such action or the Committee’s determination occurs before or after termination of such Participant’s employment or other service with the Company or any Subsidiary and irrespective of whether or not the Participant was terminated as a result of such Cause or Adverse Action, (i) all rights of the Participant under this Plan and any Award Agreements evidencing an Award then held by the Participant will terminate and be forfeited without notice of any kind, and (ii) the Committee in its sole discretion will have the authority to rescind the exercise, vesting or issuance of, or payment in respect of, any Awards of the Participant that were exercised, vested or issued, or as to which such payment was made, and to require the Participant to pay to the Company, within ten (10) days of receipt from the Company of notice of such rescission, any amount received or the amount of any gain realized as a result of such rescinded exercise, vesting, issuance or payment (including any dividends paid or other distributions made with respect to any shares of Common Stock subject to any Award). The Company may defer the exercise of any Option or Stock Appreciation Right for a period of up to six (6) months after receipt of the Participant’s written notice of exercise or the issuance of share certificates upon the vesting of any Award for a period of up to six (6) months after the date of such vesting in order for the Committee to make any determination as to the existence of Cause or an Adverse Action. The Company will be entitled to withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary) or make other arrangements for the collection of all amounts necessary to satisfy such payment obligations. Unless otherwise provided by the Committee in an applicable Award Agreement, this Section 13.5(a) will not apply to any Participant following a Change in Control.
(b) Forfeiture or Clawback of Awards Under Applicable Law and Company Policy. If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 will reimburse the Company for the amount of any Award received by such individual under this Plan during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement. The Company also may seek to recover any Award made as required by the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other clawback, forfeiture or recoupment provision required by Applicable Law or under the requirements of any stock exchange or market upon which the shares of Common Stock are then listed or traded. In addition, all Awards under this Plan will be subject to forfeiture or other penalties pursuant to any clawback or forfeiture policy of the Company, as in effect from time to time, and such forfeiture and/or penalty conditions or provisions as determined by the Committee and set forth in the applicable Award Agreement.
| 14. | Payment of Withholding Taxes. |
14.1 General Rules. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all amounts the Company reasonably determines are necessary to satisfy any and all federal, foreign, state and local withholding and employment related tax requirements attributable to an Award, including the grant, exercise, vesting or settlement of, or payment of dividends with respect to, an Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Award. When withholding shares of Common Stock for taxes is effected under this Plan, it will be withheld only up to an amount based on the maximum statutory tax rates in the Participant’s applicable tax jurisdiction or such other rate that will not trigger a negative accounting impact on the Company.
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14.2 Special Rules. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment related tax obligation described in Section 14.1 of this Plan by withholding shares of Common Stock underlying an Award, by electing to tender, or by attestation as to ownership of, Previously Acquired Shares, by delivery of a Broker Exercise Notice or a combination of such methods. For purposes of satisfying a Participant’s withholding or employment-related tax obligation, shares of Common Stock withheld by the Company or Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the Tax Date.
| 15. | Change in Control. |
15.1 Definition of Change in Control. Unless otherwise provided in an Award Agreement or Individual Agreement between the Participant and the Company or one of its Subsidiaries or Affiliates, a “Change in Control” will mean the occurrence of any of the following:
(a) The acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of either the then outstanding shares of Common Stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by the Company or any of its Subsidiaries, or any employee benefit plan (or related trust) of the Company or its Subsidiaries, or any entity with respect to which, following such acquisition, more than fifty percent (50%) of, respectively, the then outstanding equity of such entity and the combined voting power of the then outstanding voting equity of such entity entitled to vote generally in the election of all or substantially all of the members of such entity's governing body is then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners, respectively, of the Common Stock and voting securities of the Company immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of Common Stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, as the case may be; or
(b) The consummation of a reorganization, merger or consolidation of the Company, in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Common Stock and voting securities of the Company immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; or
(c) a complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company.
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15.2 Effect of Change in Control. Subject to the terms of the applicable Award Agreement or an Individual Agreement, in the event of a Change in Control, the Committee (as constituted prior to such Change in Control) may, in its discretion:
(a) require that shares of stock of the corporation resulting from such Change in Control, or a parent corporation thereof, be substituted for some or all of the shares of Common Stock subject to an outstanding Award, with an appropriate and equitable adjustment to such Award as shall be determined by the Board in accordance with Section 4.4;
(b) provide that (i) some or all outstanding Options shall become exercisable in full or in part, either immediately or upon a subsequent termination of employment, (ii) the restrictions or vesting applicable to some or all outstanding Restricted Stock Awards and Restricted Stock Units shall lapse in full or in part, either immediately or upon a subsequent termination of employment, (iii) the Performance Period applicable to some or all outstanding Awards shall lapse in full or in part, and/or (iv) the Performance Goals applicable to some or all outstanding Awards shall be deemed to be satisfied at the target or any other level; and/or
(c) require outstanding Awards, in whole or in part, to be surrendered to the Company by the holder, and to be immediately cancelled by the Company, and to provide for the holder to receive (A) a cash payment in an amount determined pursuant to Section 15.3 below; (B) shares of capital stock of the corporation resulting from or succeeding to the business of the Company pursuant to such Change in Control, or a parent corporation thereof, having a fair market value not less than the amount determined under clause (A) above; or (C) a combination of the payment of cash pursuant to clause (A) above and the issuance of shares pursuant to clause (B) above.
15.3 Alternative Treatment of Incentive Awards. In connection with a Change in Control, the Committee in its sole discretion, either in an Award Agreement at the time of grant of an Award or at any time after the grant of such an Award, in lieu of providing a substitute award to a Participant pursuant to Section 15.2(a), may determine that any or all outstanding Awards granted under the Plan, whether or not exercisable or vested, as the case may be, will be canceled and terminated and that in connection with such cancellation and termination the holder of such Award will receive for each share of Common Stock subject to such Award a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities with a fair market value (as determined by the Committee in good faith) equivalent to such cash payment) equal to the difference, if any, between the consideration received by stockholders of the Company in respect of a share of Common Stock in connection with such Change in Control and the purchase price per share, if any, under the Award, multiplied by the number of shares of Common Stock subject to such Award (or in which such Award is denominated); provided, however, that if such product is zero ($0) or less or to the extent that the Award is not then exercisable, the Award may be canceled and terminated without payment therefor. If any portion of the consideration pursuant to a Change in Control may be received by holders of shares of Common Stock on a contingent or delayed basis, the Committee may, in its sole discretion, determine the fair market value per share of such consideration as of the time of the Change in Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such consideration. Notwithstanding the foregoing, any shares of Common Stock issued pursuant to an Award that immediately prior to the effectiveness of the Change in Control are subject to no further restrictions pursuant to the Plan or an Award Agreement (other than pursuant to the securities laws) will be deemed to be outstanding shares of Common Stock and receive the same consideration as other outstanding shares of Common Stock in connection with the Change in Control.
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15.4 Limitation on Change in Control Payments. Notwithstanding anything in this Section 15 to the contrary, if, with respect to a Participant, the acceleration of the vesting of an Award or the payment of cash in exchange for all or part of a Stock-Based Award (which acceleration or payment could be deemed a “payment” within the meaning of Section 280G(b)(2) of the Code), together with any other “payments” that such Participant has the right to receive from the Company or any corporation that is a member of an “affiliated group” (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the “payments” to such Participant pursuant to Section 15.2 or Section 15.3 of this Plan will be reduced (or acceleration of vesting eliminated) to the largest amount as will result in no portion of such “payments” being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that such reduction will be made only if the aggregate amount of the payments after such reduction exceeds the difference between (a) the amount of such payments absent such reduction minus (b) the aggregate amount of the excise tax imposed under Section 4999 of the Code attributable to any such excess parachute payments; and provided, further that such payments will be reduced (or acceleration of vesting eliminated) by first eliminating vesting of Options with an exercise price above the then Fair Market Value of a share of Common Stock that have a positive value for purposes of Section 280G of the Code, followed by reducing or eliminating payments or benefits pro rata among Awards that are deferred compensation subject to Section 409A of the Code, and, if a further reduction is necessary, by reducing or eliminating payments or benefits pro rata among Awards that are not subject to Section 409A of the Code. Notwithstanding the foregoing sentence, if a Participant is subject to a separate agreement with the Company or a Subsidiary that expressly addresses the potential application of Section 280G or 4999 of the Code, then this Section 15.4 will not apply and any “payments” to a Participant pursuant to Section 15 of this Plan will be treated as “payments” arising under such separate agreement; provided, however, such separate agreement may not modify the time or form of payment under any Award that constitutes deferred compensation subject to Section 409A of the Code if the modification would cause such Award to become subject to the adverse tax consequences specified in Section 409A of the Code.
15.5 Exceptions. Notwithstanding anything in this Section 15 to the contrary, individual Award Agreements or Individual Agreements between a Participant and the Company or one of its Subsidiaries or Affiliates may contain provisions with respect to vesting, payment or treatment of Awards upon the occurrence of a Change in Control, and the terms of any such Award Agreement or Individual Agreement will govern to the extent of any inconsistency with the terms of this Section 15. The Committee will not be obligated to treat all Awards subject to this Section 15 in the same manner. The timing of any payment under this Section 15 may be governed by any election to defer receipt of a payment made under a Company deferred compensation plan or arrangement.
| 16. | Rights of Eligible Recipients and Participants; Transferability. |
16.1 Employment. Nothing in this Plan or an Award Agreement will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue employment or other service with the Company or any Subsidiary.
16.2 No Rights to Awards. No Participant or Eligible Recipient will have any claim to be granted any Award under this Plan.
16.3 Rights as a Stockholder. Except as otherwise provided in the Award Agreement, a Participant will have no rights as a stockholder with respect to shares of Common Stock covered by any Stock-Based Award unless and until the Participant becomes the holder of record of such shares of Common Stock and then subject to any restrictions or limitations as provided herein or in the Award Agreement.
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16.4 Restrictions on Transfer.
(a) Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any Participant in an Award prior to the exercise (in the case of Options or Stock Appreciation Rights) or vesting, issuance or settlement of such Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise.
(b) A Participant will be entitled to designate a beneficiary to receive an Award upon such Participant’s death, and in the event of such Participant’s death, payment of any amounts due under this Plan will be made to, and exercise of any Options or Stock Appreciation Rights (to the extent permitted pursuant to Section 13 of this Plan) may be made by, such beneficiary. If a deceased Participant has failed to designate a beneficiary, or if a beneficiary designated by the Participant fails to survive the Participant, payment of any amounts due under this Plan will be made to, and exercise of any Options or Stock Appreciation Rights (to the extent permitted pursuant to Section 13 of this Plan) may be made by, the Participant’s legal representatives, heirs and legatees. If a deceased Participant has designated a beneficiary and such beneficiary survives the Participant but dies before complete payment of all amounts due under this Plan or exercise of all exercisable Options or Stock Appreciation Rights, then such payments will be made to, and the exercise of such Options or Stock Appreciation Rights may be made by, the legal representatives, heirs and legatees of the beneficiary.
(c) Upon a Participant’s request, the Committee may, in its sole discretion, permit a transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing such Participant’s household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent (50%) of the beneficial interests, a foundation in which any of the foregoing (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent (50%) of the voting interests. Any permitted transferee will remain subject to all the terms and conditions applicable to the Participant prior to the transfer. A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including execution or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.
(d) The Committee may impose such restrictions on any shares of Common Stock acquired by a Participant under this Plan as it may deem advisable, including minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which the Common Stock is then listed or traded, or under any blue sky or state securities laws applicable to such shares or the Company’s insider trading policy.
16.5 Non-Exclusivity of this Plan. Nothing contained in this Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable.
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| 17. | Securities Law and Other Restrictions. |
17.1 Restrictions. Notwithstanding any other provision of this Plan or any Award Agreements entered into pursuant to this Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Awards granted under this Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable securities laws of a state or foreign jurisdiction or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other U.S. or foreign regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.
17.2 Market Stand-Off Agreement. Except as otherwise approved by the Committee, the holder of any shares of Common Stock acquired in connection with the grant, exercise or vesting of an Incentive Award may not sell, assign, transfer or otherwise dispose of, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale of, any Common Stock (or other securities) of the Company held by such holder (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of the initial registration statement of the Company filed under the Securities Act (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with FINRA Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation) and during the ninety (90) day period following the effective date of any subsequent registration statement of the Company filed under the Securities Act (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with FINRA Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation); provided, however, that such restrictions with respect to any subsequent registration shall terminate two (2) years after the effective date of the Company’s initial registration statement filed under the Securities Act. The foregoing provisions will not apply to the sale of any securities to an underwriter pursuant to an underwriting agreement and shall only be applicable to such holder if all then current executive officers and directors of the Company enter into similar agreements. The provisions hereof shall not apply to a registration relating solely to employee benefit plans on Form S 1 or Form S 8 or Rule 145 transactions on Form S 4, or similar forms that may be promulgated in the future. The Company may impose stop transfer instructions with respect to the securities subject to the provisions hereof until the end of the applicable periods. The underwriters in connection with any public offering subject to the foregoing provisions are intended third-party beneficiaries of this Section 17.2 and will have the right to enforce the provisions hereof as though they were a party hereto. By accepting an Incentive Award under the Plan, each Participant agrees to enter into an appropriate lock-up agreement with any such underwriters containing provisions similar in all material respects with the terms of this Section 17.2.
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| 18. | Deferred Compensation; Compliance with Section 409A. |
It is intended that all Awards issued under this Plan be in a form and administered in a manner that will comply with the requirements of Section 409A of the Code, or the requirements of an exception to Section 409A of the Code, and the Award Agreements and this Plan will be construed and administered in a manner that is consistent with and gives effect to such intent. The Committee is authorized to adopt rules or regulations deemed necessary or appropriate to qualify for an exception from or to comply with the requirements of Section 409A of the Code. With respect to an Award that constitutes a deferral of compensation subject to Code Section 409A: (a) if any amount is payable under such Award upon a termination of service, a termination of service will be treated as having occurred only at such time the Participant has experienced a Separation from Service; (b) if any amount is payable under such Award upon a Disability, a Disability will be treated as having occurred only at such time the Participant has experienced a “disability” as such term is defined for purposes of Code Section 409A; (c) if any amount is payable under such Award on account of the occurrence of a Change in Control, a Change in Control will be treated as having occurred only at such time a “change in the ownership or effective control of the corporation or in the ownership of a substantial portion of the assets of the corporation” as such terms are defined for purposes of Code Section 409A, (d) if any amount becomes payable under such Award on account of a Participant’s Separation from Service at such time as the Participant is a “specified employee” within the meaning of Code Section 409A, then no payment will be made, except as permitted under Code Section 409A, prior to the first business day after the earlier of (i) the date that is six months after the date of the Participant’s Separation from Service or (ii) the Participant’s death, and (e) no amendment to or payment under such Award will be made except and only to the extent permitted under Code Section 409A.
| 19. | Amendment, Modification and Termination. |
19.1 Generally. Subject to other subsections of this Section 19 and Section 3.4 of this Plan, the Board at any time may suspend or terminate this Plan (or any portion thereof) or terminate any outstanding Award Agreement and the Committee, at any time and from time to time, may amend this Plan or amend or modify the terms of an outstanding Award. The Committee’s power and authority to amend or modify the terms of an outstanding Award includes the authority to modify the number of shares of Common Stock or other terms and conditions of an Award, extend the term of an Award, accept the surrender of any outstanding Award or, to the extent not previously exercised or vested, authorize the grant of new Awards in substitution for surrendered Awards; provided, however that the amended or modified terms are permitted by this Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification.
19.2 Stockholder Approval. No amendments to this Plan will be effective without approval of the Company’s stockholders if: (a) stockholder approval of the amendment is then required pursuant to Section 422 of the Code, the rules of the primary stock exchange or stock market on which the Common Stock is then traded, applicable state corporate laws or regulations, applicable federal laws or regulations, and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under this Plan; or (b) such amendment would: (i) modify Section 3.4 of this Plan; (ii) materially increase benefits accruing to Participants; (iii) increase the aggregate number of shares of Common Stock issued or issuable under this Plan; (iv) increase any limitation set forth in this Plan on the number of shares of Common Stock which may be issued or the aggregate value of Awards which may be made, in respect of any type of Award to any single Participant during any specified period; (v) modify the eligibility requirements for Participants in this Plan; or (vi) reduce the minimum exercise price or grant price as set forth in Sections 6.3 and 7.3 of this Plan.
19.3 Awards Previously Granted. Notwithstanding any other provision of this Plan to the contrary, no termination, suspension or amendment of this Plan may adversely affect any outstanding Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 4.4, 9.7, 13, 15, 18 or 19.4 of this Plan.
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19.4 Amendments to Conform to Law. Notwithstanding any other provision of this Plan to the contrary, the Committee may amend this Plan or an Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming this Plan or an Award Agreement to any present or future law relating to plans of this or similar nature, and to the administrative regulations and rulings promulgated thereunder. By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this Section 19.4 to any Award granted under this Plan without further consideration or action.
| 20. | Substituted Awards. |
The Committee may grant Awards under this Plan in substitution for stock and stock-based awards held by employees of another entity who become employees of the Company or a Subsidiary as a result of a merger or consolidation of the former employing entity with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the former employing corporation. The Committee may direct that the substitute Awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances.
| 21. | Effective Date and Duration of this Plan. |
This Plan is effective as of the Effective Date. This Plan will terminate at midnight on the day before the ten (10) year anniversary of the Effective Date, and may be terminated prior to such time by Board action. No Award will be granted after termination of this Plan, but Awards outstanding upon termination of this Plan will remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.
| 22. | Miscellaneous. |
22.1 Usage. In this Plan, except where otherwise indicated by clear contrary intention, (a) any masculine term used herein also will include the feminine, (b) the plural will include the singular, and the singular will include the plural, (c) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term, and (d) “or” is used in the inclusive sense of “and/or”.
22.2 Relationship to Other Benefits. Neither Awards made under this Plan nor shares of Common Stock or cash paid pursuant to such Awards under this Plan will be included as “compensation” for purposes of computing the benefits payable to any Participant under any pension, retirement (qualified or non-qualified), savings, profit sharing, group insurance, welfare, or benefit plan of the Company or any Subsidiary unless provided otherwise in such plan.
22.3 Fractional Shares. No fractional shares of Common Stock will be issued or delivered under this Plan or any Award. The Committee will determine whether cash, other Awards or other property will be issued or paid in lieu of fractional shares of Common Stock or whether such fractional shares of Common Stock or any rights thereto will be forfeited or otherwise eliminated by rounding up or down.
22.4 Governing Law. Except to the extent expressly provided herein or in connection with other matters of corporate governance and authority (all of which will be governed by the laws of the Company’s jurisdiction of incorporation), the validity, construction, interpretation, administration and effect of this Plan and any rules, regulations and actions relating to this Plan will be governed by and construed exclusively in accordance with the laws of the State of Nevada, notwithstanding the conflicts of laws principles of any jurisdictions.
22.5 Successors. All obligations of the Company under this Plan with respect to Awards granted hereunder will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.
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22.6 Construction. Wherever possible, each provision of this Plan and any Award Agreement will be interpreted so that it is valid under the Applicable Law. If any provision of this Plan or any Award Agreement is to any extent invalid under the Applicable Law, that provision will still be effective to the extent it remains valid. The remainder of this Plan and the Award Agreement also will continue to be valid, and the entire Plan and Award Agreement will continue to be valid in other jurisdictions.
22.7 Delivery and Execution of Electronic Documents. To the extent permitted by Applicable Law, the Company may: (a) deliver by email or other electronic means (including posting on a Web site maintained by the Company or by a third party under contract with the Company) all documents relating to this Plan or any Award hereunder (including prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including annual reports and proxy statements), and (b) permit Participants to use electronic, internet or other non-paper means to execute applicable Plan documents (including Award Agreements) and take other actions under this Plan in a manner prescribed by the Committee.
22.8 No Representations or Warranties Regarding Tax Effect. Notwithstanding any provision of this Plan to the contrary, the Company and its Subsidiaries, the Board, and the Committee neither represent nor warrant the tax treatment under any federal, state, local, or foreign laws and regulations thereunder (individually and collectively referred to as the “Tax Laws”) of any Award granted or any amounts paid to any Participant under this Plan including, but not limited to, when and to what extent such Awards or amounts may be subject to tax, penalties, and interest under the Tax Laws.
22.9 Unfunded Plan. Participants will have no right, title or interest whatsoever in or to any investments that the Company or its Subsidiaries may make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative, or any other individual. To the extent that any individual acquires a right to receive payments from the Company or any Subsidiary under this Plan, such right will be no greater than the right of an unsecured general creditor of the Company or the Subsidiary, as the case may be. All payments to be made hereunder will be paid from the general funds of the Company or the Subsidiary, as the case may be, and no special or separate fund will be established and no segregation of assets will be made to assure payment of such amounts except as expressly set forth in this Plan.
22.10 Indemnification. Subject to any limitations and requirements of Nevada law, each individual who is or will have been a member of the Board, or a Committee appointed by the Board, or an officer or Employee of the Company to whom authority was delegated in accordance with Section 3.3 of this Plan, will be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit or proceeding against him or her, provided he or she will give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his/her own behalf. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or pursuant to any agreement with the Company, or any power that the Company may have to indemnify them or hold them harmless.
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Exhibit 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (this “Agreement”) is made as of April 1st, 2021 (“Effective Date”), by and between Adina Gold Corp., a Nevada corporation (the “Employer”), and Christian Noël, an individual resident of Canada (the “Executive”). The signatories of this Agreement are referred to individually as a “Party” or collectively as the “Parties.”
RECITALS
A. Employer considers it essential and in the best interests of its stockholders to foster the employment of key management personnel and desires to engage the services of the Executive on the terms and conditions hereinafter set forth; and
B. Executive desires to render services to the Employer on the terms and conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and of other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, agree as follows:
AGREEMENT
1. EMPLOYMENT TERMS AND DUTIES
1.1 EMPLOYMENT.
The Employer agrees to, and hereby does, employ the Executive for the term of this Agreement upon the terms and conditions set forth in this Agreement.
1.2 TERM.
Subject to the provisions of Section 5, the term of Executive’s employment under this Agreement will be three (3) years (the “Employment Period”), beginning on the Effective Date. The Employment Period shall be automatically renewed for an additional one year term on each anniversary of the Effective Date of this Agreement, unless, not less than sixty (60) days prior to such anniversary, either party gives the other party written notice of the non-renewal of the Employment Period. The non-renewal of this Agreement shall not be considered a termination of the Executive’s employment for purposes of Section 5 of this Agreement.
1.3 DUTIES.
The Executive will serve as the Chief Executive Officer of the Employer and shall have the duties, authorities, and responsibilities commensurate with such position, and such other duties, authorities, and responsibilities as may reasonably be assigned to the Executive from time to time that are not inconsistent with the Executive’s position with the Employer. In the performance of his duties, the Executive shall, in good faith, comply with the policies, and be subject to the reasonable direction, of the Board of Directors of the Employer. The Executive agrees to perform in good faith and to the best of his ability all services which may be required of him hereunder and will devote such efforts and business time, skill, attention and energies as are reasonably necessary to perform his duties and responsibilities under this Agreement and to promote the success of the Employer’s business. The Executive shall be employed on a full time basis by the Employer and shall initially be located in Québec, Canada. Should the Parties mutually agree that Executive must relocate, then Executive and Employer shall mutually agree on a relocation program that will either consist of: (i) the relocation of Executive, at the expense of the Employer, to an area proximate to any such new corporate headquarters; or (ii) Executive and Employer agreeing on the scope and allocation of cost of a commuting/temporary accommodation program. Subject to the provisions of Section 7 of this Agreement, the Executive may continue to engage in the following activities: (a) serving on the Board of Directors of community or other non-profit ventures in an unpaid capacity, provided such ventures do not interfere with Executive’s full-time service to the Employer, (b) serving on the Board of Directors of other non-competitive ventures or businesses that are pre-approved in writing by the Employer’s audit committee; (c) managing his personal investments; and (d) participate in certain preexisting and ongoing referral agreements, the general terms of which will be disclosed to Employer’s audit committee prior to execution of this Agreement, provided that such activities set forth in (a) through (d) (individually or collectively) do not materially and adversely interfere or conflict with the performance of the Executive’s duties or responsibilities under this Agreement.
2. COMPENSATION
2.1 BASIC COMPENSATION.
(a) Signing Bonus; RSUs. The Employer agrees to grant to the Executive as of the Effective Date, 6,000,000 RSU’s. The RSU’s awarded shall be subject to the terms of a Restricted Stock Unit Agreement granted under and subject to the Employer’s 2019 Omnibus Incentive Plan (the “Plan”) except, in all events, such RSUs shall vest immediately and automatically at the grant date. However, Employer shall not be able to sell, transfer, or otherwise dispose of the resulting shares before the second anniversary of the Effective Date, except upon: (a) Executive’s death; (b) termination of the Executive’s employment on account of Disability; (c) termination by Employer other than For Cause; (d) termination by the Employer for Cause; (e) termination by the Executive Without Good Reason; (f) termination by the Executive for Good Reason; (g) Change of Control and (h) as the share restrictive legend requires by law.
(b) Base Salary. The Executive will be paid an annual base salary of $360,000.00 during 2021 with an automatic increase, effective on each anniversary of the Effective Date, of 10% per annum each year over the prior year’s base salary during the term of this Agreement, subject to tax withholdings and upwards adjustment as provided below (the “Base Salary”), which will be payable in equal periodic installments according to the Employer’s customary payroll practices, but no less frequently than monthly. The Executive’s Base Salary will be reviewed by the Employer’s Board of Directors not less frequently than annually, and may be further adjusted upward by the Employer, but in no case can be adjusted downward without the mutual agreement of the Parties.
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(c) Benefits. The Executive will, during the Employment Period, be permitted to participate in such pension, profit sharing, life insurance, and medical and dental insurance coverage benefits, (including family coverage, 100% of which will be paid for by the Employer), and other employee benefit plans of the Employer, to the extent they may be in effect from time to time, and to the extent the Executive is eligible under the terms of those plans (collectively, the “Benefits”). The Executive shall also be entitled to such other employee benefits as are now or may become available to any of the Employer’s other executive officers. Executive shall work with the Compensation Committee of the Employer (the “Compensation Committee”) to develop a benefits package to assist in recruiting talent.
2.2 INCENTIVE AND ANNUAL EQUITY COMPENSATION.
(a) Targeted Annual Incentive Bonus. In addition to his Base Salary, the Executive shall be eligible to receive a targeted annual incentive bonus each calendar year based upon achievement of performance goals of the Executive and corporate achievements of the Employer, as determined in the sole discretion of the Compensation Committee, upon consultation with a compensation consultant. The target payout to be 100% of Base Salary which can been amended up or down by the Compensation Committee based on the performance goals. An annual incentive bonus that is earned shall be payable to the Executive within no more than thirty (30) days following the Employer’s determination of the performance goals for the annual period in question (but in no event later than March 15 of the year after such annual period), and shall be accompanied by a certification of the Employer’s Chief Financial Officer describing the determination of the amount of the annual incentive bonus. Subject to the Compensation Committee’s determination of the achievement of the performance goals, the annual incentive bonus for a calendar year shall be earned if the Executive’s employment or service continues until December 31 of that year.
(b) Annual RSU Award. In addition to his Base Salary and targeted annual incentive bonus opportunity under Section 2.2(a) above, the Executive shall each calendar year also be eligible to receive an annual RSU based upon achievement of performance goals of the Executive and corporate achievements of the Employer, as determined in the sole discretion of the Compensation Committee (upon consultation with a compensation consultant). The performance goals, may or may not be the same as the performance goals established in connection with Section 2.2(a) above. The target payout to be between 0 - 275% of Base Salary which can been amended up or down by the Compensation Committee based on the performance goals, and will be settled upon the issuance of additional RSU’s to the Executive at the same time as the incentive bonus. The number of RSUs granted on each award date shall equal the number of shares of common stock of the Employer that have a Fair Market Value on the date of grant equal to that percentage of Base Salary resulting from the Committee’s determination of the annual performance goals. The RSUs shall be subject to the terms of a Restricted Stock Unit Agreement granted under and subject to the Plan, except, in all events, such RSUs shall vest immediately and automatically at the grant date. However, Employer shall not be able to sell, transfer, or otherwise dispose of the resulting sharesbefore the second anniversary of the Effective Date, except upon: (a) Executive’s death; (b) termination of the Executive’s employment on account of Disability; (c) termination by Employer other than For Cause; (d) termination by the Employer for Cause; (e) termination by the Executive Without Good Reason; (f) termination by the Executive for Good Reason; (g) Change of Control, and (h) as the share restrictive legend requires by law.
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2.3 MANAGEMENT INCENTIVE EQUITY POOL
The Compensation Committee, in consultation with Executive, will establish and/or maintain a Management Equity Incentive Pool of at least 10% of the outstanding shares of the Employer for senior management and other personnel of the Employer, to which Executive will be eligible to participate.
2.4 INDEMNIFICATION; D&O INSURANCE
Employer agrees to indemnify Executive and hold Executive harmless to the extent provided under the operating documents of the Employer against, or applicable law, and in respect of, any and all actions suits, proceedings, claims, demands, judgments, costs, expenses (including reasonable attorney’s fees), losses, and damages resulting from the Executive’s good faith performance of the Executive’s duties and obligations with Employer. This obligation shall survive the termination of the Executive’s employment with Employer. Employer shall cover the Employee under directors’ and officers’ liability insurance both during and, while potential liability exists, after the term of this Agreement in the same amount and to the same extent as the Employer covers its other officers and directors, and consistent with the amount of coverage similarly sized companies provide their officers and directors, whichever is more.
3. EXPENSE REIMBURSEMENT
The Employer will pay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by the Executive in the performance of the Executive’s duties pursuant to this Agreement, including, without limitation, reasonable expenses incurred by the Executive in attending business meetings and for entertainment expenses, dues in such trade and professional organizations as the Executive deems appropriate, toll tag fees, annual dues associated with membership in airport lounges and clubs, and cell phone fees and data plans, in accordance with the Employer’s then applicable travel and entertainment policies. Any individual expenses (or those aggregated for a single business trip) greater than $10,000 must be approved by either the Employer’s Chief Financial Officer or the Employer’s Compensation Committee. The Executive must submit expense reports with respect to such expenses in accordance with the Employer’s policies. Payment by Employer or reimbursement, as appropriate, will be made by Employer within thirty days following submission.
4. VACATIONS AND HOLIDAYS
The Executive will be entitled to six (6) weeks’ paid vacation each calendar year in accordance with the vacation policies of the Employer in effect for its executive officers from time to time. The Executive will also be entitled to the paid holidays and other paid leave set forth in the Employer’s policies.
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5. TERMINATION
5.1 EVENTS OF TERMINATION.
(a) The Executive’s employment may be terminated by the Employer on the following grounds:
(i) upon the death of the Executive;
(ii) upon the Disability (defined in Section 9.1) of the Executive immediately upon notice from either party to the other;
(iii) For Cause (defined in Section 9.1) (following the expiration of any applicable notice period); and
(iv) at the discretion of the Employer, other than For Cause.
(b) The Executive may terminate his employment on the following grounds:
(i) without Good Reason (defined in Section 9.1), provided that the Executive gives the Employer at least thirty (30) days prior written notice of his termination of employment; or
(ii) for Good Reason (following the expiration of any applicable notice period).
5.2 TERMINATION BENEFITS.
Effective upon the termination of this Agreement, the Employer will be obligated to pay the Executive (or, in the event of his death, his designated beneficiary as defined below) the compensation provided in this Section 5.2:
(a) Termination by the Employer For Cause or Termination by the Executive Without Good Reason. If the Employer terminates this Agreement For Cause or the Executive resigns or terminates his employment for other than Good Reason, the Executive will be entitled to receive the Accrued Obligations, but will not be entitled to any other compensation.
(b) Termination upon Disability. If this Agreement is terminated by the Employer as a result of the Executive’s Disability, in lieu of any payments due under this agreement or any severance plan or program for employees or executives, Executive shall be entitled to receive: (i) the Accrued Obligations; and (ii) a continuation of his then effective Base Salary for six (6) months following such termination. The Base Salary continuation benefit described in clause (ii) of the preceding sentence shall be paid in accordance with the Employer’s customary payroll practices then in effect beginning with the first regular payroll date that occurs after the Release Effective Date; provided, however, that if the sixty (60) day period for providing the Release begins in one calendar year and ends in the following calendar year, the first payment of such amount shall be made on the first regular payroll date that occurs in the second calendar year and that is after the Release Effective Date. The proceeds of any disability insurance secured on behalf of the Executive by the Employer and received by the Executive shall be applied towards, and credited against, the Employer’s obligation to continue paying the Executive’s Base Salary as set forth above. If Executive or Executive’s eligible dependent(s) timely elect coverage pursuant to COBRA, Employer shall pay for COBRA coverage for six (6) months or, if earlier, the month in which the right to COBRA coverage ends.
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(c) Termination upon Death. If this Agreement is terminated because of the Executive’s death, the Executive’s estate shall be entitled to receive, in lieu of any payments due under this Agreement or any severance plan or program for employees or executives: (i) the Accrued Obligations; and (ii) a continuation of the Executive’s Base Salary for six (6) months following the Executive’s death. The Base Salary continuation benefit described in clause (ii) of the preceding sentence shall be paid in accordance with the Employer’s customary payroll practices then in effect beginning with the first regular payroll date that occurs after the Release Effective Date; provided, however, that if the sixty (60) day period for providing the Release begins in one calendar year and ends in the following calendar year, the first payment of such amount shall be made on the first regular payroll date that occurs in the second calendar year and that is after the Release Effective Date. If Executive’s eligible dependent(s) timely elect coverage pursuant to COBRA, Employer shall pay for COBRA coverage for six (6) months or, if earlier, the month in which the right to COBRA coverage ends.
(d) Termination by the Executive For Good Reason or Termination by the Employer Other Than For Cause. If this Agreement is terminated by the Executive for Good Reason, or if this Agreement is terminated by the Employer other than For Cause, then the Executive shall be entitled to receive, in lieu of any other payments due under this Agreement or any severance plan or program for employees or executives: (i) the Accrued Obligations; and (ii) a continuation of the Executive’s Base Salary for twelve (12) months following the Executive’s death. The Base Salary continuation benefits described in clause (ii) of the preceding sentence shall be paid in accordance with the Employer’s customary payroll practices, then in effect beginning with the first regular payroll date that occurs after the Release Effective Date; provided, however, that if the sixty (60) day period for providing the Release begins in one calendar year and ends in the following calendar year, the first payment of such amount shall be made on the first regular payroll date that occurs in the second calendar year and that is after the Release Effective Date. Executive shall make himself reasonably available to provide strategic consulting and transition services for twelve (12) months following the effective date of the Executive’s termination covered by this Section 5.2(d); provided, however, that the Executive shall not be required to perform more than twenty (20) hours of such service in a month. If Executive or Executive’s eligible dependent(s) timely elect coverage pursuant to COBRA, the Employer shall pay for COBRA coverage for twelve (12) months or, if earlier, the month in which the right to COBRA coverage ends.
(e) Effective Release. No payments (other than the Accrued Obligations) will be made to Executive (or his estate, as applicable) under this Section 5 will occur, unless the Executive (or his estate, as applicable) executes and does not revoke a mutually agreeable Release.
(f) Resignation. On the date of any termination of Executive’s employment, the Executive agrees to resign all positions for Employer, including as an officer and director of the Employer and/or its parents, subsidiaries and affiliates, if applicable.
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6. CHARACTER OF TERMINATION PAYMENTS; MITIGATION
The amounts payable to the Executive upon any termination of this Agreement shall be considered severance pay in consideration of past services rendered on behalf of the Employer and his continued service from the Effective Date to the date he becomes entitled to such payments. The Executive shall have no duty to mitigate his damages by seeking other employment and, should the Executive actually receive compensation from any such other employment, the payments required under this Agreement shall not be reduced or offset by any such other compensation.
7. RESTRICTIVE COVENANTS.
7.1 Trade Secrets and Confidential Information. The Executive recognizes that it is in the legitimate business interest of the Employer, any subsidiary, and any controlled affiliate, (collectively, “Employer Entities”) to restrict his disclosure or use of Trade Secrets and Confidential Information relating to the Employer Entities for any purpose other than in connection with the Executive’s performance of his duties to the Employer Entities and to limit any potential appropriation of such Trade Secrets and Confidential Information. The Executive therefore agrees that all Trade Secrets and Confidential Information relating to the Employer Entities heretofore or in the future obtained by the Executive in the course of his duties shall be considered confidential and the proprietary information of the Employer Entities. The Executive shall not use or disclose, or authorize any other person or entity to use or disclose, any Trade Secrets or other Confidential Information. The Parties agree that the Employer Entities’ Trade Secrets and Confidential Information shall not include any information that is (i) already known to Executive when he begins employment with Employer, (ii) available in the public sphere, or (iii) made known to Executive wholly outside of and separate from his performance of duties for Employer.
7.2 Discoveries and Works. All Discoveries and Works made or conceived by the Executive during the Term, jointly or with others, that relate to the present or anticipated activities of the Employer, any subsidiary or any affiliate, or are used or usable by the Employer, any subsidiary or any affiliate shall be owned by the Employer, any subsidiary or any affiliate. The Executive shall promptly notify, make full disclosure to, and execute and deliver any documents requested by the Employer, any subsidiary or any affiliate, as the case may be, to evidence or better assure title to Discoveries and Works in the Employer, any subsidiary or any affiliate, as so requested. The Executive acknowledges that all Discoveries and Works shall be deemed “works made for hire” under the Copyright Act of 1976, as amended, 17 U.S.C. Section 101.
7.3 Mutual Non-Disparagement.
(a) The Executive agrees that the Executive will not disparage the Employer Entities and/or any of the following who are known by Executive to be affiliated with the Employer Entities: their respective officers, directors, investors, employees, and agents, and their respective successors and assigns, heirs, executors, and administrators. Nor shall Executive make any public statement reflecting negatively on the persons and entities described in the preceding paragraph to third parties, including, but not limited to, any matters relating to the operation or management of the Employer, irrespective of the truthfulness or falsity of such statement.
(b) Employer agrees, on behalf of itself, the Employer Entities, and its and their respective officers, directors, investors, employees, and agents, and its and their respective successors and assigns, heirs, executors, and administrators, not to disparage Executive or to make any public statement reflecting negatively on the Executive, including, but not limited to, on any matters related to his performance of duties, professionalism, and integrity, irrespective of the truthfulness or falsity of such statement.
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7.4 Remedies. In view of the nature of the business in which the Employer is engaged, the Executive acknowledges that the restrictions contained in this Section 7 are reasonable and necessary in order to protect the legitimate interests of the Employer and that any violation thereof would result in irreparable injuries to the Employer which would not be readily ascertainable or compensable in terms of money, and that, in addition to any other remedy to which the Employer and its subsidiaries and affiliates may be entitled at law or in equity, the Employer and its subsidiaries and affiliates shall be entitled to a temporary or permanent injunction or injunctions or temporary restraining order or orders to prevent breaches of the provisions of this Section 7 and to enforce specifically the terms and provisions hereof, in each case without the need to post any security or bond and without the requirement to prove that monetary damages would be difficult to calculate and that remedies at law would be inadequate. Nothing herein contained shall be construed as prohibiting the Employer and its subsidiaries and affiliates from pursuing, in addition, any other remedies available to the Employer and its subsidiaries and affiliates for such breach or threatened breach.
7.5 Enforceability. It is expressly understood and agreed that although the parties consider the restrictions contained in this Section 7 hereof to be reasonable and necessary for the purpose of preserving and protecting the legitimate interests of the Employer and its subsidiaries and affiliates, including its goodwill and proprietary rights, if a final determination is made by a court having jurisdiction that the time or territory or any other restriction contained in this Section 7 is an unenforceable restriction on the Executive’s activities, the provisions of this Section 7 shall not be rendered void but, to the extent allowable by law, shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court or arbitration panel may determine or indicate to be reasonable. Alternatively, if the court referred to above finds that any restriction contained in this Section 7 or any remedy provided herein is unenforceable, and such restriction or remedy cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein or the availability of any other remedy.
8. PROVISIONS REGARDING RESTRICTED STOCK UNITS
8.1 Representations and Warranties of the Executive. In connection with the awarding of the RSU’s pursuant to this Agreement, the Executive makes the following representations and warranties to the Employer as of the Effective Date:
(a) The Executive hereby acknowledges and agrees that the Employer is in the early-stages of the development of its business plan, and offers no assurances of success. The Executive has had such opportunity as the Executive has deemed adequate to obtain from representatives of the Employer such information as is necessary to permit the Executive to evaluate the merits and risks of the Executive’s acquisition of the RSU’s. The Executive has sufficient experience in business, financial, and investment matters to be able to evaluate the risks involved in the acquisition of the RSU’s and to make an informed investment decision with respect thereto. The Executive can afford the complete loss of the value of the RSU’s and is able to bear the economic risk of holding the RSU’s or the Common Stock issued in settlement of such RSU’s, for an indefinite period.
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(b) The Executive is acquiring these securities for investment for the Executive’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 or under any applicable provision of state law. The Executive does not have any present intention to transfer the RSU’s or the Common Stock issued in settlement of such RSU’s, to any third party.
(c) The Executive understands that the RSU’s and the Common Stock issued in settlement of such RSU’s, have 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 the Executive’s investment intent as expressed herein.
(d) The Executive further acknowledges and understands that the RSU’s and the Common Stock issued in settlement of such RSU’s, must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Executive further acknowledges and understands that the Employer is under no obligation to register the RSU’s or the Common Stock issued in settlement of such RSU’s. The Executive understands that the certificate(s) evidencing the RSU’s and the Common Stock issued in settlement of such RSU’s, will be imprinted with a legend which prohibits the transfer thereof unless they are registered or such registration is not required in the opinion of counsel for the Employer.
(e) The Executive is familiar with the provisions of Rules 144 promulgated under the Securities Act, which, in substance, permits limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer of the securities (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. The Executive understands that the Employer provides no assurances as to whether the Executive will be able to resell any or all of the Common Stock issued in settlement of such RSU’s, pursuant to Rule 144, which rules requires, among other things, that the Employer be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that resales of securities take place only after the holder has held the RSU’s for certain specified time periods, and under certain circumstances, that resales of securities be limited in volume and take place only pursuant to brokered transactions.
8.2 Restrictive Legends and Stop-Transfer Orders.
(a) Legends. The certificate or certificates representing the Common Stock issued in settlement of such RSU’s, shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE EMPLOYER THAT SUCH PLEDGE, HYPOTHECATION, SALE OR TRANSFER IS EXEMPT THEREFROM UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
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8.3 Withholding. The Employer reserves the right to withhold, in accordance with any Applicable Laws, from any consideration payable or property transferable to the Executive any taxes the Employer reasonably determines is required to be withheld by federal, state or local law as a result of the grant or vesting or settlement of the RSU’s. Alternatively or if the amount of any consideration payable to the Executive is insufficient to pay such taxes or if no consideration is payable to the Executive, upon the request of the Employer, the Executive will pay to the Employer an amount sufficient for the Employer to satisfy any federal, state or local tax withholding requirements applicable to and as a condition to the payment in settlement of the RSU’s. The Compensation Committee may, in its sole discretion, consider whether, to what extent, and under what terms it may grant Executive the right to use shares of Employer common stock or shares of Employer common stock issued upon settlement of the RSU’s, to apply against his withholding obligation under this Section 8.3, however, shall be under no obligation to do so.
8.4 Settlement of RSUs. The Restricted Stock Unit Agreement shall provide that the RSUs shall be settled by the issuance of one share of Employer common stock (subject to any adjustment provisions included within the Plan), less any shares of common stock, if at all, that are permitted to be withheld from the settlement in accordance with Section 8.3. Shares of common stock shall be issued to the Executive within ten (10) days after the date the RSUs vest.
9. GENERAL PROVISIONS
9.1 DEFINITIONS.
For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 9:
“Accrued Obligations” means (i) any Base Salary, annual incentive bonus earned and accrued at year-end under Section 2.2, Management Incentive Equity Pool earned and accrued at year-end under Section 2.3, or other incentive compensation that is earned but remains unpaid on the date of termination, (ii) vacation or paid time off that is accrued but unused on the date of termination, (iii) expenses that are reimbursable under the Employer’s expense reimbursement policy or this Agreement that remain unpaid on the date of termination, (iv) rights under vested RSUs as of the date of termination and (v) benefits and rights under the Employer’s employee benefit plans. The Accrued Obligations will be paid in accordance with the Employer’s customary payroll practices, expense reimbursement policy or the terms of the employee benefit plan, as applicable.
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“Agreement” means this Employment Agreement, as amended from time to time in a writing signed by both parties.
“Board of Directors” means the board of directors of the Employer.
“Change in Control” means the acquisition by any “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the Exchange Act) (other than the Employer, any subsidiary of the Employer or any employee benefit plan of the Employer or subsidiary of the employer), directly or indirectly, as “beneficial owner” (as defined in Rule l3d-3 under the Exchange Act) of securities representing fifty percent (50%) or more of either the then outstanding shares or the combined voting power of the then outstanding securities of the Employer; or the consummation of a merger, consolidation or other business combination of the Employer with any other “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the Exchange Act) or affiliate thereof, other than a merger or consolidation that would result in the outstanding common stock of the Employer immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) more than fifty percent (50%) of the outstanding common stock of the Employer or such surviving entity or a parent or affiliate thereof outstanding immediately after such merger, consolidation or other business combination, or (y) a plan of complete liquidation of the Employer or an agreement for the sale or disposition of all or substantially all of the Employer assets.
“Code” means the Internal Revenue Code of 1986, as amended.
“Disability” shall mean once the Executive is unable to perform the essential functions of the Executive’s duties with reasonable accommodation, as defined by the Americans with Disabilities Act of 1990 (“ADA”), for 120 consecutive days, or 180 days during any twelve month period. The Disability of the Executive will be determined by a medical doctor selected by written agreement of the Employer and the Executive upon the request of either party by written notice to the other. If the Employer and the Executive cannot agree on the selection of a medical doctor, each of them will select a medical doctor and the two medical doctors will attempt to make a determination of disability. If these two doctors cannot agree, they will jointly select a third medical doctor who will determine whether the Executive has a disability. The determination of the third medical doctor(s) selected under this provision will be binding on both parties. The Executive must submit to a reasonable number of examinations by the medical doctor making the determination of disability under this provision, and the Executive hereby authorizes the disclosure and release to the Employer of such determination(s) and all supporting medical records. If the Executive is not legally competent, the Executive’s legal guardian or duly authorized attorney in fact will act in the Executive’s stead for the purposes of submitting the Executive to the examinations, and providing the authorization of disclosure, required under this provision.
“Discoveries and Works” shall mean, by way of example but without limitation, Trade Secrets or other Confidential Information, patents and patent applications, trademarks and trademark registrations and applications, service marks and service mark registrations and applications, trade names, copyrights and copyright registrations and applications.
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“Fair Market Value” means, with respect to the common stock of the Employer (the “Common Stock”), the average closing sales price of the Common Stock for the thirty (30) days before the grant date, as reported by the NYSE American, Nasdaq Stock Market or any national securities exchange on which the Common Stock is then listed (or, if no shares were traded on such date, as of the next preceding date on which there was such a trade) or if the Common Stock is not so listed, admitted to unlisted trading privileges or reported on any national exchange, the closing sale price as of the end of the regular trading session, as reported by the OTC Markets or trading platform or other comparable quotation service (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote). In the event the Common Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of Fair Market Value shall be made by the Compensation Committee in such manner as it deems appropriate and in good faith in the exercise of its reasonable discretion, and consistent with the definition of “fair market value” under Section 409A of the Code. If determined by the Compensation Committee, such determination will be final, conclusive and binding for all purposes and on all persons, including the Employer, the stockholders of the Employer, the Participants and their respective successors-in-interest. No member of the Compensation Committee will be liable for any determination regarding the fair market value of the Common Stock that is made in good faith.
“For Cause” shall mean: (a) the Executive’s material breach of this Agreement, not substantially cured within ten (10) days’ written notice of the breach to Executive; (b) a judicial finding in a civil context, or a conviction or entry of a guilty plea or plea of no contest in a criminal context, with respect to theft, fraud, or misappropriation (or attempted misappropriation) by Executive of any of the Employer’s funds or property; (c) controlled substance abuse, drug addiction or alcoholism which interferes with or materially affects the Executive’s job performance, provided that an interactive dialogue and reasonable accommodation process have first been undertaken and exhausted, consistent with the ADA; (d) gross negligence or wanton misconduct which materially and negatively affects the Employer, not substantially cured within ten (10) days’ written notice to Executive; (e) any violation of any express written directions or any reasonable written rule or regulation established by the Employer’s Board of Directors from time to time regarding the conduct of its business which negatively affects the Employer, and which is/are not substantially cured within ten (10) days’ written notice to Executive, (f) a conviction or entry of a guilty plea or plea of no contest with respect to a felony or other crime involving moral turpitude for which imprisonment is a possible punishment.
“Good Reason” shall mean, unless the Executive shall have consented thereto, any of the following: (i) a material reduction or material adverse change in the Executive’s title, duties, authority, or responsibilities, which are inconsistent with the Executive’s position with the Employer; (ii) the material breach by the Employer of any obligation under this Agreement; (iii) an instruction, directive or other order to engage in an activity that is concluded to be unlawful in written advice of counsel, or (iv) the Employer, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors, (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, or (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official in the context of a bankruptcy filing. The Executive’s resignation shall not be for “Good Reason” unless the Executive gives the Employer written notice of the grounds that the Executive asserts constitute Good Reason, the Employer fails to remedy or cure those acts or omissions to the reasonable satisfaction of the Executive within thirty (30) days after the Executive’s written notice and the Executive resigns within thirty (30) days after the end of the cure period.
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“Person” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or governmental body.
“Regulatory Issues” include, but are not limited to any of the following: (i) Executive has ever been convicted of, or pled guilty or nolo contendere to, a criminal offense of any kind other than civil or misdemeanor traffic offenses, (ii) Executive has ever been arrested, indicted or charged with a criminal offense under any federal or state any kind, other than a civil or misdemeanor traffic offense, (iii) Executive has even been charged with or convicted of violation of any controlled substance laws or any federal or state cannabis laws, (iv) Executive has been named as a defendant in a civil or administrative lawsuit where the allegations would constitute a crime or would amount to fraud, deceit or misrepresentation, excepting any suit that concluded with a merit finding in Executive’s favor, (v) Executive owes any past taxes, fees or obligations to the United State government, any state or any political subdivision thereof, (vi) Executive has failed to comply with any applicable laws or regulations relating to child support, (vii) Executive has been named as a defendant in any administrative EEOC matter or named in a lawsuit alleging discrimination, harassment or hostile work environment, excepting any such matters that concluded with a merit finding in Executive’s favor, (viii) a court, governmental agency or tribunal has determined that the Executive has engaged in attempt to obtain a registration, license or approval to operate in any state by fraud, misrepresentation or the submission of false information or (ix) Executive has ever been the subject to any denial, suspension or revocation of a license or registration by any federal, state or local government, or any foreign jurisdiction, including without limitation, any denial, suspension, revocation or refusal to renew certification for Medicare or Medicaid.
“Release” shall mean a general release and waiver of claims, in a form acceptable to the Employer and Employee after review by their respective legal counsel and provided to the Executive (or his estate as applicable) within five (5) days after termination, of any and all claims against the Employer and all related parties with respect to matters arising out the Executive’s employment by the Employer, and the termination thereof (other than claims for any entitlements under the terms of this Agreement or under any plans or programs of the Employer under which the Executive has accrued and is due a benefit), exempting, the right to Directors’ and Officers’ insurance coverage, the right to indemnification, defense, or exculpation as an officer or director of the Employer, and any claims that cannot be waived or released as a matter of law.
“Release Effective Date” means the date the Release becomes effective and irrevocable.
“RSU’s” shall mean restricted stock units awarded in connection with Executive’s employment hereunder. All such RSU’s shall be subject to the terms of a Restricted Stock Unit Agreement to be granted under and subject to the Employer’s 2019 Omnibus Incentive Plan, subject to the exemptions outlined in Sections 2.1(a) and 2.2(b) of this Agreement.
“Trade Secrets or other Confidential Information” shall mean, by way of example and without limitation, and in whatever medium, confidential information concerning the Employer and its affiliates, employees, and clients, including marketing, investment, performance data, credit and financial information, and other information concerning the business affairs of the Employer and its affiliates.
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9.2 409A COMPLIANCE.
(a) This Agreement and the amounts payable and other benefits provided under this Agreement are intended to comply with, or otherwise be exempt from, the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), after giving effect to the exemptions in Treasury Regulation section 1.409A-1(b)(3) through (b)(12). This Agreement shall be administered, interpreted and construed in a manner consistent with Section 409A. If any provision of this Agreement is found not to comply with, or otherwise not be exempt from, the provisions of Section 409A, it shall be modified and given effect, in the discretion of the Employer and without requiring the Executive’s consent, in such manner as the Employer determines, based on the advice of competent legal counsel, to be necessary or appropriate to comply, with or to effectuate an exemption from, Section 409A; provided, however, that in exercising its discretion under this Section 9.2, the Employer shall modify this Agreement in the least restrictive manner necessary and without reducing the economic value of payments or benefits due the Executive. Each payment under this Agreement shall be treated as a separate identified payment for purposes of Section 409A.
(b) With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Executive, as specified under this Agreement that constitutes deferred compensation under Section 409A, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following limitations: (i) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangements providing for the reimbursement of expenses referred to in Section 105 of the Internal Revenue Code of 1986, as amended; (ii) the reimbursement of an eligible expense shall be made as specified in this Agreement and in no event later than the end of the year after the year in which such expense was incurred and (iii) the right to reimbursement or in-kind benefit shall not be subject to liquidation or exchange for another benefit.
(c) If a payment obligation under this Agreement arises on account of the Executive’s termination of employment, it shall be payable only after the Executive’s “separation from service” (determined in accordance with the default rules prescribed by Treasury Regulation section 1.409A-1(h); provided, however, that if the Executive is a “specified employee” (determined in accordance with the default rules prescribed by Treasury Regulation section 1.409A-1(i)), any such payment that is scheduled to be paid within six months after such separation from service shall accrue without interest and shall be paid on the first day of the seventh (7th) month beginning after the date of the Executive’s separation from service or, if earlier, within fifteen (15) days after the appointment of the personal representative or executor of the Executive’s estate following the Executive’s death.
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9.3 KEY MAN LIFE INSURANCE.
During the Term, the Employer may at any time effect insurance on the Executive’s life and/or health in such amounts and in such form as the Employer may in its sole discretion decide. Such insurance will paid for by and owned by the Employer for its own benefit and the Executive will not have any interest in such insurance, but shall, at the Employer’s request, submit to such medical examinations, supply such information and execute such documents as may be required in connection with, or so as to enable the Employer to effect, such insurance.
9.4 WAIVER.
The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege.
9.5 NOTICES.
All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand, (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties):
| If to the Employer: | Andina Gold Corp. |
| 3531 South Logan St. Suite D-357 | |
| Englewood, CO 80113 | |
| with a copy to: | Joseph P. Galda, Esquire |
| 40 East Montgomery Ave., LTW | |
| Ardmore, PA 19003 | |
| If to the Executive: | Christian Noël |
| 1835 rue du Sommet-Trinité | |
| Saint-Bruno, Qc, J3V 6E4 | |
| with a copy to: | François-David Paré |
| Norton Rose Fulbright Canada S.E.N.C.R.L., s.r.l. / LLP | |
| 1, Place Ville Marie, Bureau 2500 | |
| Montréal, QC, H3B 1R1, Canada |
9.6 ENTIRE AGREEMENT; AMENDMENTS.
This Agreement and the documents referenced herein, contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.
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9.7 GOVERNING LAW.
This Agreement will be governed by the laws of the State of Colorado without regard to conflicts of laws principles.
9.8 MEDIATION AND ARBITRATION.
(a) In the event of any dispute or controversy with respect to a Covered Claim, as defined below, the Parties shall first promptly try in good faith to settle such dispute or controversy by mediation before resorting to arbitration. In the event such dispute or controversy remains unresolved in whole or in part for a period of thirty (30) days after such mediation fails, the Parties will resolved the Covered Claim in arbitration.
(b) Except for claims expressly excluded by this Agreement, both the Executive and the Employer mutually agree to binding arbitration of any and all disputes, claims or controversies that the Employer may have against the Executive or that the Executive may have against the Employer which could be brought in a court arising out of this Agreement or the Executive’s relationship with the Employer, including, but not limited to, all claims arising out of or relating to Executive’s employment with the Employer and the end of Executive’s employment with the Employer (collectively, the “Covered Claims”). For purposes of this Section 9.8, “Employer” shall mean Andina Gold Corp., or its parent, subsidiary, or affiliated companies or entities, and each of its and/or their employees, officers, directors, and agents. Unless the Parties agree otherwise, the arbitration will be conducted before a single arbitrator and governed by the rules of the American Arbitration Association’s (“AAA”) Employment Arbitration Rules and Mediation Procedures, in effect as of the time of the demand for arbitration (the “AAA Rules”). The Executive may contact the AAA to request a copy of the AAA Rules. Alternatively, the Executive may download a copy of the AAA Rules from the AAA website (http://www.adr.org/). The arbitration shall be governed by the substantive and procedural provisions of the Federal Arbitration Act (“FAA”) to the fullest extent permitted by law.
Covered Claims include, but are not limited to, claims against the Employer, its current or former officers, directors, members, employees, vendors, clients, customers, agents, parents, subsidiaries, affiliated companies, insurers, successors, and/or assigns, for, regarding and/or brought under: the Age Discrimination in Employment Act; Title VII of the Civil Rights Act; the Fair Labor Standards Act; the Americans with Disabilities Act; the Equal Pay Act; the Fair Credit Reporting Act; the Family and Medical Leave Act; the Pregnancy Discrimination Act; the Rehabilitation Act; Section 1981 through 1988 of Title 42 of the United States Code; the Worker Adjustment and Retraining Notification Act; any federal, state or local laws, regulations, or statutes prohibiting employment discrimination (such as, without limitation, race, sex, national origin, ancestry, age, disability, religion, medical condition, marital status, sexual orientation, military status, public policy), harassment of any kind, and unlawful retaliation; any alleged or actual agreement, contract or covenant (oral, written or implied) between Executive and the Employer; claims for wages, related penalties and other compensation; claims for wrongful termination; tort claims; any Employer policy or compensation or benefit plan, unless the decision in question was made by an entity other than the Employer; misappropriation of trade secrets or unfair competition; violation of any public policy, including but not limited to, whistleblower claims; violation of any other federal, state, or local law, ordinance or regulation; any claim based on any public policy, contract, tort, or common law; any claim for costs, fees, or other expenses or relief, including personal, emotional, physical or economic injuries; and/or any claim for attorney's fees. Except for claims expressly excluded by this Arbitration clause this Arbitration clause also applies to all claims the Employer may have against Executive.
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Claims specifically not covered by this Section are: (i) claims for worker’s compensation benefits; (ii) claims for unemployment compensation benefits; (iii) petitions or charges that could be brought before the National Labor Relations Board or claims under a collective bargaining agreement; (iv) charges filed with the Equal Employment Opportunity Commission or a similar government agency; (v) claims based upon any current (successor or future) stock option plans, employee pension and/or welfare benefit plans if those plans contain some form of a grievance, arbitration, or other procedure for the resolution of disputes under the plan; (vi) claims by law which are not subject to mandatory binding pre-dispute arbitration pursuant to the Federal Arbitration Act, such as Claims under the Dodd-Frank Wall Street Reform Act
The decision of the arbitrator will be final and binding upon the parties hereto. The arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Arbitration Agreement, including, but not limited to, all defenses to contract enforcement such as, for example, waiver and unconscionability, and any claim that all or any part of this arbitration provision is void or voidable.
Judgment can be entered on the arbitrator’s award in any court having jurisdiction. The Parties acknowledge and agree that each Party shall bear its . mediation costs. The Parties further acknowledge and agree that this arbitration policy does not change the remedies available to either Party; Colorado law will govern the available remedies, as well as the Parties’ responsibility for attorney’s fees and litigation costs. This agreement to arbitrate is freely negotiated between Employee and the Employer and is mutually entered into between the parties. Each party fully understands and agrees that they are giving up certain rights otherwise afforded to them by civil court actions, including but not limited to the right to a jury trial.
Notwithstanding the above, the Employer shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction with respect to any violation of Section 7.
9.9 ASSIGNABILITY, BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, heirs (in the case of the Executive) and assigns. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will, designation of beneficiary, or operation of law.
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9.10 SURVIVAL.
The respective rights and obligations of the parties hereunder shall survive any termination of the Executive’s employment to the extent necessary to the intended preservation of such rights and obligations.
9.11 REPRESENTATIONS AND WARRANTIES.
The Executive represents and warrants to the Employer as follows:
(a) The execution and performance of this Agreement by the Executive shall not constitute a breach of any contract, agreement or understanding, whether oral or written, to which he is a party or by which he is bound; nor is the Executive required to disclose to the Employer, or use in the context of this employment, any confidential, privileged or trade secret protected information received by Executive in connection with any prior employment or engagement.
(b) The Executive has not engaged in conduct or is the subject of any disqualifying event under Rule 506 of Regulation D that would disqualify the Employer from relying on Rule 506 of Regulation D as an exemption from registration of any sale of the Employer’s securities under the Securities Act of 1933, as amended.
(c) The Executive does not have any “Regulatory Issues” (as defined herein) that would jeopardize the Employer’s ability to secure and maintain any local and state cannabis licenses or operate its business.
9.12 ACKNOWLEDGMENTS OF EXECUTIVE.
The Executive hereby acknowledges and certifies the following:
(a) That he expressly understands, acknowledges, and agrees that some or all elements of the business of the Employer; that being, the cultivation, distribution, manufacture and sale of marijuana, violate federal law, including, without limitation, the Controlled Substances Act, codified at 21 U.S.C. §801 et seq.;
(b) That he has read the terms of this Agreement, that he has been informed by the Employer that he should discuss it with an attorney of his choice, and that he understands its terms and effects. The Executive further acknowledges that based on his training and experience, he has the capacity to earn a livelihood by performing services as an employee or otherwise in a business that does not violate the provisions of Section 7; and
(c) That he understands, acknowledges, and agrees that solely due to the nature of the services to be rendered to the Employer, and mandated regulatory requirements set forth in certain state cannabis laws in which the Employer may now or in the future operate, Executive may be required to comport with cannabis laws reporting requirements, and Executive further represents and warrants to the Employer that he is under no impediment (legal or otherwise) that would preclude him from doing so.
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9.13 SECTION HEADINGS, CONSTRUCTION.
The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.
9.14 SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
9.15 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. This Agreement (and all other agreements, documents, instruments and certificates executed and/or delivered in connection herewith) may be executed by facsimile signatures, each of which shall be deemed an original copy of this Agreement (or other such agreement, document, instrument and certificate).
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.
| EMPLOYER: | |
| ANDINA GOLD CORP. |
| By: | ||
| Philip B. Mullin | ||
| Authorized Executive Officer | ||
| EXECUTIVE: | |
| Christian Noël | |
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Exhibit 10.8
AMENDMENT TO THE EMPLOYMENT AGREEMENT DATED APRIL 1, 2021, BY
AND BETWEEN CRYOMASS TECHNOLOGIES INC AND CHRISTIAN NOËL
This Amendment to the Employment Agreement by and between Cryomass Technologies Inc, a Nevada corporation, formerly known as Andina Gold Corp (the “Employer”), and Christian Noël (“Executive”) (collectively, the “Parties”) dated April 1, 2021 (the “Agreement”), is made and effective as of this 13th day of December 2021 by and between the Parties (the “Amendment”).
W I T N E S S E T H:
WHEREAS, Employer and Executive of their own free will wish to amend the terms of the Agreement,
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
| 1. | AMENDMENT OF SECTION 4 – VACATIONS AND HOLIDAYS |
1.1. Section 4 of the Agreement is amended to read: “During the calendar year 2021 the Executive will be entitled to six (6) weeks’ paid vacation and eight (8) paid official holidays, which must be used until December 31, 2021, and shall not carry over into the next calendar year(s). As of January 1, 2022, and for the entire duration of the Employment Period the Executive will be entitled to paid time off and paid official holidays in accordance with the Employer’s written policy in effect at the time, and which may change from time to time in the Employer’s sole discretion. Paid time off not used during a calendar year may not be carried over into the next calendar year.”
| 2. | MISCELLANEOUS. |
2.1. Effect of Amendment. Except as expressly amended hereby, the Agreement shall remain in full force and effect. Any reference to the Agreement contained in any notice, request or other document executed concurrently with or after the execution and delivery of this Amendment shall be deemed to include this Amendment unless the context shall otherwise require.
2.2. Applicable Law; Jurisdiction; WAIVER OF JURY TRIAL. This Amendment shall be governed by and interpreted and enforced in accordance with the laws of the Colorado, without regard to any applicable principles of conflicts of law that might require the application of the laws of any other jurisdiction. The Parties agree that claims and disputes under this Amendment shall be resolved pursuant to the mechanisms provided in Section 9.8 of the Agreement. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT AND TO THE AGREEMENT. Each party hereto (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such party would not, in the event of any action, suit or proceeding, seek to enforce the foregoing waiver.
2.3. Headings. The headings and captions set forth herein are for convenience of reference only and shall not affect the construction or interpretation hereof.
2.4. Entire Agreement. This Amendment sets forth the entire agreement and understanding of the parties with respect to the amendment of the Agreement, and there are no other contemporaneous written or oral agreements, undertakings, promises, warranties, or covenants not specifically referred to or contained herein.
2.5. Execution of Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. This Amendment may be delivered by electronic (including .pdf format) or facsimile transmission of an originally executed copy.
2.6. Modification. No provision of this Amendment may be amended, changed, altered, modified, or waived except in writing signed by Employee and an authorized representative of the Company, which writing shall specifically reference this Amendment, the Agreement and the provision which the parties intend to waive or modify.
2.7. Severability. Each provision, clause, and/or part of this Amendment is intended to be severable from the other. Therefore, if any provision, clause, or part of this Amendment, or the applications thereof under certain circumstances, is held invalid or unenforceable for any reason, the remainder of this Amendment, or the application of such provision, clause, or part under other circumstances, shall not be affected thereby to the extent permissible pursuant to the laws of Colorado.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
| CRYOMASS TECHOLOGIES INC | ||
| By: | ||
| Name: | Philip Blair Mullin | |
| Title: | Chief Financial Officer | |
| EXECUTIVE | ||
| Christian Noël | ||
Exhibit 10.10
AMENDMENT TO THE EMPLOYMENT AGREEMENT DATED JUNE 24, 2020, BY
AND BETWEEN CRYOMASS TECHNOLOGIES INC AND PHILIP BLAIR MULLIN
This Amendment to the Amended and Restated Employment Agreement by and between Cryomass Technologies Inc, a Nevada corporation, formerly known as Andina Gold Corp and, respectively, Redwood Green Corp (the “Employer”), and Philip Blair Mullin (“Employee”) (collectively, the “Parties”) dated June 24, 2020 (the “Agreement”), is made and effective as of this 13th day of December 2021 by and between the Parties (the “Amendment”).
W I T N E S S E T H:
WHEREAS, Employer and Employee of their own free will wish to amend the terms of the Agreement,
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
| 1. | AMENDMENT OF SECTION 2.4 – VACATION |
1.1. Section 4 of the Agreement is amended to read: “Employee shall be entitled to paid time off and paid official holidays in accordance with Employer’s written policy in effect at the time, and which may change from time to time in the Employer’s sole discretion. Paid time off not used during a calendar year may not be carried over into the next calendar year.”
| 2. | MISCELLANEOUS. |
2.1. Effect of Amendment. Except as expressly amended hereby, the Agreement shall remain in full force and effect. Any reference to the Agreement contained in any notice, request or other document executed concurrently with or after the execution and delivery of this Amendment shall be deemed to include this Amendment unless the context shall otherwise require.
2.2. Applicable Law; Jurisdiction; WAIVER OF JURY TRIAL. This Amendment shall be governed by and interpreted and enforced in accordance with the laws of the Colorado, without regard to any applicable principles of conflicts of law that might require the application of the laws of any other jurisdiction. The Parties agree that claims and disputes under this Amendment shall be resolved pursuant to the mechanisms provided in Section 9.8 of the Agreement. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT AND TO THE AGREEMENT. Each party hereto (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such party would not, in the event of any action, suit or proceeding, seek to enforce the foregoing waiver.
2.3. Headings. The headings and captions set forth herein are for convenience of reference only and shall not affect the construction or interpretation hereof.
2.4. Entire Agreement. This Amendment sets forth the entire agreement and understanding of the parties with respect to the amendment of the Agreement, and there are no other contemporaneous written or oral agreements, undertakings, promises, warranties, or covenants not specifically referred to or contained herein.
2.5. Execution of Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. This Amendment may be delivered by electronic (including .pdf format) or facsimile transmission of an originally executed copy.
2.6. Modification. No provision of this Amendment may be amended, changed, altered, modified, or waived except in writing signed by Employee and an authorized representative of the Company, which writing shall specifically reference this Amendment, the Agreement and the provision which the parties intend to waive or modify.
2.7. Severability. Each provision, clause, and/or part of this Amendment is intended to be severable from the other. Therefore, if any provision, clause, or part of this Amendment, or the applications thereof under certain circumstances, is held invalid or unenforceable for any reason, the remainder of this Amendment, or the application of such provision, clause, or part under other circumstances, shall not be affected thereby to the extent permissible pursuant to the laws of Colorado.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
| CRYOMASS TECHOLOGIES INC | |||
| By: | |||
| Name: | Patricia Kovacevic | ||
| Title: | General Counsel | ||
| EMPLOYEE | |||
| Philip Blair Mullin | |||
Exhibit 10.11
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Third Amended and Restated Employment Agreement (the “Agreement”) is made and entered into as of the 1st day of May, 2021, by and between Andina Gold Corp., a Nevada corporation (the “Company”), and Patricia Kovacevic (“Employee”).
W I T N E S S E T H:
WHEREAS, the Company and Employee entered into an Employment Agreement (the “Original Agreement”) on April 14, 2020 and the parties amended and restated the Original Agreement on June 24, 2020 (“Amended Agreement 1” ) and December 1, 2020 (Amended Agreement 2”) to amend the terms thereof,and
WHEREAS, the Company and the Employee desire to enter into this Agreement to amend the terms of the Amended Agreement 2 effective May 1, 2021 (the “Effective Date”).
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT OF EMPLOYEE.
1.1 Duties and Status. The Company hereby engages and employs Employee as General Counsel & Corporate Secretary, and Employee accepts such employment, on the terms and subject to the conditions set forth in this Agreement. During his/her employment with the Company, Employee shall faithfully exercise such authority and perform such duties on behalf of the Company as are normally associated with his/her title and position, and Employee shall abide by all policies and procedures applicable to all other salaried employees of the Company. Employee’s position may be changed by the Company in its sole discretion, and if that occurs, Employee’s duties and authority will be changed as a result.
1.2 Time and Effort. During his/her employment, in consideration of the Company’s obligations under this Agreement, Employee agrees that he/she shall devote his/her entire working time, energy, skill, and best efforts to the performance of his/her duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company; provided, however, Employee may participate in charitable, civic, consulting and community activities so long as such service or participation does not conflict with, or adversely affect Employee’s performance of his/her duties under this Agreement and obligations as an office of the Company.
2. COMPENSATION AND BENEFITS.
2.1 Base Salary. Employee’s salary shall be $242,000 from the Effective Date for the balance of 2021 on an annualized basis (the “Base Salary”), with an automatic increase, effective on each anniversary of the Effective Date, of 10% per annum each year over the prior year’s base salary during the term of this Agreement, subject to tax withholdings and upwards adjustment as provided below (the “Base Salary”), which will be payable in equal periodic installments according to the Employer’s customary payroll practices, but no less frequently than monthly. The Employee’s Base Salary will be reviewed by the Employer’s Board of Directors not less frequently than annually, and may be further adjusted upward by the Employer, but in no case can be adjusted downward without the mutual agreement of the Parties.
2.2 One-time RSU Grant. The Employer agrees to grant to the Executive as of the Effective Date, 300,000 restricted stock units (RSU)’s. The RSU’s awarded shall be subject to the terms of a Restricted Stock Unit Agreement and such RSUs shall in any event vest immediately and automatically at the grant date.
2.3 Targeted Annual Incentive Bonus. In addition to his Base Salary, the Employee shall be eligible to receive a targeted annual incentive bonus each calendar year based upon achievement of performance goals of the Employee and corporate achievements of the Employer, as determined in the sole discretion of the Compensation Committee. The target payout to be 100% of Base Salary which can been amended up or down by the Compensation Committee based on the performance goals. An annual incentive bonus that is earned shall be payable to the Employee within no more than thirty (30) days following the Employer’s determination of the performance goals for the annual period in question (but in no event later than March 15 of the year after such annual period), and shall be accompanied by a certification of the Employer’s Chief Financial Officer describing the determination of the amount of the annual incentive bonus. Subject to the Compensation Committee’s determination of the achievement of the performance goals, the annual incentive bonus for a calendar year shall be earned if the Executive’s employment or service continues until December 31 of that year.
2.4 Annual RSU Award. In addition to his Base Salary and targeted annual incentive bonus opportunity, the Employee shall each calendar year also be eligible to receive an annual RSU based upon achievement of performance goals of the Executive and corporate achievements of the Employer, as determined in the sole discretion of the Compensation Committee (upon consultation with a compensation consultant). The performance goals, may or may not be the same as the performance goals established in connection with Section 2.2 above. The target payout to be between 0 - 275% of Base Salary which can been amended up or down by the Compensation Committee based on the performance goals, and will be settled upon the issuance of additional RSU’s to the Executive at the same time as the incentive bonus. The number of RSUs granted on each award date shall equal the number of shares of common stock of the Employer that have a Fair Market Value on the date of grant equal to that percentage of Base Salary resulting from the Committee’s determination of the annual performance goals. The RSUs shall be subject to the terms of a Restricted Stock Unit Agreement, except, in all events, such RSUs shall vest immediately and automatically at the grant date. However, Employee shall have the right to waive and renounce such RSUs at any time.
2.5 Benefits. Employee shall be entitled to receive such employee benefits as the Company may provide from time to time to its salaried employees generally, all on the same terms and conditions as such employee benefits are made available to the Company’s salaried employees generally, including, without limitation, six (6) weeks’ paid vacation each calendar year, and paid personal days, together with leave for illness or temporary disability, in accordance with the policies of the Company in effect from time to time..
3. Term. Subject to the provisions of Section 5, Employee’s employment under this Agreement shall be for a period of two (2) years, beginning on the Effective Date (the “Term”). After the Term, Employee’s employment may continue on an “at-will” basis at the mutual consent of the parties, or on the basis of a new employment agreement; to wit, the Company or the Employee may terminate the employment relationship with or without cause and/or with or without notice AFTER May 1, 2023.
4. RESTRICTIVE COVENANTS, CONFIDENTIALITY, ETC.
4.1 Terms. Employee covenants and agrees that, during the period of his/her employment by the Company (for the purposes of this Section 4, the term “Company” shall be deemed to include the Company and any of its subsidiaries/affiliates at such applicable time), he/she will not, directly or indirectly:
(a) solicit for employment any employee of the Company or otherwise encourage any such employee to sever his/her employment relationship with the Company;
(b) solicit the business of any customer of the Company or otherwise encourage any customer of the Company to sever or curtail its relationship with the Company;
(c) interfere with or induce or cause the termination or reduction of the business relationship between the Company and any supplier of goods or services to the Company; or
(d) perform or engage in any business, or accept employment with (as a consultant or otherwise), or otherwise give assistance to, whether or not for compensation, any person, firm or corporation that provides goods or services that are competitive to those by the Company at such time or in development at such time.
In the event that any provision of this Section 4.1 is determined to be invalid or overbroad by any court or other entity of competent jurisdiction, to the extent permissible under the laws of Colorado, the provisions of this Section 4.1 shall be deemed to have been amended, and the parties shall execute all documents necessary to evidence such amendment, so as to eliminate or modify any such invalid or overbroad provision so as to carry out the intent of this Section 4.1 as far as possible and to render the terms of this Section 4.1 enforceable in all respects as so modified.
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4.2 Confidential Information.
(a) Except as specifically authorized by the Company in writing, from the date hereof and continuing forever, Employee agrees that he/she will not, directly or indirectly, (i) disclose any “Confidential Information” (as defined below) to any person or entity, or otherwise permit any person or entity to obtain or disclose any Confidential Information, or (ii) use any Confidential Information for Employee’s benefit, whether directly or on behalf of another person or entity. In the event that Employee is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Employee will notify the Company promptly of the request or requirement so that the Company may seek an appropriate protective order or waive compliance with the provisions of this Section 4.2. If, in the absence of a protective order or the receipt of a waiver hereunder, Employee is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, Employee shall use his/her best efforts to obtain, at the request and expense of the Company, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Company shall designate.
(b) For purposes hereof, the term “Confidential Information” means any and all information and compilations of information, in whatever form or medium (including any copies thereof), relating to any part of the Company or its business, provided to Employee or to which Employee had access or which he/she obtained or compiled or had obtained or compiled on his/her behalf, which information or compilations of information are not a matter of public record, not generally known to the public or have not been previously disclosed to the public by third parties, including, without limitation: (i) financial information regarding the Company; (ii) internal plans, practices, and procedures of the Company; (iii) the identities, addresses, or requirements of the suppliers, customers or clients of the Company; (iv) any other information relating to the operations of the Company expressly deemed confidential by the Company; (v) personnel data, including compensation arrangements, relating to any employee of the Company; (vi) the terms and conditions of any agreements, documents, and instruments to which the Company is a party; and (vii) any trade secrets of the Company.
(c) Nothing in this Agreement prohibits Employee from disclosing Confidential Information (i) in confidence to a federal, state, or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in connection with or response to, a complaint or other document filed in a proceeding, if such filing is made under seal. Moreover, if Employee files a lawsuit for retaliation by an employer for reporting a suspected violation of law, Employee may disclose Confidential Information to Employee’s attorney and use the Confidential Information in the proceeding if Employee files any document containing the Confidential Information under seal and does not disclose the Confidential Information except pursuant to court order.
4.3 Reasonable Restrictions. Employee acknowledges and confirms that the restrictions and covenants contained in this Section 4 are reasonably necessary to protect the good will, trade secrets, and legitimate interests of the Company, are not overbroad, overlong, or unfair (including in duration and scope), and are not the result of overreaching, duress, or coercion of any kind. Employee further acknowledges and confirms that Employee’s full, uninhibited, and faithful observance of each of the covenants contained in this Agreement will not cause any undue hardship, financial or otherwise, and that enforcement of each of the covenants contained herein will not impair Employee’s ability to obtain employment commensurate with Employee’s abilities and on terms fully acceptable to Employee or otherwise to obtain income required for the comfortable support of Employee and Employee’s family and the satisfaction of the needs of Employee’s creditors. Employee acknowledges and confirms that the violation of these covenants and the disclosure of Confidential Information would cause the Company serious, irreparable injury or loss. Employee acknowledges and confirms that his/her special abilities and knowledge of the Company’s business, trade secrets, and Confidential Information are such that it would cause the Company serious, irreparable injury or loss if he/she were to use such abilities and knowledge to the benefit of a competitor or were to otherwise violate these covenants. Employee further acknowledges and confirms that the restrictions contained in this Agreement are intended to be, and shall be, for the benefit of and shall be enforceable by, the Company’s successors and assigns, and that each such entity shall be deemed third-party beneficiaries of this Agreement such that each such entity has standing to sue to enforce the Agreement.
4.4 Legal and Equitable Remedies. Employee acknowledges and confirms that for any breach or threatened breach of any of the provisions of this Agreement, the Company shall be entitled to immediate injunctive relief and that a restraining order and/or an injunction may issue against Employee to prevent or restrain any such breach or threatened breach, in addition to any other rights or remedies at law the Company may have.
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4.5 Company Property. All the Company’s property, equipment, funds, books, records, files, memoranda, reports, lists, drawings, plans, sketches, documents, computer files, trade secrets, Confidential Information, inventions, and other material (together with all copies thereof), which Employee shall use, prepare or come in contact with or possession of during the course of, or as a result of, Employee’s employment shall, as between the parties hereto, remain the sole property of the Company. Upon the termination of Employee’s employment or upon the prior request of the Company, Employee shall immediately return all such property or materials and thereafter shall not remove or cause to be removed such materials from the premises of the Company.
4.6 Intellectual Property Rights.
(a) Employee acknowledges and confirms that the results and proceeds of Employee’s services for the Company (including, but not limited to, any trade secrets, products, services, processes, know-how, track record, designs, developments, innovations, analyses, reports, techniques, formulas, methods, developmental or experimental work, improvements, discoveries, inventions, and source and object codes) and resulting from services performed while providing services hereunder to the Company and any works in progress, whether or not patentable or registrable under copyright or similar statutes, that were made, developed, conceived or reduced to practice or learned by Employee, either alone or jointly with others, while providing services to the Company (collectively, “Inventions”), shall be works-made-for-hire and the Company (or, if applicable, any of its subsidiaries) shall be deemed the sole owner throughout the universe of any and all trade secret, patent, copyright and other intellectual property rights (collectively, “Proprietary Rights”) of whatsoever nature therein, whether or not now or hereafter known, existing, contemplated, recognized or developed, with the right to use the same in perpetuity in any manner determined by the Company, without any further payment to Employee whatsoever. If, for any reason, any of such results and proceeds shall not legally be a work-made-for-hire and/or there are any Proprietary Rights which do not accrue to the Company (or, as the case may be, any of its subsidiaries) under the immediately preceding sentence, then Employee hereby irrevocably assigns and shall assign any and all of Employee’s right, title and interest thereto, including any and all Proprietary Rights of whatsoever nature therein, whether or not now or hereafter known, existing, contemplated, recognized or developed, to the Company (or, if applicable, any of its subsidiaries/affiliates), and the Company or such subsidiaries/affiliates shall have the right to use the same in perpetuity throughout the universe in any manner determined by the Company or such subsidiaries/affiliates without any further payment to Employee whatsoever. As to any Invention that Employee is required to assign, Employee shall promptly and fully disclose to the Company all information known to Employee concerning such Invention.
(b) Employee acknowledges and confirms that, from time to time, as may be requested by the Company and at the Company’s sole cost and expense, Employee shall do any and all things reasonably requested to establish or document the Company’s exclusive ownership throughout the United States of America or any other country of any and all Proprietary Rights in any such Inventions, including the execution of appropriate copyright and/or patent applications or assignments. To the extent Employee has any Proprietary Rights in the Inventions that cannot be assigned in the manner described above, Employee unconditionally and irrevocably waives the enforcement of such Proprietary Rights against the Company. This Section 4.6(b) is subject to and shall not be deemed to limit, restrict or constitute any waiver by the Company of any Proprietary Rights of ownership to which the Company may be entitled by operation of law by virtue of the Employee providing services to the Company. Employee further acknowledges and confirms that, from time to time, as may be requested by the Company and at the Company’s sole cost and expense, Employee shall assist the Company in every proper and lawful way to obtain and from time to time enforce Proprietary Rights relating to Inventions in any and all countries. To this end, Employee shall execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as may be reasonably requested for use in applying for, obtaining, perfecting, evidencing, sustaining, and enforcing such Proprietary Rights and the assignment thereof. In addition, Employee shall execute, verify, and deliver assignments of such Proprietary Rights to the Company or its designees at the Company’s sole cost and expense. Employee’s obligation to assist the Company with respect to Proprietary Rights relating to such Inventions in any and all countries shall continue beyond the termination of Employee’s employment.
(c) Employee hereby waives and quitclaims to the Company any and all claims, of any nature whatsoever, that Employee now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company.
4.7 Survival of Restrictive Covenants and Confidentiality Provisions. Any provision of this Agreement to the contrary notwithstanding, if the employment of Employee is terminated for any reason either during the Term or thereafter, the provisions and covenants of this Section 4 shall nevertheless remain in full force and effect in accordance with their respective terms.
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5. TERMINATION.
5.1 Events of Termination.
(a) During the Term, Employee’s employment may be terminated by the Employer on the following grounds:
(i) upon the death of the Employee;
(ii) upon the Disability (defined in Section 6.1) of the Employee immediately upon notice from either party to the other;
(iii) For Cause (defined in Section 6.1) (following the expiration of any applicable notice period); and
(iv) at the discretion of the Employer, other than For Cause.
(b) During the Term, Employee may resign/terminate his/her employment for any or no reason (aka resignation) provided that the Employee gives the Employer at least thirty (30) days prior written notice of his/her resignation/termination of employment.
5.2 Effects of Termination. Effective upon the resignation/termination of Employee’s employment during the Term, the Employer will be obligated to pay the Employee (or, in the event of his/her death, his/her designated beneficiary as defined below) the compensation provided in this Section 5.2:
(a) Termination by the Employer For Cause. If the Employer terminates Employee’s employment during the Term For Cause, the Employee will only be entitled to receive the “Accrued Obligations” (as defined below), but will not be entitled to any other compensation. All RSUs or other equity awards that are not vested on or before the date of such termination, shall terminate as of the date such termination from employment is effective.
(b) Termination upon Disability. If Employee’s employment is terminated by the Employer during the Term as a result of the Employee’s Disability, in lieu of any payments due under this Agreement or any severance plan or program for employees or executives, Employee shall be entitled to receive (i) the Accrued Obligations, (ii) a continuation of his/her Base Salary for the balance of the Term, and (iii) Employee shall be given credit under all RSUs as if he/she remained employed by the Employer for the balance of the Term for the purpose of vesting thereunder. The Base Salary continuation benefit described in clause (ii) of the preceding sentence shall be paid in accordance with the Employer’s customary payroll practices then in effect. The proceeds of any disability insurance secured on behalf of the Employee by the Employer and received by the Employee shall be applied towards, and credited against, the Employer’s obligation to continue paying the Employee’s Base Salary as set forth above. If Employee or Employee’s eligible dependent(s) timely elect coverage pursuant to COBRA, Employer shall pay for COBRA coverage for the balance of the Term.
(c) Termination upon Death. If Employee’s employment is terminated during the Term because of the Employee’s death, the Employee’s estate shall be entitled to receive, in lieu of any payments due under this Agreement or any severance plan or program for employees or executives (i) the Accrued Obligations, (ii) a continuation of the Employee’s Base Salary for the balance of the Term and (iii) credit under all RSUs as if he/she remained employed by the Employer for the balance of the Term for the purpose of vesting thereunder. The Base Salary continuation benefit described in clause (ii) of the preceding sentence shall be paid in accordance with the Employer’s customary payroll practices then in effect. If Employee’s eligible dependent(s) timely elect coverage pursuant to COBRA, Employer shall pay for COBRA coverage for coverage for the balance of the Term.
(d) Termination by the Employee any or no reason (aka resignation) or Termination by the Employer Other than For Cause. If Employee’s employment is terminated during the Term by the Employee for any or no reason (aka resignation), or if Employee’s employment is terminated during the Term by the Employer other than For Cause, then the Employee shall be entitled to receive, in lieu of any other payments due under this Agreement or any severance plan or program for employees or executives (i) the Accrued Obligations, (ii) a continuation of the Employee’s Base Salary for the balance of the Term and (iii) Employee shall be given credit under all RSUs as if he/she remained employed by the Employer for the balance of the Term for the purpose of vesting thereunder. The Base Salary continuation benefits described in clause (ii) of the preceding sentence shall be paid in accordance with the Employer’s customary payroll practices, then in effect. If Employee or Employee’s eligible dependent(s) timely elect coverage pursuant to COBRA, the Employer shall pay for COBRA coverage for the balance of the Term.
(e) On the date of any resignation/termination of Employee’s employment, the Employee shall be deemed to have resign all positions for Employer, including as an officer of the Employer and/or its subsidiaries/affiliates.
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6. MISCELLANEOUS.
6.1 Definitions. For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 6:
(a) “Accrued Obligations” means (i) any Base Salary that is earned but remains unpaid on the date of termination, (ii) vacation or paid time off that is accrued but unused on the date of termination, (iii) expenses that are reimbursable under the Employer’s expense reimbursement policy that remain unpaid on the date of termination, (iv) rights under vested RSUs as of the date of termination and (v) benefits and rights under the Employer’s employee benefit plans. The Accrued Obligations will be paid in accordance with the Employer’s customary payroll practices, expense reimbursement policy or the terms of the employee benefit plan, as applicable.
(b) “Disability” shall mean once the Employee is unable to perform the essential functions of the Employee’s duties with reasonable accommodation for 120 consecutive days, or 120 days during any twelve (12) month period. The Disability of the Employee will be determined by a medical doctor selected by written agreement of the Employer and the Employee upon the request of either party by written notice to the other. If the Employer and the Employee cannot agree on the selection of a medical doctor, each of them will select a medical doctor and the two medical doctors will attempt to make a determination of disability. If these two doctors cannot agree, they will jointly select a third medical doctor who will determine whether the Employee has a disability. The determination of the third medical doctor(s) selected under this provision will be binding on both parties. The Employee must submit to a reasonable number of examinations by the medical doctor making the determination of disability under this provision, and the Employee hereby authorizes the disclosure and release to the Employer of such determination(s) and all supporting medical records. If the Employee is not legally competent, the Employee’s legal guardian or duly authorized attorney in fact will act in the Employee’s stead for the purposes of submitting the Employee to the examinations, and providing the authorization of disclosure, required under this provision.
(c) “For Cause” shall mean: (a) the Employee’s material breach of this Agreement, not substantially cured within ten (10) days’ written notice of the breach to Employee; (b) a judicial finding in a civil context, or a conviction or entry of a guilty plea or plea of no contest in a criminal context, with respect to theft, fraud, or misappropriation (or attempted misappropriation) by Employee of any of the Employer’s funds or property; (c) controlled substance abuse, drug addiction or alcoholism which interferes with or materially affects the Employee’s job performance, provided that an interactive dialogue and reasonable accommodation process have first been undertaken and exhausted, consistent with the Americans with Disabilities Act (ADA); (d) gross negligence or wanton misconduct which materially and negatively affects the Employer, not substantially cured within ten (10) days’ written notice to Employee; (e) any violation of any express written directions or any reasonable written rule or regulation established by the Employer’s Board of Directors from time to time regarding the conduct of its business which negatively affects the Employer, and which is/are not substantially cured within ten (10) days’ written notice to Employee; or (f) a conviction or entry of a guilty plea or plea of no contest with respect to a felony or other crime involving moral turpitude for which imprisonment is a possible punishment.
6.2 Applicable Law; Jurisdiction; WAIVER OF JURY TRIAL. This Agreement shall be governed by and interpreted and enforced in accordance with the laws Colorado, without regard to any applicable principles of conflicts of law that might require the application of the laws of any other jurisdiction. The parties hereto each hereby irrevocably submits to the exclusive jurisdiction of the the courts of Colorado (or, if subject matter jurisdiction in that court is not available, in any state court located within Denver, Colorado) over any dispute arising out of or relating to this Agreement. The parties hereto hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding brought in an applicable court described herein, and the parties agree that they shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR EMPLOYEE’S EMPLOYMENT. Each party hereto (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such party would not, in the event of any action, suit or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party hereto has been induced to enter into this Agreement by, among other things, the mutual waiver and certifications in this Section 6.2.
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6.3 Headings. The headings and captions set forth herein are for convenience of reference only and shall not affect the construction or interpretation hereof.
6.4 Successors and Assigns. This Agreement may not be assigned, nor may performance of any duty hereunder be delegated, by either party without the prior written consent of the other; provided, however, the Company may assign this Agreement to any of its successors or to any of its affiliates, including to any purchaser of the Company or of substantially all of the assets to which Employee’s employment relates, and that each such entity shall be deemed third-party beneficiaries of this Agreement such that each such entity has standing to sue to enforce the Agreement.
6.5 Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties with respect to the subject matter hereof, and there are no other contemporaneous written or oral agreements, undertakings, promises, warranties, or covenants not specifically referred to or contained herein. This Agreement specifically supersedes any and all prior agreements and understandings of the parties with respect to the subject matter hereof all of which prior agreements and understandings (if any), including, but not limited to, the Original Agreement and the Amended Agreement, are hereby terminated and of no further force and effect.
6.6 Execution of Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same Agreement. This Agreement may be delivered by electronic (including .pdf format) or facsimile transmission of an originally executed copy.
6.7 Modification. No provision of this Agreement may be amended, changed, altered, modified, or waived except in writing signed by Employee and an authorized representative of the Company, which writing shall specifically reference this Agreement and the provision which the parties intend to waive or modify.
6.8 Severability. Each provision, clause, and/or part of this Agreement is intended to be severable from the other. Therefore, if any provision, clause, or part of this Agreement, or the applications thereof under certain circumstances, is held invalid or unenforceable for any reason, the remainder of this Agreement, or the application of such provision, clause, or part under other circumstances, shall not be affected thereby to the extent permissible pursuant to the laws of the Colorado.
[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.
| ANDINA GOLD CORP. | ||
| By: | Philip B. Mullin, | |
| Chief Financial Officer | ||
| EMPLOYEE | ||
| Patricia I. Kovacevic | ||
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Exhibit 10.12
AMENDMENT TO THE EMPLOYMENT AGREEMENT DATED JULY 15, 2021, BY AND BETWEEN CRYOMASS TECHNOLOGIES INC AND PATRICIA KOVACEVIC
This Amendment to the Third Amended and Restated Employment Agreement by and between Cryomass Technologies Inc, a Nevada corporation, formerly known as Andina Gold Corp (the “Employer”), and Patricia Kovacevic (“Employee”) (collectively, the “Parties”) dated July 15, 2021 (the “Agreement”), is made and effective as of this 13th day of December 2021 by and between the Parties (the “Amendment”).
W I T N E S S E T H:
WHEREAS, Employer and Employee of their own free will wish to amend the terms of the Agreement,
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
| 1. | AMENDMENT OF SECTION 2.4 – BENEFITS |
1.1. Section 4 of the Agreement is amended to read: “Employee shall be entitled to receive such employee benefits as the Company may provide from time to time to its salaried employees generally, all on the same terms and conditions as such employee benefits are made available to the Company’s salaried employees. During the calendar year 2021 the Employee will be entitled to six (6) weeks’ paid vacation and eight (8) paid official holidays, which must be used until December 31, 2021, and shall not carry over into the next calendar year(s). As of January 1, 2022, and for the entire duration of the Employment Period, as part of the Employee benefits the Employee will be entitled to paid time off and paid official holidays in accordance with the Employer’s written policy in effect at the time, and which may change from time to time in the Employer’s sole discretion. Paid time off not used during a calendar year may not be carried over into the next calendar year.”
| 2. | MISCELLANEOUS. |
2.1. Effect of Amendment. Except as expressly amended hereby, the Agreement shall remain in full force and effect. Any reference to the Agreement contained in any notice, request or other document executed concurrently with or after the execution and delivery of this Amendment shall be deemed to include this Amendment unless the context shall otherwise require.
2.2. Applicable Law; Jurisdiction; WAIVER OF JURY TRIAL. This Amendment shall be governed by and interpreted and enforced in accordance with the laws of the Colorado, without regard to any applicable principles of conflicts of law that might require the application of the laws of any other jurisdiction. The Parties agree that claims and disputes under this Amendment shall be resolved pursuant to the mechanisms provided in Section 9.8 of the Agreement. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT AND TO THE AGREEMENT. Each party hereto (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such party would not, in the event of any action, suit or proceeding, seek to enforce the foregoing waiver.
2.3. Headings. The headings and captions set forth herein are for convenience of reference only and shall not affect the construction or interpretation hereof.
2.4. Entire Agreement. This Amendment sets forth the entire agreement and understanding of the parties with respect to the amendment of the Agreement, and there are no other contemporaneous written or oral agreements, undertakings, promises, warranties, or covenants not specifically referred to or contained herein.
2.5. Execution of Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. This Amendment may be delivered by electronic (including .pdf format) or facsimile transmission of an originally executed copy.
2.6. Modification. No provision of this Amendment may be amended, changed, altered, modified, or waived except in writing signed by Employee and an authorized representative of the Company, which writing shall specifically reference this Amendment, the Agreement and the provision which the parties intend to waive or modify.
2.7. Severability. Each provision, clause, and/or part of this Amendment is intended to be severable from the other. Therefore, if any provision, clause, or part of this Amendment, or the applications thereof under certain circumstances, is held invalid or unenforceable for any reason, the remainder of this Amendment, or the application of such provision, clause, or part under other circumstances, shall not be affected thereby to the extent permissible pursuant to the laws of Colorado.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
| CRYOMASS TECHOLOGIES INC | ||
| By: | ||
| Name: Philip Blair Mullin | ||
| Title: Chief Financial Officer | ||
| EMPLOYEE | ||
| Patricia Kovacevic | ||
Exhibit 10.13
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE TERM NOTE
Pursuant to the Subscription Agreement dated August _______, 2020 by and between Redwood Green Corp., a Nevada corporation (the “Borrower”), ____________ (the “Holder”), Borrower hereby promises to pay to Holder or his registered assigns or successors in interest, on order, the sum of __________ (the “Principal Amount”), together with any accrued and unpaid interest hereon, on August 1, 2022 (the “Maturity Date”) if not sooner paid.
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1 Interest Rate. Interest on the Principal Amount outstanding under this Convertible Term Note (“Note”) shall accrue at a rate per annum (the “Interest Rate”) equal to eight percent (8%). Interest shall be (i) calculated on the basis of a 360 day year, and (ii) payable in cash via wire on the Maturity Date whether by acceleration or otherwise (the “Payment Date”). All payments of both principal and interest shall be made at the address of the Holder as may be designated by the Holder hereof in writing to Borrower.
ARTICLE II
OPTIONAL REDEMPTION
2.1 Optional Redemption in Cash. The Borrower will have the option of prepaying this Note (“Optional Redemption”) by paying to the Holder a sum of money equal to one hundred percent (100%) of the principal amount of this Note together with accrued but unpaid interest thereon and any and all other sums due, accrued or payable to the Holder arising under this Note (the “Redemption Amount”) outstanding on the day written notice of redemption (the “Notice of Redemption”) is given to the Holder. The Notice of Redemption shall specify the date for such Optional Redemption (the “Redemption Payment Date”) which date shall be seven (7) business days after the date of the Notice of Redemption (the “Redemption Period”). A Notice of Redemption shall not be effective with respect to any portion of this Note for which the Holder has a pending election to convert pursuant to Section 3.1, or for conversions initiated or made by the Holder pursuant to Section 3.1 during the Redemption Period. The Redemption Amount shall be determined as if such Holder’s conversion elections had been completed immediately prior to the date of the Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must be paid in good funds to the Holder. In the event the Borrower fails to pay the Redemption Amount on the Redemption Payment Date as set forth herein, then such Redemption Notice will be null and void.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder’s Conversion Rights. The Holder shall have the right, but not the obligation, to convert all or any portion of the then aggregate outstanding principal amount of this Note, together with interest and fees due hereon, into shares of Borrower’s Common Stock, par value $0.001 per share (the “Common Stock”) and at a conversion price of $0.10 per share (“Conversion Price”) subject to the terms and conditions set forth herein. The Holder may exercise such right by delivery to the Borrower of a written notice of conversion not less than one (1) day prior to the date upon which such conversion shall occur.
3.3 Mechanics of Holder’s Conversion. (a) In the event that the Holder elects to convert all or a portion of the outstanding balance of this Note into Common Stock, the Holder shall give notice of such election by delivering an executed and completed notice of conversion (“Notice of Conversion”) to the Borrower and such Notice of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued interest and fees being converted. On each Conversion Date (as hereinafter defined) and in accordance with its Notice of Conversion, the Holder shall make the appropriate reduction to the Principal Amount, accrued interest and fees as entered in its records and shall provide written notice thereof to the Borrower within two (2) business days after the Conversion Date. Each date on which a Notice of Conversion is delivered or telecopied to the Borrower in accordance with the provisions hereof shall be deemed a Conversion Date (the “Conversion Date”). A form of Notice of Conversion to be employed by the Holder is annexed hereto as Exhibit A.
(b) Pursuant to the terms of the Notice of Conversion, the Borrower will issue instructions to the transfer agent accompanied by an opinion of counsel within one (1) business day of the date of the delivery to Borrower of the Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder. In the case of the exercise of the conversion rights set forth herein the conversion privilege shall be deemed to have been exercised and the Conversion Shares issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Borrower of the Notice of Conversion. The Holder shall be treated for all purposes as the record holder of such Common Stock, unless the Holder provides the Borrower written instructions to the contrary.
3.4 Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal and interest and fees to be converted, if any, by the applicable Conversion Price.
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(b) On the issue date hereof and until such time as an adjustment shall occur, the Conversion Price shall be $0.10 per share. The Conversion Price and number and kind of shares or other securities to be issued upon conversion is subject to adjustment from time to time upon the occurrence of certain events, as follows:
A. Stock Splits, Combinations and Dividends. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.
B. During the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. The Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note.
C. Reclassification, etc. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change.
3.5 Issuance of New Note. Upon any partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. Subject to the provisions of Article IV, the Borrower will pay no costs, fees or any other consideration to the Holder for the production and issuance of a new Note.
ARTICLE IV
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default beyond any applicable grace period, the Holder may make all sums of principal, interest and other fees then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable.
The occurrence of any of the following events set forth in Sections 4.1 through 4.8, inclusive, is an “Event of Default”:
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4.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails to pay when due any installment of principal, interest or other fees hereon in accordance herewith, or the Borrower fails to pay when due any amount due under any other promissory note issued by Borrower, and in any such case, such failure shall continue for a period of three (3) days following the date upon which any such payment was due.
4.2 Breach of Covenant. The Borrower breaches any covenant or any other term or condition of this Note in any material respect, in any such case, such breach, if subject to cure, continues for a period of fifteen (15) days after the occurrence thereof.
4.3 Breach of Representations and Warranties. Any representation or warranty made by the Borrower in this Note shall, in any such case, be false or misleading in any material respect on the date that such representation or warranty was made or deemed made.
4.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed.
4.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against the Borrower or any of its Subsidiaries or any of their respective property or other assets for more than $1,000,000, and shall remain unvacated, unbonded or unstayed for a period of thirty
(30) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any of its Subsidiaries.
4.8 Failure to Deliver Common Stock or Replacement Note. The Borrower shall fail (i) to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note if such failure to timely deliver Common Stock shall not be cured within two (2) business days or (ii) to deliver a replacement Note to Holder within seven (7) business days following the required date of such issuance pursuant to this Note.
4.9 Conversion Privileges. The conversion privileges set forth in Article III shall remain in full force and effect immediately from the date hereof and until this Note is paid in full.
4.11 Cumulative Remedies. The remedies under this Note shall be cumulative.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
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5.2 Notices. Any notice herein required or permitted to be given shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Borrower as follows: Philip Blair Mullin, Chief Financial Officer, b.mullin@redwoodgreencorp.com 3531 Logan Street Suite D357, Englewood, Colorado 80113, and to the Holder as follows: Monument Capital Establishment, c/o Audax Consulting Trust Establishment, Rätikonstrasse 13, Vaduz, Liechtenstein, or in each case at such other address as the Borrower or the Holder may designate by ten days advance written notice to the other parties hereto. A Notice of Conversion shall be deemed given when sent to the Borrower by email, return receipt requested.
5.3 Amendment Provision. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument issued pursuant to Section 3.5 hereof, as it may be amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder in accordance with the requirements of this Section 5.4. This Note shall not be assigned by the Borrower without the consent of the Holder. This Note may be transferred on the books of the Borrower by the registered Holder hereof, or by Holder’s attorney duly authorized in writing, only upon (i) delivery to the Borrower of a duly executed assignment of the Note, or part thereof, to the proposed new Holder, along with a current notation of the amount of payments received and net Principal Amount yet unfunded, and presentment of such Note to the Borrower for issue of a replacement Note, or Notes, in the name of the new Holder, (ii) the designation by the new Holder of such new Holder’s agent(s) for notice, such agent(s) to be the sole party(ies) to whom Borrower shall be required to provide notice when notice to Lender is required hereunder and who shall be the sole party(ies) authorized to represent the new Holder(s) in regard to modification or waivers under the Note, the Loan Agreement, or other Loan Documents; and any action, consent or waiver, (other than a compromise of principal and interest), when given or taken by the new Holder’s agent(s) for notice, shall be deemed to be the action of the new Holder, as such holders are recorded on the books of the Borrower, and (iii) compliance with the Securities Act of 1933, as amended, and all other applicable state and federal securities laws.
5.5 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Colorado, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of Colorado or in the federal courts located in Denver, Colorado. Both parties and the individual signing this Note on behalf of the Borrower agree to submit to the jurisdiction of such courts. 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 Note 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 unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court in favor of the Holder.
5.6 Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower.
5.8 Construction. Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other.
5.9 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay to Holder reasonable costs of collection, including reasonable attorney’s fees.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its name effective as of this 4th day of August, 2020.
| REDWOOD GREEN CORP. | ||
| By: | ||
| Name: | Philip Blair Mullin | |
| Title: | Chief Financial Officer | |
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EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into Common Stock)
The Undersigned hereby converts $__________ of the principal (together with associated accrued but unpaid interest) due under the Convertible Term Note issued by Redwood Green Corp. dated August , 2020 by delivery of Shares of Common Stock of Redwood Green Corp. on and subject to the conditions set forth in Article III of such Note.
| 1. | Date of Conversion | ______________________ |
| 2. | Shares To Be Delivered: | ______________________ |
| By: | ||
| Name: | ||
| Title: |
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Exhibit 10.14
COMMON SHARE PURCHASE WARRANT
ANDINA GOLD CORP
| Warrant Shares: | Initial Issuance Date: (October__ 2021 |
| Termination Date: November 1, 2023 |
THIS COMMON SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _________, 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 __________, 2020 (the “Initial Issuance Date”) and on or prior to the close of business on November 1, 2022 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Andina Gold Corp., a Nevada corporation (the “Company”),__________ common shares (the “Common Shares”) of the capital of the Company (subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1:
“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.
“Commission” means the United States Securities and Exchange Commission.
“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.
“Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“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 Shares may be listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB marketplace or the OTC Bulletin Board (or any successors to any of the foregoing).
“Transfer Agent” means initially the Company, and following the appointment of a transfer agent for the Company’s Common Shares, such transfer agent and any successor transfer agent of the Company.
All references to “Dollar” or “$” refer to the lawful currency of the United States.
Section 2. Exercise of Warrant.
a) 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 Issuance Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto as Exhibit “A”. Within three (3) Trading Days following the date of exercise as aforesaid, the Holder shall deliver or otherwise satisfy the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise in one of the manners specified in Section 2 c). 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 form 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 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 Form 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 Common Share under this Warrant shall be US$0.30, subject to adjustment hereunder (the “Exercise Price”).
c) Payment of Exercise Price. Payment of the Exercise Price shall be made as in accordance with either subsection (i) or (ii) below at the option of the Holder:
(i) Cash Exercise: The Holder may make the required payment due upon exercise of this Warrant in cash, cashier’s check, or wire transfer, equal to the applicable Exercise Price (a “Cash Exercise”).
(ii) Cashless Exercise: The Holder may make the required payment due upon exercise of this Warrant in a cashless exercise transaction pursuant to this subsection (ii) (a “Cashless Exercise”) provided there is a Trading Market for the Common Shares. In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with a Notice of Exercise in the form attached as Exhibit “A”, completed and executed, indicating Holder’s election to effect a Cashless Exercise, in which event the Company shall issue Holder a number of Common Shares computed using the following formula: X = Y (A-B)/A
| where: | X = the number of Common Shares to be issued to Holder; |
Y = the number of Common Shares for which this Warrant is being Exercised;
A = the Market Price of one (1) Common Share (for purposes of this Section 2(c), where “Market Price,” means the VWAP (as defined herein) of one (1) Common Share during the ten (10) consecutive Trading Day period immediately preceding the date of exercise; and
B = the Exercise Price.
For purposes of Rule 144 under the Securities Act and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have commenced on the date this Warrant was issued.
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d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall use best efforts to cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder. The Warrant Shares shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by Cashless Exercise) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(v) prior to the issuance of such shares, having been paid.
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. In the event of such rescission, Holder shall promptly execute such documents and take such actions as may be necessary to promptly return to the Company any Warrant Shares that have been issued and delivered to the Holder following the Warrant Share Delivery Date.
iv) 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.
v) 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 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 as Exhibit “B” 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.
vi) Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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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 Share or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of the Common Shares 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 Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares 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 shareholders 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) If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Shares (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the ten-day volume-weighted average price (“VWAP”) of the Common Shares on the Trading Market determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding Common Share as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one Common Share. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.
c) 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, 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 Shares 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 Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares are 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 or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares 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 otherwise 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 Common Shares or other securities 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 Common Shares for which this Warrant has been exercised and would have been exercisable immediately prior to such Fundamental Transaction. 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 Common Share 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 Shares 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. 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 in accordance with the provisions of this Section 3(d) 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 Common Shares 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, adjusted as applicable in accordance with the terms of the Fundamental Transaction, to such shares of capital stock. 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 referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
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d) 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 Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.
e) 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 mail to the Holder 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 Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares 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 shareholders of the Company shall be required in connection with any reclassification of the Common Shares, any consolidation or merger to which the Company 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 Shares are 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 mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined below) of the Company, at least 10 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 Shares 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 Shares of record shall be entitled to exchange their Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing 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 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 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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Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable law, including the Securities Act and any applicable “blue sky law” (such compliance to be demonstrated by an opinion of counsel acceptable to the Company, in form and substance satisfactory to the Company), 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 in the form attached hereto as Exhibit “B” 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 the Holder delivers an assignment form to the Company assigning this Warrant 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 of this Warrant 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 registered 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.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
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 date of 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 Shares a sufficient number of shares to provide for the issuance of all of the Warrant Shares that may be issued 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 executing stock certificates to execute and issue 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 Shares 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 (or Cashless Exercise)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 articles 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 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. This Warrant shall be governed by and construed in accordance with the laws of Nevada.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. By exercising this Warrant, the Holder consents to any restrictive legend the Company may require to ensure compliance with state and federal securities laws, if applicable.
g) Notices. All notices and other communications given or made pursuant to this Warrant 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 the recipient’s normal business hours, 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 the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth in the Warrant Register or another address specified by the Holder in writing given pursuant to this subparagraph (h), or, if to the Company, attention Mr. Blair Mullin, CFO, 3531 Logan Ave, Suite D-357, Englewood, CO 80113. If notice is given to the Company, a copy shall also be sent to J.P. Galda & Co., 143 Clover Hollow Road, Easton, PA, 18045.
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h) 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 Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
i) 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.
j) 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.
k) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of both the Company and the Holder.
l) 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.
m) Headings. The headings used in this Warrant are for 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.
| Andina Gold Corp | ||
| By: | ||
| Name:Philip B. Mullin | ||
| Title: Chief Financial Officer | ||
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EXHIBIT A
NOTICE OF EXERCISE
To: Andina gold CORP.
(1) The undersigned hereby elects to purchase ________ Warrant Shares pursuant to the terms of the attached Warrant (only if exercised in full), and [ ] (A) tenders herewith payment of the Exercise Price in full or [ ] (B) elects to exercise this Warrant by means of a Cashless Exercise, in either case, together with a cash payment of all applicable transfer taxes, if any.
(2) Payment shall be in U.S..
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
[SIGNATURE OF HOLDER]
Name of Holder: ________________________________________________________________________
Signature of Holder: _________________________________________________
Name of Authorized Signatory of Holder (if applicable): ______________________________________
Title of Authorized Signatory of Holder (if applicable): ______________________________________________
Date: ________________________________________________________________________________________
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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) | ||
| Dated: _______________ __, ______ | ||
| Holder’s Signature: | ||
| Holder’s Address: | ||
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Exhibit 10.15
COMMON SHARE PURCHASE WARRANT
ANDINA GOLD CORP
| Warrant Shares: | Initial Issuance Date: April/May __, 2021 |
| Termination Date: March 31, 2023 |
THIS COMMON SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for value received, __________ 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 _________, 2021 (the “Initial Issuance Date”) and on or prior to the close of business on March 31, 2023 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Andina Gold Corp., a Nevada corporation (the “Company”), _____________ common shares (the “Common Shares”) of the capital of the Company (subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1:
“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.
“Commission” means the United States Securities and Exchange Commission.
“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.
“Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“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 Shares may be listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB marketplace or the OTC Bulletin Board (or any successors to any of the foregoing).
“Transfer Agent” means initially the Company, and following the appointment of a transfer agent for the Company’s Common Shares, such transfer agent and any successor transfer agent of the Company.
All references to “Dollar” or “$” refer to the lawful currency of the United States.
Section 2. Exercise of Warrant.
a) 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 Issuance Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto as Exhibit “A”. Within three (3) Trading Days following the date of exercise as aforesaid, the Holder shall deliver or otherwise satisfy the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise in one of the manners specified in Section 2 c). 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 form 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 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 Form 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 Common Share under this Warrant shall be US$0.40, subject to adjustment hereunder (the “Exercise Price”).
c) Payment of Exercise Price. Payment of the Exercise Price shall be made as in accordance with either subsection (i) or (ii) below at the option of the Holder:
(i) Cash Exercise: The Holder may make the required payment due upon exercise of this Warrant in cash, cashier’s check, or wire transfer, equal to the applicable Exercise Price (a “Cash Exercise”).
(ii) Cashless Exercise: The Holder may make the required payment due upon exercise of this Warrant in a cashless exercise transaction pursuant to this subsection (ii) (a “Cashless Exercise”) provided there is a Trading Market for the Common Shares. In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with a Notice of Exercise in the form attached as Exhibit “A”, completed and executed, indicating Holder’s election to effect a Cashless Exercise, in which event the Company shall issue Holder a number of Common Shares computed using the following formula: X = Y (A-B)/A
| where: | X = the number of Common Shares to be issued to Holder; |
Y = the number of Common Shares for which this Warrant is being Exercised;
A = the Market Price of one (1) Common Share (for purposes of this Section 2(c), where “Market Price,” means the VWAP (as defined herein) of one (1) Common Share during the ten (10) consecutive Trading Day period immediately preceding the date of exercise; and
B = the Exercise Price.
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For purposes of Rule 144 under the Securities Act and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have commenced on the date this Warrant was issued.
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall use best efforts to cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder. The Warrant Shares shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by Cashless Exercise) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(v) prior to the issuance of such shares, having been paid.
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. In the event of such rescission, Holder shall promptly execute such documents and take such actions as may be necessary to promptly return to the Company any Warrant Shares that have been issued and delivered to the Holder following the Warrant Share Delivery Date.
iv) 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.
v) 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 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 as Exhibit “B” 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.
vi) Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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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 Share or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of the Common Shares 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 Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares 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 shareholders 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) If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Shares (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the ten-day volume-weighted average price (“VWAP”) of the Common Shares on the Trading Market determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding Common Share as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one Common Share. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.
c) 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, 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 Shares 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 Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares are 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 or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares 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 otherwise 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 Common Shares or other securities 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 Common Shares for which this Warrant has been exercised and would have been exercisable immediately prior to such Fundamental Transaction. 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 Common Share 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 Shares 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. 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 in accordance with the provisions of this Section 3(d) 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 Common Shares 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, adjusted as applicable in accordance with the terms of the Fundamental Transaction, to such shares of capital stock. 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 referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
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d) 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 Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.
e) 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 mail to the Holder 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 Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares 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 shareholders of the Company shall be required in connection with any reclassification of the Common Shares, any consolidation or merger to which the Company 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 Shares are 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 mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined below) of the Company, at least 10 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 Shares 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 Shares of record shall be entitled to exchange their Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing 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 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 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
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable law, including the Securities Act and any applicable “blue sky law” (such compliance to be demonstrated by an opinion of counsel acceptable to the Company, in form and substance satisfactory to the Company), 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 in the form attached hereto as Exhibit “B” 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 the Holder delivers an assignment form to the Company assigning this Warrant 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.
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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 of this Warrant 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 registered 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.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
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 date of 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 Shares a sufficient number of shares to provide for the issuance of all of the Warrant Shares that may be issued 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 executing stock certificates to execute and issue 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 Shares 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 (or Cashless Exercise)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 articles 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 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.
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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. This Warrant shall be governed by and construed in accordance with the laws of Nevada.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. By exercising this Warrant, the Holder consents to any restrictive legend the Company may require to ensure compliance with state and federal securities laws, if applicable.
g) Notices. All notices and other communications given or made pursuant to this Warrant 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 the recipient’s normal business hours, 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 the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth in the Warrant Register or another address specified by the Holder in writing given pursuant to this subparagraph (h), or, if to the Company, attention Mr. Blair Mullin, CFO, 3531 Logan Ave, Suite D-357, Englewood, CO 80113. If notice is given to the Company, a copy shall also be sent to J.P. Galda & Co., 143 Clover Hollow Road, Easton, PA, 18045.
h) 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 Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
i) 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.
j) 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.
k) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of both the Company and the Holder.
l) 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.
m) Headings. The headings used in this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
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(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.
| Andina Gold Corp | ||
| By: | ||
| Name:Philip B. Mullin | ||
| Title: Chief Financial Officer | ||
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EXHIBIT A
NOTICE OF EXERCISE
To: Andina gold CORP.
(1) The undersigned hereby elects to purchase ________ Warrant Shares pursuant to the terms of the attached Warrant (only if exercised in full), and [ ] (A) tenders herewith payment of the Exercise Price in full or [ ] (B) elects to exercise this Warrant by means of a Cashless Exercise, in either case, together with a cash payment of all applicable transfer taxes, if any.
(2) Payment shall be in U.S..
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
[SIGNATURE OF HOLDER]
Name of Holder: ________________________________________________________________________
Signature of Holder: _________________________________________________
Name of Authorized Signatory of Holder (if applicable): ______________________________________
Title of Authorized Signatory of Holder (if applicable): ______________________________________________
Date: ________________________________________________________________________________________
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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) | |||
| Dated: _______________ __, ______ | |||
| Holder’s Signature: | |||
| Holder’s Address: | |||
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Exhibit 10.16
COMMON SHARE PURCHASE WARRANT
Cryomass Technologies Inc
| Warrant Shares: ______________ | Initial Issuance Date: (September/November), 2021 |
| Termination Date: (September/November), 2023 |
THIS COMMON SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Pierre-Luc Marcotte, or his 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 ______, 2021 (the “Initial Issuance Date”) and on or prior to the close of business on _______, 2023 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Cryomass Technologies Inc, a Nevada corporation (the “Company”) _________ common shares (the “Common Shares”) of the capital of the Company (subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1:
“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.
“Commission” means the United States Securities and Exchange Commission.
“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.
“Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“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 Shares may be listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB marketplace or the OTC Bulletin Board (or any successors to any of the foregoing).
“Transfer Agent” means initially the Company, and following the appointment of a transfer agent for the Company’s Common Shares, such transfer agent and any successor transfer agent of the Company.
All references to “Dollar” or “$” refer to the lawful currency of the United States.
Section 2. Exercise of Warrant.
a) 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 Issuance Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto as Exhibit “A”. Within three (3) Trading Days following the date of exercise as aforesaid, the Holder shall deliver or otherwise satisfy the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise in one of the manners specified in Section 2 c). 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 form 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 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 Form 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 Common Share under this Warrant shall be US$0.40, subject to adjustment hereunder (the “Exercise Price”).
c) Payment of Exercise Price. Payment of the Exercise Price shall be made as in accordance with either subsection (i) or (ii) below at the option of the Holder or subsection (iii) if mandatory:
(i) Cash Exercise: The Holder may make the required payment due upon exercise of this Warrant in cash, cashier’s check, or wire transfer, equal to the applicable Exercise Price (a “Cash Exercise”).
(ii) Cashless Exercise: The Holder may make the required payment due upon exercise of this Warrant in a cashless exercise transaction pursuant to this subsection (ii) (a “Cashless Exercise”) provided there is a Trading Market for the Common Shares. In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with a Notice of Exercise in the form attached as Exhibit “A”, completed and executed, indicating Holder’s election to effect a Cashless Exercise, in which event the Company shall issue Holder a number of Common Shares computed using the following formula: X = Y (A-B)/A
| where: | X = the number of Common Shares to be issued to Holder; |
Y = the number of Common Shares for which this Warrant is being Exercised;
A = the Market Price of one (1) Common Share (for purposes of this Section 2(c), where “Market Price,” means the VWAP (as defined herein) of one (1) Common Share during the ten (10) consecutive Trading Day period immediately preceding the date of exercise; and
B = the Exercise Price.
For purposes of Rule 144 under the Securities Act and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have commenced on the date this Warrant was issued.
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(iii) Mandatory Automatic Cashless Exercise. If the Company shares of common stock close at or above $0.80 at close of market for 10 (ten) consecutive trading days, on the day following the tenth day when the shares of common stock close at or above $0.80 (the “Automatic Exercise Date) the entire Warrant or any portion of this Warrant which remains unexercised as of the Automatic Exercise Date shall be deemed to have been exercised automatically immediately prior to the close of business on the Automatic Exercise Date (or, in the event that the Automatic Exercise Date is not a business day, the immediately following business day) using the calculation mechanism in the manner provided in Section 2 (c) (ii), and the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section without any action by the Holder. As promptly as is reasonably practicable on or after the Automatic Exercise Date the Company at its expense shall issue and deliver to the Holder (or to such other person or persons who prove(s) ownership of the Warrant before issuance of Warrant Shares through a notarized and, if appropriate, apostilled document, subject to compliance with applicable securities laws) a certificate or certificates for the number of Warrant Shares issuable upon such exercise, in accordance with Section 2(c) (ii).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall use best efforts to cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder. The Warrant Shares shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by Cashless Exercise) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(v) prior to the issuance of such shares, having been paid.
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. In the event of such rescission, Holder shall promptly execute such documents and take such actions as may be necessary to promptly return to the Company any Warrant Shares that have been issued and delivered to the Holder following the Warrant Share Delivery Date.
iv) 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.
v) 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 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 as Exhibit “B” 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.
vi) Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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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 Share or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of the Common Shares 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 Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares 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 shareholders 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) If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Shares (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the ten-day volume-weighted average price (“VWAP”) of the Common Shares on the Trading Market determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding Common Share as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one Common Share. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.
c) 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, 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 Shares 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 Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares are 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 or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares 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 otherwise 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 Common Shares or other securities 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 Common Shares for which this Warrant has been exercised and would have been exercisable immediately prior to such Fundamental Transaction. 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 Common Share 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 Shares 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. 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 in accordance with the provisions of this Section 3(d) 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 Common Shares 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, adjusted as applicable in accordance with the terms of the Fundamental Transaction, to such shares of capital stock. 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 referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
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d) 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 Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.
e) 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 mail to the Holder 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 Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares 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 shareholders of the Company shall be required in connection with any reclassification of the Common Shares, any consolidation or merger to which the Company 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 Shares are 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 mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined below) of the Company, at least 10 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 Shares 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 Shares of record shall be entitled to exchange their Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing 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 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 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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Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable law, including the Securities Act and any applicable “blue sky law” (such compliance to be demonstrated by an opinion of counsel acceptable to the Company, in form and substance satisfactory to the Company), 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 in the form attached hereto as Exhibit “B” 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 the Holder delivers an assignment form to the Company assigning this Warrant 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 of this Warrant 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 registered 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.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
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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 date of 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 Shares a sufficient number of shares to provide for the issuance of all of the Warrant Shares that may be issued 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 executing stock certificates to execute and issue 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 Shares 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 (or Cashless Exercise) 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 articles 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 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. This Warrant shall be governed by and construed in accordance with the laws of Nevada.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. By exercising this Warrant, the Holder consents to any restrictive legend the Company may require to ensure compliance with state and federal securities laws, if applicable.
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g) Notices. All notices and other communications given or made pursuant to this Warrant 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 the recipient’s normal business hours, 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 the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth in the Warrant Register or another address specified by the Holder in writing given pursuant to this subparagraph (h), or, if to the Company, attention Mr. Blair Mullin, CFO, 1001 Bannock Street, Suite 612, Denver, C) 80204. If notice is given to the Company, a copy shall also be sent to J.P. Galda & Co., 143 Clover Hollow Road, Easton, PA, 18045.
h) 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 Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
i) 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.
j) 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.
k) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of both the Company and the Holder.
l) 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.
m) Headings. The headings used in this Warrant are for 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.
| Cryomass Technologies Inc | ||
| By: | ||
| Name: Philip B. Mullin | ||
| Title: Chief Financial Officer | ||
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EXHIBIT A
NOTICE OF EXERCISE
To: Cryomass Technologies inc
(1) The undersigned hereby elects to purchase ________ Warrant Shares pursuant to the terms of the attached Warrant (only if exercised in full), and [ ] (A) tenders herewith payment of the Exercise Price in full or [ ] (B) elects to exercise this Warrant by means of a Cashless Exercise, in either case, together with a cash payment of all applicable transfer taxes, if any.
(2) Payment shall be in U.S..
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
[SIGNATURE OF HOLDER]
Name of Holder: _______________________________________________________________________
Signature of Holder: _________________________________________________
Name of Authorized Signatory of Holder (if applicable): ______________________________________
Title of Authorized Signatory of Holder (if applicable): ______________________________________________
Date: ________________________________________________________________________________________
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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) | |||
| Dated: _______________ __, ______ | |||
| Holder’s Signature: | |||
| Holder’s Address: | |||
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Exhibit 10.17
COMMON SHARE PURCHASE WARRANT
Cryomass Technologies Inc
| Warrant Shares: _________ | Initial Issuance Date: (September/November), 2021 |
| Termination Date: (September/November), 2023 |
THIS COMMON SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Pierre-Luc Marcotte, or his 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 ______, 2021 (the “Initial Issuance Date”) and on or prior to the close of business on _______, 2023 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Cryomass Technologies Inc, a Nevada corporation (the “Company”) _________ common shares (the “Common Shares”) of the capital of the Company (subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1:
“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.
“Commission” means the United States Securities and Exchange Commission.
“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.
“Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“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 Shares may be listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB marketplace or the OTC Bulletin Board (or any successors to any of the foregoing).
“Transfer Agent” means initially the Company, and following the appointment of a transfer agent for the Company’s Common Shares, such transfer agent and any successor transfer agent of the Company.
All references to “Dollar” or “$” refer to the lawful currency of the United States.
Section 2. Exercise of Warrant.
a) 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 Issuance Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto as Exhibit “A”. Within three (3) Trading Days following the date of exercise as aforesaid, the Holder shall deliver or otherwise satisfy the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise in one of the manners specified in Section 2 c). 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 form 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 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 Form 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 Common Share under this Warrant shall be US$0.40, subject to adjustment hereunder (the “Exercise Price”).
c) Payment of Exercise Price. Payment of the Exercise Price shall be made as in accordance with either subsection (i) or (ii) below at the option of the Holder or subsection (iii) if mandatory:
(i) Cash Exercise: The Holder may make the required payment due upon exercise of this Warrant in cash, cashier’s check, or wire transfer, equal to the applicable Exercise Price (a “Cash Exercise”).
(ii) Cashless Exercise: The Holder may make the required payment due upon exercise of this Warrant in a cashless exercise transaction pursuant to this subsection (ii) (a “Cashless Exercise”) provided there is a Trading Market for the Common Shares. In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with a Notice of Exercise in the form attached as Exhibit “A”, completed and executed, indicating Holder’s election to effect a Cashless Exercise, in which event the Company shall issue Holder a number of Common Shares computed using the following formula: X = Y (A-B)/A
| where: | X = the number of Common Shares to be issued to Holder; |
Y = the number of Common Shares for which this Warrant is being Exercised;
A = the Market Price of one (1) Common Share (for purposes of this Section 2(c), where “Market Price,” means the VWAP (as defined herein) of one (1) Common Share during the ten (10) consecutive Trading Day period immediately preceding the date of exercise; and
B = the Exercise Price.
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For purposes of Rule 144 under the Securities Act and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Shares issued upon exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have commenced on the date this Warrant was issued.
(iii) Mandatory Automatic Cashless Exercise. If the Company shares of common stock close at or above $0.80 at close of market for 10 (ten) consecutive trading days, on the day following the tenth day when the shares of common stock close at or above $0.80 (the “Automatic Exercise Date) the entire Warrant or any portion of this Warrant which remains unexercised as of the Automatic Exercise Date shall be deemed to have been exercised automatically immediately prior to the close of business on the Automatic Exercise Date (or, in the event that the Automatic Exercise Date is not a business day, the immediately following business day) using the calculation mechanism in the manner provided in Section 2 (c) (ii), and the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section without any action by the Holder. As promptly as is reasonably practicable on or after the Automatic Exercise Date the Company at its expense shall issue and deliver to the Holder (or to such other person or persons who prove(s) ownership of the Warrant before issuance of Warrant Shares through a notarized and, if appropriate, apostilled document, subject to compliance with applicable securities laws) a certificate or certificates for the number of Warrant Shares issuable upon such exercise, in accordance with Section 2(c) (ii).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall use best efforts to cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder. The Warrant Shares shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by Cashless Exercise) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(v) prior to the issuance of such shares, having been paid.
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. In the event of such rescission, Holder shall promptly execute such documents and take such actions as may be necessary to promptly return to the Company any Warrant Shares that have been issued and delivered to the Holder following the Warrant Share Delivery Date.
iv) 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.
v) 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 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 as Exhibit “B” 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.
vi) Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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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 Share or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of the Common Shares 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 Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares 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 shareholders 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) If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Shares (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the ten-day volume-weighted average price (“VWAP”) of the Common Shares on the Trading Market determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding Common Share as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one Common Share. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.
c) 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, 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 Shares 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 Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares are 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 or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares 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 otherwise 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 Common Shares or other securities 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 Common Shares for which this Warrant has been exercised and would have been exercisable immediately prior to such Fundamental Transaction. 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 Common Share 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 Shares 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. 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 in accordance with the provisions of this Section 3(d) 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 Common Shares 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, adjusted as applicable in accordance with the terms of the Fundamental Transaction, to such shares of capital stock. 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 referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
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d) 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 Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.
e) 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 mail to the Holder 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 Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares 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 shareholders of the Company shall be required in connection with any reclassification of the Common Shares, any consolidation or merger to which the Company 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 Shares are 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 mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined below) of the Company, at least 10 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 Shares 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 Shares of record shall be entitled to exchange their Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing 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 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 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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Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable law, including the Securities Act and any applicable “blue sky law” (such compliance to be demonstrated by an opinion of counsel acceptable to the Company, in form and substance satisfactory to the Company), 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 in the form attached hereto as Exhibit “B” 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 the Holder delivers an assignment form to the Company assigning this Warrant 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 of this Warrant 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 registered 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.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
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 date of 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 Shares a sufficient number of shares to provide for the issuance of all of the Warrant Shares that may be issued 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 executing stock certificates to execute and issue 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 Shares 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 (or Cashless Exercise) 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 articles 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 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. This Warrant shall be governed by and construed in accordance with the laws of Nevada.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. By exercising this Warrant, the Holder consents to any restrictive legend the Company may require to ensure compliance with state and federal securities laws, if applicable.
g) Notices. All notices and other communications given or made pursuant to this Warrant 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 the recipient’s normal business hours, 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 the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth in the Warrant Register or another address specified by the Holder in writing given pursuant to this subparagraph (h), or, if to the Company, attention Mr. Blair Mullin, CFO, 1001 Bannock Street, Suite 612, Denver, C) 80204. If notice is given to the Company, a copy shall also be sent to J.P. Galda & Co., 143 Clover Hollow Road, Easton, PA, 18045.
h) 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 Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
i) 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.
j) 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.
k) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of both the Company and the Holder.
l) 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.
m) Headings. The headings used in this Warrant are for 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.
| Cryomass Technologies Inc | ||
| By: | ||
| Name:Philip B. Mullin | ||
| Title: Chief Financial Officer | ||
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EXHIBIT A
NOTICE OF EXERCISE
To: Cryomass Technologies inc
(1) The undersigned hereby elects to purchase ________ Warrant Shares pursuant to the terms of the attached Warrant (only if exercised in full), and [ ] (A) tenders herewith payment of the Exercise Price in full or [ ] (B) elects to exercise this Warrant by means of a Cashless Exercise, in either case, together with a cash payment of all applicable transfer taxes, if any.
(2) Payment shall be in U.S..
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
[SIGNATURE OF HOLDER]
Name of Holder: ________________________________________________________________________
Signature of Holder: _________________________________________________
Name of Authorized Signatory of Holder (if applicable): ______________________________________
Title of Authorized Signatory of Holder (if applicable): ______________________________________________
Date: ________________________________________________________________________________________
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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) | ||
| Dated: _______________ __, ______ | ||
| Holder’s Signature: | ||
| Holder’s Address: | ||
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Exhibit 21
Subsidiaries of Andina Gold Corp.
| Name | Jurisdiction of Organization | |
| General Extract LLC | Colorado | |
| General Oil Imports, Inc. | Delaware | |
| Good Meds, Inc. | Colorado | |
| Andina Gold Colombia SAS | Colombia | |
| 1304740BC ULC | British Columbia, Canada |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Registration Statement on Form S-1 of our report dated March 30, 2021, relating to the financial statements of Andina Gold Corp. (now Cryomass Technologies, Inc.) as of December 31, 2020 and 2019 and to all references to our firm included in this Registration Statement.
Certified Public Accountants
Lakewood, CO
February 11, 2022
Exhibit 107
Calculation of Filing Fee Tables
FORM S-1
(Form Type)
CRYOMASS TECHNOLOGIES INC
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward Securities