As filed with the Securities and Exchange Commission on May 28, 2015
File No. 0-55418

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

______________________

Amendment No. 1 to
FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

________________________

KUSH BOTTLES, INC.
(Exact name of registrant in its charter)
 

 
Nevada
(State or jurisdiction of Incorporation or organization)
 
46-5268202
(I.R.S. Employer Identification No.)
     
1800 Newport Circle, Santa Ana, CA 92705
(Address of Principle Executive Offices)
 
92705
(Zip Code)
     
Registrant’s telephone number including area code:   ( 714) 243-4311


Securities to be registered under Section 12(b) of the Act:
         
Title of each class
To be so registered
     
Name of exchange on which each class is to be registered
         
None
     
N/A
         
Securities to be registered under Section 12(g) of the Act:
         
Common Stock, $0.001 par value
(Title of Class)
         


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

Large accelerated filer  [   ]
 
 
Accelerated filer    [    ]
Non-accelerated filer    [   ] (Do not check if smaller reporting company)
 
Smaller reporting company    [ X ]

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TABLE OF CONTENTS
Kush Bottles, Inc.



Item 1.  Business…………………………………………………………………………………………………...................
4
Item 1A. Risk Factors……………………………………………………………………………………………...................
7
Item 2.  Financial Information…………………. ………………………………………………………………....................
8
Item 3.  Properties………………...………………………………………………………………………………...................
11
Item 4.  Security Ownership of Certain Beneficial Owners and Management…………………………………..............
11
Item 5. Directors and Executive Officers…………………………………………………………………………................
12
Item 6.  Executive Compensation……………………………………………………............................................................
15
Item 7.  Certain Relationships and Related Transactions and Director Independence..................................................
17
Item 8.  Legal Proceedings…………………………………………………………...............................................................
19
Item 9.  Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.......
19
Item 10.  Recent Sales of Unregistered Securities....…………………………………………………………….................
19
Item 11. Description of Registrant’s Securities to be Registered…………………………………………………...........
20
Item 12.  Indemnification of Directors and Officers………………...……………………………………………...............
21
Item 13.  Financial Statements and Supplementary Data………………………………………………………….............
22
Item 14.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure….……….....
22
Item 15.  Financial Statements and Exhibits……………………………………………………………………..................
22

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EMERGING GROWTH COMPANY

We are an “emerging growth company” under the federal securities laws (as that term is used in the Jumpstart Our Business Startups Act of 2012) and will be subject to certain reduced public company reporting requirements.

As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an "emerging growth company" as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
 
·
Reduced disclosure about our executive compensation arrangements;

·
No non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;

·
Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

·
Reduced disclosure of financial information in this prospectus, including two years of audited financial information and two years of selected financial information.
 
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large-accelerated filer under the rules of the Securities and Exchange Commission, or if we issue more than $1.0 billion of non-convertible debt over a three-year-period.

CAUTIONARY STATEMENT
Except for historical matters, the matters discussed in this Form 10 are forward-looking statements that are subject to significant risks and uncertainties. These statements are generally indicated by the use of forward-looking terminology such as the words “estimate”, “could”, “should”, “would”, “likely”, “may”, “will”, “plan”, “intend”, “believes”, “expects”, “anticipates”, “projected”, or other similar words that express an indication of actions or results of actions that may or are expected to occur in the future. These statements appear in a number of places throughout this Form 10 and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which we operate.
 
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. Our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10.  Important factors that could cause those differences include, but are not limited to:

 
competition from other companies and our ability to retain and increase our market share;
 
 
our ability to generate growth or profitable growth;
 
 
our ability to hire and retain qualified personnel;
 
 
our ability to acquire required equipment and supplies to meet customer demand;
 
 
our ability to raise debt or equity financing as required to meet certain existing obligations;
 
 
general local and global economic, regulatory and financial conditions.

Forward-looking statements include, but are not limited to, statements regarding our strategy and future plans, future business condition and financial results, our capital expenditure plans, future market demand, future regulatory or other developments in our industry.  All forward-looking statements in this Form 10 are based on information currently available to us as of the date of this report.  We assume no obligation to update any forward-looking statements, except as required by applicable law.


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INFORMATION REQUIRED IN REGISTRATION STATEMENT

Part I

Item 1.  BUSINESS

Our Corporate History and Background

Kush Bottles, Inc. (“the Company” or "Kush") was incorporated in the state of Nevada on February 26, 2014.  The Company specializes in the wholesale distribution of packaging supplies for the cannabis industry. The Company’s wholly owned subsidiary Kim International Corporation (KIM), a California corporation , was originally incorporated as Hy Gro Economics Corporation ("Hy Gro") on December 2, 2010. On October 30, 2012, Hy Gro amended its articles of incorporation to reflect a name change to KIM International Corporation (KIM).

On April 10, 2015, the Company entered into an equity purchase agreement to acquire all of the issued and outstanding membership interests in Dank Bottles, LLC ("Dank"), a Colorado limited liability company. In exchange for the purchased interests, the Company paid cash consideration of $373,725 and issued 3,500,000 shares of common stock to the sellers of Dank. Of the $373,725 of cash consideration, $273,725 was paid on April 10, 2015 and the remaining $100,000 is to be paid in 10 monthly installments beginning on July 31, 2015 and ending April 30, 2016. Effective April 10, 2015, Dank is now a wholly-owned subsidiary of Kush.

Recapitalization

On March 4, 2014, the stockholders of KIM exchanged all 10,000 of their common shares of KIM for 32,400,000 common shares of Kush. The operations of KIM became the operations of Kush after the share exchange and accordingly the transaction is accounted for as a recapitalization of KIM whereby the historical financial statements of KIM are presented as the historical financial statements of the combined entity.
 
Subsequent to the share exchange, the members of KIM owned 32,400,000 of shares of Company’s common stock, effectively obtaining operational and management control of Kush. Kush had no operations prior to the share exchange. As a result of the recapitalization, KIM was the acquiring entity in accordance with ASC 805, Business Combinations. The accumulated losses of KIM were carried forward after the completion of the share exchange. Operations prior to the share exchange were those of KIM.

Recent Developments

From March 19, 2014 through the date of this filing, we entered into Purchase Agreements with certain accredited investors pursuant to which we raised $952,000 in a private placement financing and issued 1,547,779 shares of common stock.

On April 6, 2015, the Company entered into a $240,000 revolving line of credit facility with a financial institution. The minimum advance is $10,000. Interest accrues at prime plus 2.75% and is payable monthly. The loan is secured by the assets of the Company excluding patents. The loan matures on April 1, 2016. As of the date of this filing, the Company has not drawn down on this line of credit.

On May 4, 2015, the Board appointed Greg Gamet as a director.  The Company entered into a Board of Directors Services Agreement with Mr. Gamet effective May 4, 2015.
 
 
Company and Product Overview

Kush Bottles, Inc. markets and sells packaging products and solutions to customers operating in the regulated medical and recreational cannabis industries.  As an innovator in custom packaging design and implementation, we combine creativity with compliance to provide the right solutions for our customers.  The ability to source almost anything a customer needs makes us a one-stop-shop packaging solutions provider.  We also provide custom branding on packaging products.  This feature allows our customers to turn their packaging into marketing or re-marketing campaigns. Our core products are in accordance with Title 16 of the Code of Federal Regulations Part 1700 of the Poison Prevention Packaging Act.  The testing standards for certification meet the stringent requirements as set by the Consumer Product Safety Commission (“CPSC”) and ASTM International (“ASTM”).  In addition, the materials used for production are FDA-approved food grade and BPA-free.  By offering a product mix that is already tested compliant, we give peace of mind to customers and reduce liability on their end.  By working with a broad array of manufacturers, we can offer quick solutions to our customers and ensure that their products will be of superior grade and made with environmentally safe materials.
 
 
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Our packaging business primarily consists of bottles, bags, tubes, and containers. We maintain relationships with a broad range of manufacturers, which enables us to source a plethora of packaging products in a cost effective manner and pass such cost savings to our customers. In addition to a complete product line, we have sophisticated labeling and customization capabilities, which allow us to add significant value to our customers’ packaging design processes. Our products are utilized by local urban farmers, green house growers, and medical and recreational cannabis dispensaries.

Bottles. Our flagship product is the certified child-resistant Phillips RX pop-top vial.  Our pop top bottles meet all of the standards for both CPSC and ASTM.  The pop-top bottle is unique to the pharmaceutical packaging world because instead of a traditional push and turn bottle, the pop-top requires a squeeze motion that actually pops the attached top up and open. We carry the bottles in various sizes and colors.  We believe, based on management estimates, that we are a leading packaging supplier in the cannabis market.

Bags. We provide an array of packaging solutions in the form of a bag.  The selection of bags we provide includes child resistant exit bags, traditional paper exit bags, and a vast selection of food grade safe foil barrier bags.  All bags are available in stock designs and are fully customizable.

Tubes. We offer a complete line of tubes in two standard sizes, each available in a wide variety of colors. We believe that we are one of the largest suppliers of tubes to the cannabis industry in the United States. Our focus and investments are made to ensure that we are able to meet the increasing trend towards impermeable casing, substantially extending shelf life for pre-packaging. The tubes have a positive seal for enhanced freshness and are odor tight for secure storage and content privacy.  All tubes are medical grade plastic, BPA-free, and molded of natural gas based polypropylene in compliance with FDA regulation. We maintain several unique designs in this market that combine tube and closure that we believe are viewed as very innovative both in appearance and functionality. We believe that our ability to provide creative package designs, combined with a complementary line of closures, makes us a preferred supplier for many customers in our target market.

Containers. We provide a diverse selection of smaller sized containers composed of either polystyrene, polypropylene or silicone. Our screw-top silicone containers come in assorted customizable colors and are composed of non-stick material whereas our BPA-free medical grade polypropylene hinged-top containers maintain an odorless seal.

Marketing and Sales

We sell into two distinct markets: our business-to-business market, which includes legally operating medical and adult-use dispensaries, growers, and MIP producers (Marijuana Infused Products) in states with marijuana programs; and our business-to-consumer market, which sells products directly to the end-user. We reach our large and diversified customer base through our direct sales force and the strategic use of re-distributors. Our sales, fulfillment and support staff meet with customers to understand their needs and improve our product offerings and services.  We are able to dedicate certain sales and marketing efforts to particular products, customers or geographic regions, when applicable, which enables us to develop expertise that we believe is valued by our customers.  In addition, inside sales representatives, marketing managers, and executives oversee the marketing and sales efforts.  Operational personnel work closely with sales personnel and customer service representatives to satisfy customers’ needs through the distribution of high-quality products, on-time deliveries, value-added regulatory insight, and customized branding solutions. 

Our marketing activities include brand and logo development, advertising, websites, public relations, newsletters, catalogs and brochures, and all other points of contact with customers and prospective customers. We have ongoing campaigns in each of these areas, which are detailed below.

Branding. We believe that we have built one of the strongest and most recognizable brands in the cannabis industry. We recognized early on the importance of creating a strong, identifiable and lasting brand that would separate the Company from the competition, and resonate with customers. Our logo, our name, the style of our ads, and all collateral material reflect our “brand image.”

Advertising . As part of our branding and awareness campaigns, we have secured premium placements (back cover) ads in several regional additions of one of the most highly regarded industry publications. We believe our ads on this back cover draw people into our brand and help solidify our position as a market leader. We also run ads periodically in other trade publications and on specific websites that reach our target audience.

Public Relations . We have an active public relations program, which has helped build the Kush brand and position the Company not only as a leader in the industry, but as the company with expertise in compliance issues and depth of understanding into state and local regulations governing the cannabis industry. This expertise is provided to our business-to-business customers, to help them stay compliant and operate within all applicable rules. We believe that we have enjoyed great success in our public relations campaigns, and have appeared in numerous newspaper articles and television reports.

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Email Marketing . We maintain a list of our customers and prospects, and we email to them regularly. These campaigns may be seasonally based (i.e. Holiday Specials), or may be “news” based to act as a vehicle to communicate important information.  Staying in touch with our customers and our prospects is another key component in our marketing program.

Collateral . We have designed brochures, sales sheets, and catalogs that we use in our sales and marketing programs. These professionally designed and quality-printed pieces have been created using the Kush brand guidelines, and help promote the Company while serving as useful sales tools.

Sales . We have a team of sales professionals that drive our revenues. These dedicated individuals maintain contact with existing clients and secure on-going orders, as well as have frequent communications with prospective customers. Our sales team works both inside and outside the office, working the telephones and meeting with clients and prospects as often as possible.

Competition . We believe that we have differentiated ourselves from competitors due to several factors: We have built what we consider to be one of the strongest brands in the industry. We have the highest quality and largest variety of products that meet the certification standards for child-resistance. Additionally, we have a knowledge base and expertise that is unmatched in our industry. As a result, we have become more than just a supplier to our customers – we have become a trusted partner, with insight and recommendations that help our customers’ businesses grow and thrive.

Dependence on Major Customers

During our August 31, 2014 fiscal year, Dank represented 22% of our revenues. On April 10, 2015, we acquired Dank.

Sources and Availability of Products

F&S Tool, Inc. is the principal supplier of our Phillips RX child-resistant pop-top bottles.   We purchase products and raw materials from different suppliers from time to time on a non-exclusive basis.  Except as described below in "Royalty Agreements," we purchase all products and raw materials from suppliers by purchase order.  Our purchase orders are executed on a “spot” basis and contain market pricing, shipment and delivery terms and conditions only.  With the exception of the royalty agreement described below, we do not have any agreement or arrangement with any supplier other than purchase orders.  For example, we have no agreements or arrangements regarding supplier commitments to medium term or long term products or raw materials supply, to provide products or raw materials in quantities sufficient for our requirements or to maintain particular levels of supply capacity. We believe that we have maintained strong relationships with our suppliers. We expect that such relationships will continue into the foreseeable future, but we can provide no assurances that these relationships will continue. Based on our experience, we believe that adequate quantities of the raw materials which are used to manufacture our products (i.e. plastic resins) will be available at market prices, but we can provide no assurances as to such availability or the prices thereof.

Research and Development Activities

Since inception of the business and through the date of this filing, we have incurred $14,401 of expenses towards the research and development of a new child-resistant tube. We have filed a patent on this product. The patent is pending approval. Our costs to develop this product have been financed by internal cash flows and not been borne directly by our customers.

Royalty Agreements

On September 11, 2014, the Company entered into a royalty agreement with KB Mold Company ("KB Mold"), a related party. KB Mold owns the mold that produces the new child-resistant tube that is the subject of the Company’s pending patent. Per the terms of the agreement, the Company is obligated to pay KB Mold a royalty of $0.015 for every tube delivered to Kush from this mold. Kush is obligated to purchase 325,000 tubes every three months, beginning on April 29, 2015, the day the first order was received, through December 31, 2019. After ordering and having paid royalties to KB Mold on a minimum of 2,250,000 products, Kush will have the option to purchase the mold from KB Mold for the amount of all direct costs invested by Kush into the mold.

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Employees

As of the date of this filing, we have 24 full-time employees and one part-time employee. Our employees work at our three facilities located in Santa Ana, California, Denver, Colorado, and Auburn, Washington. Our relations with employees remain satisfactory and there have been no significant work stoppages or other labor disputes.

Environmental Matters and Government Regulation

The Food and Drug Administration (“FDA”) regulates the material content of direct-contact food and drug packages, including certain packages we manufacture pursuant to the Federal Food, Drug and Cosmetics Act. Certain of our products are also regulated by the Consumer Product Safety Commission (“CPSC”) pursuant to various federal laws, including the Consumer Product Safety Act and the Poison Prevention Packaging Act. Both the FDA and the CPSC can require the manufacturer of defective products to repurchase or recall such products and may also impose fines or penalties on the manufacturer. Similar laws exist in some states, cities and other countries in which we sell our products. We use FDA approved resins and pigments in our products that directly contact food and drug products, and our products are in material compliance with all applicable requirements.

The plastics industry, including us, is subject to existing and potential federal, state, local and foreign legislation designed to reduce solid waste by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled content, various recycling requirements, disposal fees, and limits on the use of plastic products. In particular, certain states have enacted legislation requiring products packaged in plastic containers to comply with standards intended to encourage recycling and increased use of recycled materials. In addition, various consumer and special interest groups have lobbied from time to time for the implementation of these and other similar measures. We believe that the legislation promulgated to date and such initiatives to date have not had a material adverse effect on us. There can be no assurance that any such future legislative or regulatory efforts or future initiatives would not have a material adverse effect on us.

Twenty states currently have some form of medical and recreational cannabis legalization/decriminalization laws. We believe that another 8 states will have some form of voting regarding legislation of cannabis legalization/decriminalization laws in the next 24 months. We do not believe that federal or any state laws prohibit us from selling our packaging products to cannabis growers and dispensers.

Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.  For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards.  As a result we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Circumstances could cause us to lose emerging growth company status.  We will qualify as an emerging growth company until the earliest of:

• The last day of our first fiscal year during which we have total annual gross revenues of $1 billion or more;
• The last day of our fiscal year following the fifth anniversary of the date of our initial public offering;
 
• The date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period; or
 
• The date on which we qualify as a “large accelerated filer” under the Exchange Act (qualifying as a large accelerated filer means, among other things, having a public float in excess of $700 million).
 
Item 1A.  Risk Factors

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by Item 304 of Regulation S-K.

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Item 2.  Financial Information

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

Overview

Kush Bottles, Inc. ("Kush" or the "Company") provides customizable packaging products, materials and supplies for the cannabis industry. Representative examples of our products include pop-top bottles, exit/barrier bags, tubes, and other small-sized containers. We sell our solutions predominantly to businesses operating in jurisdictions that have some form of cannabis decriminalization. These businesses include medical and recreational dispensaries, large and small scale processors, and packaging re-distributors. We also sell direct to consumers primarily via our online store.

We believe that we have created one of the largest product libraries in the cannabis industry, allowing us to be a comprehensive solutions provider to our customers. Our extensive knowledge of the regulatory environment applicable to the cannabis industry allows us to quickly adapt to our customers' packaging requirements. We maintain the flexibility to enter the markets of decriminalized regions by establishing re-distributor partnerships or opening new facilities. We also have the flexibility to introduce new products and services to our vast customer network. We have no supplier purchase commitments and no take or pay arrangements. In addition to these factors, we believe that we offer competitive pricing, prompt deliveries, and excellent customer service. We expect continued growth as we take measures to invest in our own molds and intellectual property.

Discussion of Results of Operations for Fiscal 2014 Compared to Fiscal 2013

Total revenues increased from $1,293,421 in fiscal 2013 to $1,710,286 in fiscal 2014, an increase of $416,865 or 32%. This increase is primarily attributed to growth in volume of customer orders in the states of Colorado and Washington, which legalized the use of recreational cannabis. Sales growth was not significantly impacted by inflation or changes in pricing. Cost of goods sold increased from $808,087 in fiscal 2013 to $987,094 in fiscal 2014, an increase of $179,007 or 22%. The two primary components of cost of goods sold include direct purchases and freight. Gross profits in fiscal 2014 amounted to $723,192 for a 42.3% gross margin. Gross profits in fiscal 2013 amounted to $485,334 for a 37.5% gross margin. Gross Profits increased by $237,858 in fiscal 2014 or 49%. The driving factor behind the increase in sales, cost of goods sold, and gross profits in fiscal 2014 is due to the emergence of Dank, a new customer in Colorado who acted as a re-distributor of our products and accounted for 22% of revenues during fiscal 2014 compared to 0% of revenues in fiscal 2013.

Operating expenses in fiscal 2014 amounted to $1,113,577 compared to $574,050 in fiscal 2013, an increase of $539,527 or 94%. The increase stems from increases in stock compensation, marketing, payroll, and rent. Stock compensation expense increased from $0 in fiscal 2013 to $278,529 in light of issuances of stock to individuals for services and share-based compensation to officers of the Company. Marketing expense increased by $52,864 or 76.3% in fiscal 2014 as the Company expanded its marketing spend in certain magazine publications as well as online advertising to direct traffic to the Company website. Payroll expense increased by $53,911 or 15.7% in fiscal 2014 due to the increase in head-count, notably an increase of 6, which includes two officers. Rent expense increased $51,700 or 128.6% in fiscal 2014 as the Company opened a fulfillment center in Washington and expanded its principal offices in California.

The net result for the fiscal year ended August 31, 2014 was a loss of $395,517 or $0.010 loss per share, compared to a loss of $92,027 or $0.003 loss per share for the prior fiscal year.

Results of Operations – Comparison for the three and six-month periods ended February 28, 2015 and 2014

Total revenues increased from $444,499 and $766,552 during the three and six month periods ended February 28, 2014, respectively, to $659,293 and $1,279,618 for the three and six month periods ended February 28, 2015, respectively, which represents an increase of $214,794 or 48.3% and $513,066 or 66.9%, respectively. This increase is primarily attributed to continuing to generate new business in the states of Colorado and Washington. Sales growth was not significantly impacted by inflation or changes in pricing. Cost of goods sold increased from $235,757 and $405,902 during the three and six month periods ended February 28, 2014 to $402,190 and $805,523 during the three and six month periods ended February 28, 2015, respectively, which represents an increase of $166,433 or 71% and $399,621 or 99%, respectively. The two primary components of cost of goods sold include direct purchases and freight. Gross profits for the three and six month periods ended February 28, 2015 amounted to $257,103 for a 39.0% gross margin and $474,095 for a 37.0% gross margin, respectively. Gross profits for the three and six month periods ended February 28, 2014 amounted to $210,242 for a 47.3% gross margin and $360,650 for a 47.0% gross margin, respectively. Gross Profits increased by $48,861 or 22.3% and $113,445 or 31.5% during the three and six month periods ended February 28, 2015, respectively. The increase in sales, cost of goods sold, and gross profits is due to the emergence of Dank, a new customer in Colorado who acted as a re-distributor of our products and accounted for 27% and 28% of revenues during three and six month periods ended February 28, 2015, respectively, compared to 9% of revenues during the three and six month periods ended February 28, 2014, respectively. On April 10, 2015, we acquired Dank.

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Operating expenses for the three and six month periods ended February 28, 2015 amounted to $344,605 and $648,863, respectively, compared to $169,270 and $320,392 for the three and six month periods ended February 28, 2014, an increase of $175,335 or 104% and $328,471 or 103%, respectively. The primary source of the increase in operating expenses for the three month period ended February 28, 2015 is due to an increase of $141,246 in payroll and payroll related costs due to an increase in head-count and salaries. As of February 28, 2014 we employed 11 full-time employees and as of February 28, 2015, we employed 16 full-time employees. For the six month period ended February 28, 2015, the increase in operating expenses stems from increases in professional fees, marketing, payroll, and rent. Marketing expense increased by $19,895 or 29% as the Company focused on online marketing and brand awareness. Payroll and payroll related costs increased by $215,395 during the six month period ended February 28, 2015 due to the increase in head-count and salary levels. Rent expense increased $22,778 or 66.0% during the six month period ended February 28, 2015 because the Company expanded the square footage of its headquarters in California under lease which raised the monthly rent effective February 1, 2014.

The net result for the three and six month periods ended February 28, 2015 was a loss of $77,162 or $0.002 loss per share and a loss of $164,555 or $0.004 per share, compared to net income of $37,875 and $37,875 for the three and six month periods ended February 28, 2014.

Liquidity and Capital Resources

At August 31, 2014, we had cash of $23,004 and a working capital surplus of $153,519 compared to cash of $23,664 and a working capital surplus of $64,452 at August 31, 2013.

At February 28, 2015, we had cash of $211,192 and a working capital surplus of $456,462.

Cash Flows from Operating Activities

Net cash used in operating activities increased from $1,816 in fiscal 2013 to $228,664 in fiscal 2014. The change is primarily attributed to the net loss of $395,517 which includes non-cash stock compensation expense of $278,529. The other significant factors include changes in accounts receivable and prepaid expenses. The Company offered to extended credit terms to its largest customer in Colorado in fiscal 2014, which resulted in a higher accounts receivable balance compared to the prior period. Furthermore, the Company prepaid for $125,000 of inventory which remained in process and in-transit as of August 31, 2014. In the prior period, the Company did not have any such prepaid inventories.

For the six month period ended February 28, 2015, net cash used in operating activities was $224,647 compared to $81,530 in net cash provided by operating activities for the six month period ended February 28, 2014. The change is primarily attributed to the net loss of $164,555 for the six month period ended February 28, 2014 and the use of cash to support the Company's efforts in building a larger and more diverse stock of inventory, including increased marketing and rent expenses.

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Cash Flows from Investing Activities

Net cash used in investing activities increased from $9,116 in fiscal 2013 to $14,281 in fiscal 2014 primarily as a result of acquiring new office and warehouse equipment and machinery.

Net cash used in investing activities increased from $0 to $34,001 for the six month periods ended February 28, 2014 and 2015, respectively, primarily as a result of acquiring an additional delivery van and office equipment.

Cash Flows from Financing Activities
 
Net cash provided by financing activities increased from $21,770 in fiscal 2013 to $242,285 in fiscal 2014. The change is primarily due to the sale of shares of the Company’s common stock to accredited investors in a private placement offering.
 
For the six month period ended February 28, 2015 net cash provided by financing activities was $446,836 compared to $23,849 in net cash used in financing activities for the six month period ended February 28, 2014. The change is primarily attributed to the sale of shares of the Company's common stock in private placement offerings in exchange for cash of $485,000.

Historically, the Company has had operating losses and negative cash flows from operations. The Company has a net loss of $164,555 for the six month period ended February 28, 2015, and has an accumulated deficit of $573,699 as of February 28, 2015. Whether, and when, the Company can attain profitability and positive cash flows from operations is uncertain. These uncertainties cast significant doubt upon the Company’s ability to continue as a going concern. The Company will need to raise capital in order to fund its operations. This need may be adversely impacted by uncertain market conditions and changes in the regulatory environment. To address its financing requirements, the Company intends to seek financing through debt and equity issuances and rights offerings to existing stockholders.

Specifically, management has identified that a minimum of $500,000 of capital is needed over the next 12 months in order sustain operations. These capital needs take into account, among other things, management's plans to alleviate cash constraints over the next 12 months by increasing sales volume and gross margin through the acquisition of Dank Bottles, LLC on April 10, 2015, who was a key main re-distributor during fiscal 2014. Moreover, on April 6, 2015, the Company entered into a $240,000 revolving line of credit facility with a financial institution, which the Company can utilize to fund working capital requirements. Furthermore, management has outlined a plan to raise $1,000,000 in capital over the next 12 months through the issuance of shares of the Company's common stock to accredited investors.  Management believes that the capital raised through these methods will be sufficient to sustain operations for the next 12 months.  However, the outcome of these matters cannot be predicted with certainty at this time.

Off-Balance Sheet Transactions

We have no off-balance sheet transactions.

Critical Accounting Policies and Estimates

We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in the first note to our consolidated financial statements included elsewhere herein. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results are likely to differ from these estimates, but management does not believe such differences will materially affect our financial position or results of operations. We believe that the following accounting policies are the most critical because they have the greatest impact on the presentation of our financial condition and results of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
  
Accounts Receivable and Allowance for Bad Debts

Trade accounts receivable are carried at their estimated collectible amounts.  Trade credit is generally extended on a short-term basis, thus trade receivables do not bear interest.  Trade accounts receivables are periodically evaluated for collectability based on past credit history and their current financial condition.
 
Inventory

Inventories are stated at the lower of cost or net realizable value using the first-in first out (FIFO) method.

Earnings (Loss) Per Share

The Company computes net loss per share under Accounting Standards Codification subtopic 260-10, "Earnings per Share" (“ASC 260-10”).  Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock.  Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period.

Page 10
 

 
Revenue Recognition

It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 605 "Revenue Recognition".  Four basic criteria must be met before revenue can be recognized; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.  Determination of criteria (3) and (4) are based on management’s judgments regarding fixed nature in selling prices of the products delivered and the collectability of those amounts.  The Company has not implemented any specific rebate programs. Provisions for discounts to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.  The Company has not established a formal customer incentive program, but considers and accomodates discounts to certain customers on a case by case basis, including by way of example, for volume shipping or for certain new customers with orders over a specific discretionary dollar threshold. Consistent with ASC 605-15-25-1, the Company considers factors such as historical return of products, estimated remaining shelf life, price changes from competitors, and introductions of competing products in establishing a refund allowance.  The Company recognizes revenues as risk and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured.  The Company defers any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

Share-based Compensation

The Company account for its stock based award in accordance with Accounting Standards Codification subtopic 718-10, "Compensation", which requires fair value measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including restricted stock awards.  The Company estimates the fair value of stock using the stock price on the date of the approval of the award.  The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount is recognized in the consolidated statements of operations.

Income Taxes

The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

The Company applies the provisions of ASC 740, "Accounting for Uncertainty in Income Taxes". The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements.  The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed.  

Foreign Currency Transactions

None.

Item 3. Properties.

At present, we do not hold title to any real estate property. All of our properties are leased.  We do not have any mortgages, liens or encumbrances against any such properties. Our corporate head-quarters and primary distribution center is located in a leased facility at 1800 Newport Circle, Santa Ana, CA 92705, and consists of approximately 10,000 square feet of administrative, sales and distribution offices.  The current lease runs until August 1, 2015.  We lease a facility in Auburn, Washington which is utilized as a fulfillment and distribution center for the Pacific Northwest region. The lease runs until December 31, 2015.

Effective April 10, 2015 and following the acquisition of Dank, we also lease a facility in Denver, Colorado, which is the headquarters of operations for our wholly-owned subsidiary, Dank. We believe that our property and equipment is well-maintained, in good operating condition and adequate for our present needs.

Page 11
 

 
Item 4. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information regarding our common stock beneficially owned as of May 22, 2015:
 
     (i) each stockholder known by us to be the beneficial owner of five (5%) percent or more of our outstanding common stock;
 
     (ii) each of our directors; and
 
     (iii) all executive officers and directors as a group.

This information as to beneficial ownership was furnished to the Company by or on behalf of each person named.  As of May 22, 2015, there were 46,197,779 shares of our common stock issued and outstanding.

 
 
 
Title Of Class
 
 
Name And Address
Of Beneficial Owner
Amount and
Nature
Of Beneficial
Ownership
 
 
Percentage
Of Class
       
Common Stock
Dallas Imbimbo(2)
12,000,000
25%
       
Common Stock
Nicholas Kovacevich(2)
12,000,000
25%
       
Common Stock
Chris Martin(2)
100,000
(1)
       
Common Stock
Ben Wu(2)
2,000,000(3)
4%
       
Common Stock
Greg Gamet(4)
1,312,500
3%
       
Common Stock
John Kovacevich(2)
3,700,000
8%
       
Common Stock
Jeffrey Meng(5)
4,550,000
10%
       
Common Stock
All Directors and Officers as a Group
27,412,500
58%
       

(1) Less than 1%.

(2) The address is 1800 Newport Circle, Santa Ana, CA 92705.

(3) Includes 1,000,000 options to purchase common stock.  Information regarding “Percentage of Class” in the table above is presented on a fully-diluted, as-if-exercised basis.

(4) The address is 3539 Gaylord St., Denver, CO 80205.

(5) The address is 17595 Harvard Ave, Suite C552, Irvine, CA 92614.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC.  The number of shares and the percentage beneficially owned by each individual listed above include shares that are subject to options held by that individual that are immediately exercisable or exercisable within 60 days from the date of this registration statement and the number of shares and the percentage beneficially owned by all officers and directors as a group includes shares subject to options held by all officers and directors as a group that are immediately exercisable or exercisable within 60 days from the date of this registration statement.

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Item 5.                      Directors and Executive Officers.

The following table sets forth, as of the date of this registration statement, the name, age and positions of our officers and directors.

NAME
AGE
POSITION
     
Dallas Imbimbo
29
Chairman
     
Nicholas Kovacevich
29
Director, Chief Executive Officer and Secretary
     
Chris Martin
34
Chief Financial Officer
     
Ben Wu
36
Chief Operating Officer
     
Greg Gamet
43
Director

The background of our directors and executive officers is as follows:

Dallas Imbimbo
Chairman

Mr. Imbimbo has served as Chairman of the Company since its inception in December 2010. Mr. Imbimbo began his career in 2007 by founding PackMyDorm, a moving and storage solutions company operating at UC Davis, UC Berkeley, UC Santa Cruz and Stanford. In 2010, Dallas and his partners sold PackMyDorm and relocated to Southern California to establish the Company. In addition to his role at Kush Bottles, Mr. Imbimbo founded 3 Kings Ventures, LLC in 2011 and BigRentz Inc. in 2012. 3 Kings invests in and develops distressed residential real estate. BigRentz is one of the nation’s largest online network of equipment rentals and under his leadership as President and Chief Executive Officer, BigRentz has become one of the fastest growing companies in Southern California. Mr. Imbimbo devotes approximately 1-2 hours per day to Kush and its business.  Mr. Imbimbo's background in developing small businesses combined with visionary outlook and managerial skills led to his appointment as our Chairman.

Nicholas Kovacevich
Director, Chief Executive Officer and Secretary

Mr. Kovacevich has served as Director and Secretary of the Company since its inception in December 2010. Mr. Kovacevich served as Chief Operating Officer from December 2010 up until August 29, 2014, at which time he was appointed to Chief Executive Officer. Mr. Kovacevich graduated Summa Cum Laude in 2009 from Southwest Baptist University with a B.S. in Sports Management. From 2009 to 2010, Mr. Kovacevich ran operations for a large-scale traveling basketball camp called Basketball Jones in which he honed his entrepreneurial and leadership skills. In addition to being a founder of Kush, Mr. Kovacevich partnered with Mr. Imbimbo and established 3 Kings Ventures, LLC in 2011 and BigRentz Inc. in 2012. Mr. Kovacevich devotes all of his time to Kush and its business, except for approximately 3 hours per week   that Mr. Kovacevich devotes to BigRentz and its business.  Mr. Kovacevich possesses excellent leadership and managerial skills and his background in developing small businesses led to his appointment as Director, Chief Executive Officer and Secretary of the Company.

Chris Martin
Chief Financial Officer

Mr. Martin has served as our Chief Financial Officer since July 29, 2014. Prior to joining Kush, Mr. Martin served as the Director of Accounting for Burleigh Point LTD (dba Billabong North America) from November 2013 to July 2014, overseeing all financial reporting for the North America region. From July 2004 to November 2013, Mr. Martin worked at Haskell and White LLP, a public accounting firm, where he obtained his California state CPA license and specialized in assurance and business advisory services for manufacturing and wholesale distribution clients. Mr. Martin has a B.S. in Business Economics from the University of California, Los Angeles. Mr. Martin's extensive technical and managerial experience led to his appointment as Chief Financial Officer of the Company. Mr. Martin's term of employment automatically extends for periods of one year on August 31 unless Mr. Martin or the Company provides non-renewal notice.
 
Ben Wu
Chief Operating Officer

Ben Wu initially served as interim Chief Executive Officer from February 18, 2014 up until August 29, 2014, at which point he transitioned to Chief Operating Officer. From April 2005 to December 2012, Mr. Wu worked for WedBush Capital Partners, a private equity fund focused on acquiring, professionalizing, and accelerating the growth of small entrepreneur owned companies. He was promoted Vice President in 2009. In 2000, Mr. Wu began his career at Bear, Stearns & Co., where he was an investment banking analyst. Mr. Wu's extensive experience in analyzing and bolstering the growth of small companies led to his appointment as Chief Operating Officer. Mr. Wu's term of employment automatically extends for periods of one year on December 31 unless Mr. Wu or the Company provides non-renewal notice.

Page 13
 

 
Greg Gamet
Director

On May 4, 2015, the Board appointed Mr. Gamet as a Director and the Company entered into a Board of Director Services Agreement with Mr. Gamet. The term of the agreement is for three years. Mr. Gamet has more than fifteen years of business development, investor relations, and cannabis regulatory experience. From 2003 to 2013, Mr. Gamet owned and operated Vista Contractors, LLC, a Denver based landscape and concrete installation business with over 100 employees. Since 2009, Mr. Gamet has co-founded several companies, which include JGB Ventures, LLC (dba DANK) a medical and recreational cannabis dispensary located in Colorado; Dank Bottles, LLC, the Colorado market leader in child resistant packaging for the cannabis industry, which the Company acquired on April 10, 2015 and now operates under the business name Kush Bottles Colorado; Denver Consulting Group (DCG) a firm that provides training and support documents to the national growing cannabis industry; and most recently, CannaScore, a compliance audit application for licensed cannabis businesses. Mr. Gamet devotes approximately 4 to 8 hours per day to Kush and its business.  Mr. Gamet's background as a businessman and an innovative leader in the industry led to his appointment as our Director .

Director Qualifications
 
We believe that our directors should have the highest professional and personal ethics and values, consistent with our longstanding values and standards. They should have broad experience at the policy-making level in business or banking. They 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 experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director must represent the interests of all stockholders. When considering potential director candidates, the Board also considers the candidate’s character, judgment, diversity, and skills, including financial literacy and experience in the context of our needs and the needs of the Board.

Code of Ethics

We have not adopted a Code of Ethics, but we expect to adopt a Code of Ethics in fiscal 2015. The Company did not adopt a Code of Ethics in fiscal 2014 due to a lack of adequate time to review this process.

Involvement in Certain Legal Proceedings

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

·  
Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
·  
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·  
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
·  
Being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
·  
Being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
·  
Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Information about our Board and its Committees.

We do not have an audit, compensation, advisory, or nominating committee comprised of independent directors, and accordingly, the functions that would have been performed by such committees are performed by our directors. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.

Page 14
 

 
Conflicts of Interest
 
One of our directors and one of our officers devote time to projects that do not involve us. Mr. Imbimbo, our Chairman, devotes a portion of his working time to one other private business activity, and Mr. Kovacevich, our CEO and Secretary, devotes a portion of his working time to one other private business activity. This could present a potential conflict of interest with respect to either, or both, of these individuals.  However, management believes this does not constitute a significant risk to us to date, because the time allocated by these individuals to these other activities does not significantly affect their performance of services on behalf of, and for the benefit of, the Company.

SECTION 16(A) BENEFICIAL OWNER REPORTING COMPLIANCE .
 
Section 16(a) of the Securities and Exchange Act of 1934 requires that the Company's directors, executive officers, and persons who own more than 10% of registered class of the Company's equity securities, file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company.  Officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file.

Item 6. Executive Compensation.

Summary Compensation Table

As a smaller reporting company, we are required to disclose the executive compensation of our "Named Executive Officers" which consist of the following individuals: (i) any individual serving as our principal executive officer or acting in a similar capacity (the "CEO"); (ii) the two other most highly compensated executive officers of the Company serving as executive officers at the most recently completed fiscal year; and (iii) any additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of the most recently completed fiscal year. The following table sets forth for fiscal 2014, the compensation, awarded to, paid to, or earned by our named executive officers.

                   
           
Non-Equity
Nonqualified
All
 
           
Incentive
Deferred
Other
 
Name and
     
Stock
Option
Plan
Compensation
Compen
 
Principal
Position
Year
Salary
($)
Bonus
($)
Awards
($)(1)
Awards
($)(2)
Compensation
($)
Earnings
($)
-sation
($)
Total
($)
                   
Nicholas Kovacevich
2014
68,000
0
0
0
0
0
0
68,000
Chief Executive Officer, Director and
Secretary
                 
                   
Chris Martin
2014
84,000
0
68,750
0
0
0
0
152,750
Chief Financial Officer
                 
                   
Ben Wu
2014
96,000
0
23,148
9,548
0
0
0
128,696
Chief Operating Officer
                 
                   

(1) Amounts reflect the aggregate grant date fair value of restricted shares granted in the year computed in accordance with FASB ASC Topic 718. These amounts are not necessarily paid to or realized by the officer.

(2) Amounts reflect the aggregate grant date fair value of stock options granted in the year computed in accordance with FASB ASC Topic 718. These amounts are not necessarily paid to or realized by the officer. Assumptions used in the calculation of these values are included in footnote 8 of the notes to the consolidated financial statements.

Employment Agreements

On February 18, 2014, we entered into an employment agreement with Ben Wu to serve as our Chief Executive Officer and President until December 31, 2014.  Thereafter, the agreement automatically renews for additional 12-month terms unless a notice of non-renewal is provided by either party.  On August 29, 2014, Ben Wu was appointed by the Board to serve as Chief Operating Officer and Nicholas Kovacevich was appointed to serve as Chief Executive Officer. Under Mr. Wu's employment agreement, he is entitled to receive compensation of $96,000 per year as a base salary and a discretionary annual cash bonus not to exceed his base salary, with the amount of such bonus, if any, determined by the Board.  Mr. Wu also received 1,000,000 restricted shares of Company common stock pursuant to the terms of his employment agreement, which vested immediately upon execution of his agreement, as well as an option to purchase 1,000,000 shares of Company common stock at an exercise price of $0.05 per share. The fair value per share did not exceed the exercise price on the date of grant. The exercise price of the option was not adjusted or amended during fiscal 2014. The option fully vested upon execution of Mr. Wu’s employment agreement and is exercisable immediately.

Page 15
 

 
On July 28, 2014, we entered into an employment agreement with Chris Martin to serve as our Chief Financial Officer until August 31, 2015. Thereafter, the agreement automatically renews for additional 12-month terms unless a notice of non-renewal is provided by either party. Under his employment agreement, Mr. Martin is entitled to receive compensation of $84,000 per year as a base salary and a discretionary annual cash bonus not to exceed his base salary, with the amount of such bonus, if any, determined by the Board.  Mr. Martin also received 100,000 restricted shares of Company common stock pursuant to the terms of his employment agreement, which vested immediately upon execution of his agreement.

All stock options and restricted stock awards were not modified during fiscal 2014.

Outstanding Equity Awards

The following table provides information regarding outstanding stock options and unvested stock awards held by each of our named executive officers.

Option Awards
Stock Awards
Name
Number of Securities Underlying Unexercised Options
(#)
Exercisable
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
Market Value of Shares or Units of Stock That Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
                   
Nicholas Kovacevich
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Chris Martin
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Ben Wu
1,000,000
--
-0-
$0.05
-0-
-0-
-0-
-0-
-0-

We currently do not have a stock option plan or equity compensation plan. All individual grants of stock options and restricted stock awards were done pursuant to the execution of the named officer employment agreements. We do not currently have an incentive plan that provides compensation intending to serve as an incentive for performance. Per the named officer employment agreements, the named executive officers are eligible to receive a percentage of their base salary as incentive compensation if certain individual and corporate performance goals and targets established by the Board from time to time, in its sole discretion, are met. The Board, in its sole discretion, can also elect to award the named executive officers equity-based incentive compensation.

Potential Payments upon Termination or Change in Control

The employment agreements entered into by the Company with Ben Wu, Chief Operating Officer, and Chris Martin, Chief Financial Officer contain severance provisions. In the event of any of the following conditions triggering severance payment is effected as of or after six months of the employment commencement date, an amount equal to three months of base salary ($24,000) for Mr. Wu and one month of base salary ($7,000) for Mr. Martin:

Page 16
 

 
Payments upon Termination . If (i) employment is terminated by the Company (A) without Cause, (B) by delivery of a Non-Renewal Notice by the Company, (C) by reason of death or disability, or (D) title or duties are materially modified, the Company changes its primary place of business or the location at which officer is expected to be by more than 50 miles, the Company materially breaches a material provision of the employment agreement or the Company otherwise materially and adversely changes the conditions of employment; or (ii) (A) a Change of Control is consummated (“ Change of Control ” means any of the following: any consolidation, merger, or recapitalization of the Company with, or any sale of Company equity to, any other non-affiliated entity as a result of which, in any such case, the beneficial holders of the issued and outstanding equity securities of the Company immediately prior to such transaction possess less than 50% of the voting power of the surviving entity immediately after such transaction; or any sale or transfer of all or substantially all of the assets of the Company), (B) office is not offered substantially equivalent employment with the surviving company (provided that any failure to offer a position with the identical title shall not be considered for purposes of determining such substantial equivalence) following the Change of Control and (C) officer resigns or otherwise voluntarily fails to continue employment with the Company or the surviving company following such Change of Control, as officer's sole and exclusive right and remedy.

Other than the employment agreements with Ben Wu and with Chris Martin described in the preceding paragraphs, the Company is not a party to any contract, agreement, plan, or arrangement, whether written or unwritten, that provides for a payment or payments to a named executive officer at, following, or in connection with the resignation, retirement, or other termination of employment of the named executive officer, or a change in control of the Company, or a change in the officer’s responsibilities following a change in control.

Compensation of Directors

On May 4, 2015, the Company entered into a Board of Director Services Agreement with Greg Gamet. In exchange for three years of service as Director, Mr. Gamet will receive an additional 200,000 shares of the Company's common stock, which vest over the three year term as follows: (a) 100,000 shares shall vest on May 30, 2016; and (b) from and after May 30, 2016, 100,000 shares shall vest ratably in 8 quarterly installment over the next 24 months, with each quarterly installment vesting on the last day of the fiscal quarter.

We do not compensate our other two directors for their services in their capacity as directors. Directors are not paid for meetings attended. All travel and lodging expenses associated with corporate matters are reimbursed by us, if and when incurred.

Compensation Committee Interlocks and Insider Participation

We currently do not have a compensation committee although we intend to create one as the need arises.  Currently, our Board of Directors serves as our Compensation Committee. Nicholas Kovacevich is a named executive officer who also serves on our Board of Directors and therefore makes decisions regarding compensation. Nicholas Kovacevich also serves as a director of BigRentz, Inc., and his responsibilities include matters of compensation. Dallas Imbimbo, Chairman, serves as Chairman and Chief Executive Officer of BigRentz, Inc.

Item 7.  Certain Relationships and Related Transactions and Director Independence.

Relationships

Nicholas Kovacevich, our Chief Executive Officer, Director, and Secretary, is the brother of John Kovacevich, our Product Manager and a greater than 5% stockholder. George and Rita Kovacevich are a less than 1% stockholder, and are the parents of John and Nicholas Kovacevich. There are no other family relationships between any of our directors or executive officers.

Nicholas Kovacevich, our Chief Executive Officer, Director and Secretary, has loaned the Company $40,000 since inception of the business in December 2010. Jeffrey Meng, a greater than 5% stockholder loaned the Company $50,000 during fiscal 2014. As of August 31, 2014, only the $50,000 loan to Mr. Meng was outstanding. These loans are non-interest bearing, unsecured and due upon demand.

The Company sub-leases its corporate headquarters from 3 Kings Ventures, LLC, a related party owned by Dallas Imbimbo, Chairman, Nicholas Kovacevich, Chief Executive Officer, and Jeffrey Meng, a greater than 5% stockholder. During the fiscal years ended August 31, 2014 and 2013, the Company made rent payments to 3 Kings Ventures, LLC of $73,500 and $35,500, respectively. During the three month period ended February 28, 2015 and 2014, the Company made rent payments to 3 Kings Ventures, LLC of $23,000 and $15,000, respectively, and $47,000 and $25,000 for the six month period ended February 28, 2015 and 2014, respectively. Effective February 1, 2014, these rent payments increased as a result of the expansion of square footage under lease.

During the fiscal year ended August 31, 2014, the Company purchased $131,302 of inventory from The Greenlight Companies, LLC, a related party owned by Nicholas Kovacevich, Chief Executive Officer, Dallas Imbimbo, Chairman, John Kovacevich, a greater than 5% stockholder, and Jeffrey Meng, a greater than 5% stockholder. The Company did not purchase any inventory from The Greenlight Companies, LLC during the six months ended February 28, 2015.

Page 17
 

 
The Company entered into a royalty agreement on December 8, 2014 with KB Mold Company, Inc., a related party owned by Ben Wu, Chief Operating Officer, Chris Martin, Chief Financial Officer, and John Kovacevich, a greater than 5% stockholder. Effective April 29, 2015 and through the date of this filing, the Company has accrued $5,280 of royalty fees to KB Mold Company.

Director Independence

Our Board is currently composed of three members who are not independent. Our Common Stock is not currently listed for trading on a national securities exchange and, as such, we are not subject to any director independence standards. We evaluated independence in accordance with the rules of The New York Stock Exchange, Inc., which generally provides that a director is not independent if: (i) the director is, or in the past three years has been, an employee of ours; (ii) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (iii) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (iv) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (v) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (vi) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or 2% of that other company’s consolidated gross revenues.
 
Founders

Our founders are Dallas Imbimbo, Nicholas Kovacevich, John Kovacevich and Jeffrey Meng.

The following table lists the money, property, contracts, options or rights of any kind received and to be received by each of our founders from us, and the nature and amount of any assets, services or other consideration therefore received or to be received by us from our founders:

Founder
Money, property, contracts, options and rights received or to be received by Founder from the Company
Assets, services or
other consideration
received or to be
received by Company
from Founder
     
Dallas Imbimbo
12,000,000 shares of common stock
Capital of $19,505
 
Wages of $116,868
 
     
Nicholas Kovacevich
12,000,000 shares of common stock
Capital of $19,505
 
Wages of $165,106
Loans of $40,000
     
Jeffrey Meng
4,700,000 shares of common stock
Capital of $19,505
 
Wages of $40,000
Loans of $50,000
     
John Kovacevich
3,700,000 shares of common stock
Capital of $19,505
 
Wages of $99,378
 
     


Other than services provided by our founders described in the table above, we have not utilized the services of a promoter at any point in time from inception of the business in December 2010 to the current date of this filing.

Page 18
 

 
Item 8.  Legal Proceedings
 
We are not currently involved in any legal proceeding responsive to this Item. From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Our operations are subject to federal, state and local laws and regulations. Other than described in this Item Number, we are not involved in, or the subject of, any pending or existing litigation not arising out of operations in the normal course of business.
 
Item 9. M arket Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
 
There is no current market for our securities.  Upon the effectiveness of this registration statement, we intend to have our common stock quoted on OTCMarkets.com.

As of May 22, 2015 , there are approximately 166 holders of record of our common stock.

As of May 22, 2015, there are options exercisable for 1,000,000 shares of our common stock granted to Ben Wu, Chief Operating Officer, which are outstanding and fully exercisable.

As of May 22, 2015, there are 46,197,779 shares of the Company's common stock issued and outstanding. Of this total, 30,112,500 shares of the Company's common stock, representing 65% of our issued and outstanding shares, are held by affiliates.

We have never declared or paid cash dividends on our common stock.  We anticipate that in the future we will retain any earnings for operation of our business.  Accordingly, we do not anticipate declaring or paying any cash dividends in the foreseeable future. 

We currently have no Equity Compensation Plans.  We issue shares of our common stock to our officers and directors pursuant to employment and director agreements.

Item 10. Recent Sales of Unregistered Securities.

Sales to accredited investors .  During fiscal year 2014, we sold 320,000 unregistered shares of Company common stock for cash to accredited investors who are not our directors, officers, employees or other service providers at a weighted average offering price of $0.6875 per share.  The total amount of cash consideration paid to us for these securities was $220,000.  Subsequent to August 31, 2014 and through the date of this filing we sold 1,227,779 unregistered shares of Company common stock for cash to accredited investors who are not our directors, officers, employees or other service providers at a weighted average offering price of $0.5961 per share. The total amount of cash consideration paid to us for these securities was $732,000.  We received only cash consideration for the sale of these securities.

These securities were issued without registration under the Securities Act in reliance on registration exemptions contained in Section 4(a)(2) of the Securities Act and Regulation D   as transactions by an issuer not involving any public offering.  The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. The sales of these securities were made without general solicitation or advertising.

We have used and we intend to use the proceeds from all sales for cash of unregistered shares of Company common stock for the purchase of equipment for operations , supplies and payroll for operations, professional fees, and working capital.

Sales and grants pursuant to contracts relating to compensation for services .  During fiscal year 2014, we granted 8,750,000 unregistered shares of Company common stock for services and granted options to purchase 1,000,000 unregistered shares of Company common stock to our directors, officers, employees and other services providers   pursuant to written and oral agreements relating to compensation for services.  The weighted average fair value of these shares was $0.03 per share.  The weighted average exercise price of these options was $0.05 per share.  We received only services consideration for these securities.

All of these securities were sold and granted without registration under the Securities Act in reliance on registration exemptions contained in Rule 701 under the Securities Act as exempt offers and sales of securities pursuant to contracts relating to compensation.  The recipients of securities in each such transaction are services providers who provided services to us.

Page 19
 

 
Sales and grants pursuant to business combinations .  On April 10, 2015, as partial purchase consideration for the acquisition of Dank, we issued 3,500,000 unregistered shares of Company common stock to the sellers of Dank.  The fair value of these shares at closing of this acquisition was $0.62 per share, as determined by our Board of Directors. The Board determined this valuation should be calculated based on the weighted average price of Company shares sold for cash to investors from the period from March 19, 2014 through April 10, 2015.

These securities were issued without registration under the Securities Act in reliance on registration exemptions contained in Section 4(a)(2) of the Securities Act and Regulation D   as transactions by an issuer not involving any public offering.  The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. The sales of these securities were made without general solicitation or advertising.

There were no public or underwritten offerings employed in connection with and no Securities Act registrations with respect to any of the transactions set forth above.

Item 11.  Description of Registrant’s Securities to be Registered.

The following description of our capital stock is a summary of the material terms of our shares of common stock.

Our authorized capital stock consists of 275,000,000 shares of stock consisting of (i) 265,000,000 shares of common stock, $0.001 par value per share (the “Common Stock”) of which 46,197,779 shares are issued and outstanding as of May 22, 2015,   and (ii) 10,000,000 shares of preferred stock, $0.001 par value per share (the “Preferred Stock”) of which zero shares have been issued. Stockholders do not have any preemptive or subscription rights to purchase shares in any future issuance of our common stock.

As of May 22, 2015, we have issued and outstanding securities on a fully diluted basis:
 
46,197,779 shares of common stock
 
 
no shares of preferred stock;
 
 
1,000,000 stock options;
 
 
no warrants to acquire shares of our common stock; and
 
 
no unissued and unvested restricted stock grants.

Common Stock

The Board of Directors is authorized to issue 265,000,000 shares of common stock, of which 46,197,779 shares are issued and outstanding as of May 22, 2015.  Each share of our common stock is entitled to share pro rata in dividends and distributions with respect to our common stock when, and if, declared by the Board of Directors from funds legally available therefore. No holder of any shares of common stock has any preemptive rights to subscribe for any of our securities. Upon our dissolution, liquidation or winding up, the assets will be divided pro rata on a share-for-share basis among holders of the shares of common stock after any required distribution to the holders of preferred stock, if any. All shares of common stock outstanding are fully paid and non-assessable.

Dividend Policy

Subject to any preferential rights of any series of preferred stock, holders of shares of common stock will be entitled to receive dividends on the stock out of assets legally available for distribution when, as and if authorized and declared by our Board of Directors.  We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds for use in our business and therefore do not anticipate paying any cash dividends in the foreseeable future. Any future determination relating to dividend policy will be made by the discretion of our Board of Directors and will depend on a number of factors, including the future earnings, capital requirements, financial condition and future prospects and such other factors as our Board of Directors may deem relevant. Payment of dividends on the common stock may be restricted by loan agreements, indentures and other transactions entered into by us from time to time. We do not anticipate the payment of cash dividends on our common stock in the foreseeable future.

Page 20
 

 
Voting Rights

Holders of common stock are entitled to one vote per share on all matters voted on generally by the stockholders, including the election of directors, and, except as otherwise required by law or except as provided with respect to any series of preferred stock, the holders of the shares possess all voting power.   The holders of shares of our common stock do not have cumulative voting rights in connection with the election of the board of directors, which means that the holders of more than 50% of such outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in such event, the holders of the remaining shares will not be able to elect any of our directors.

Liquidation Rights

Subject to any preferential rights of any series of preferred stock, holders of shares of common stock are entitled to share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up.

Absence of Other Rights

Holders of common stock have no preferential, preemptive, conversion, exchange, or registration rights.

Item 12. Indemnification of Directors and Officers.

Nevada Statutes

Sections 78.7502 and 78.751 of the Nevada Revised Statutes authorizes a court to award, or a corporation’s board of directors to grant indemnity to directors and officers in terms sufficiently broad to permit indemnification, including reimbursement of expenses incurred, under certain circumstances for liabilities arising under the Securities Act. In addition, our Bylaws provide that we have the authority to indemnify our directors and officers and may indemnify our employees and agents (other than officers and directors) against liabilities to the fullest extent permitted by Nevada law. We are also empowered under our Bylaws to purchase insurance on behalf of any person whom we are required or permitted to indemnify.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person 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, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue

Charter Provisions

Our Amended Articles of Incorporation currently do not provide for indemnification of our officers and directors.
 
Bylaws

The Bylaws of the Company provide for indemnification of officers, directors, employees and agents of the Company that is substantially identical in scope to that permitted under Nevada law and summarized above. Such Bylaws provide that the expenses of directors and officers of the Company incurred in defending any action, suit or proceeding, whether civil, criminal, administrative or investigative, must be paid by the Company as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it is ultimately determined by a court of competent jurisdiction that the director or officer is not entitled to be indemnified by the Company.

Agreements

Pursuant to compensation agreements with selected officers and directors, we may agree, to the maximum extent permitted by law, to defend, indemnify and hold harmless the officers and directors against any costs, losses, claims, suits, proceedings, damages or liabilities to which our officers and directors become subject to which arise out of or are based upon or relate to our officers and directors engagement by the company.

Page 21
 

 
Item 13. Financial Statements and Supplementary Data.

The consolidated financial statements required under this Item and in accordance with Article 8 of Regulation S-X are attached to this registration statement, and begin on page F-1

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 15.  Financial Statements and Exhibits

Financial Statement
Page #
   
(i) For the Fiscal Years Ended August 31, 2014 and 2013:
 
   
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets at August 31, 2014 and 2013
F-2
Consolidated Statement of Operations for the Years Ended August 31, 2014 and 2013
F-3
Consolidated Statement of Stockholders' Equity for the Years Ended August 31, 2014 and 2013
F-4
Consolidated Statement of Cash Flows for the Years Ended August 31, 2014 and 2013
F-5
Notes to Consolidated Financial Statements
F-6
   
(ii) For the Three and Six-Month Periods Ended February 28, 2015 and 2014:
 
   
Condensed Consolidated Balance Sheets as of February 28, 2015 (unaudited) and August 31, 2014
F-12
Condensed Consolidated Statements of Operations for the three and six months ended February 28, 2015 (unaudited) and 2014
F-13
Condensed Consolidated Statement of  Stockholders' Equity for the six months ended February 28, 2015 (unaudited)
F-14
Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2015 (unaudited) and 2014
F-15
Notes to Condensed Consolidated Financial Statements (unaudited)
F-16

 
 
Exhibit
Form
Filing
Filed with
Exhibits
#
Type
Date
This Report
         
Certificate of Incorporation filed with the Secretary of State of Nevada on February 26, 2014.
3.1
   
X
         
Certificate of Amendment filed with the Secretary of State of Nevada on March 7, 2014.
3.2
   
X
         
Bylaws of Kush Bottles, Inc.
3.3
   
X
         
Employment Agreement effective February 18, 2014, by and between KIM International Corporation and Ben Wu.
10.1
 
   
X
         
Employment Agreement effective July 28, 2014, by and between Kush Bottles, Inc. and Chris Martin.
10.2
   
X
         
Royalty Agreement effective September 11, 2014, by and between KB Mold Company and KIM International Corporation
10.3
   
X
         
Sublease Agreement effective August 1, 2012
10.4
   
X
         
Lease Agreement effective December 31, 2014
10.5
   
X
         
Stock Purchase Agreement effective March 4, 2014
10.6
   
X
         
Promissory Note effective December 3, 2014 by and between Dank Bottles, LLC and KIM International Corporation
10.7
   
X
         
Equity Purchase Agreement by and between Kush Bottles, Inc. and members of Dank Bottles, LLC, dated April 10, 2015
10.8
   
X
         
Opus Bank Revolving Line of Credit Agreement, dated April 15, 2015
10.9
   
X
         
Board of Director Services Agreement, effective May 4, 2015, between the KUSH Bottles, Inc. and Greg Gamet
10.10
   
X
         
List of Subsidiaries
23.1
   
X

Page 22 
 

 


 

SIGNATURES
 
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
 

 
KUSH BOTTLES, INC.


Date:  May 28, 2015     By:            /s/ Nicholas Kovacevich                                                       
                                                                                     Secretary





Page 23 
 

 


 

 
KUSH BOTTLES, INC.
 
Consolidated Financial Statements
 
August 31, 2014 and 2013

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

Report of Independent Registered Public Accounting Firm…………………………….……
F-1
   
Consolidated Balance Sheets……………………………………………………………………
F-2
   
Consolidated Statements of Operations………………………………………………………..
F-3
   
Consolidated Statements of Stockholders’ Equity ……………………………………………
F-4
   
Consolidated Statements of Cash Flows………………………………………………………..
F-5
   
Notes to the Consolidated Financial Statements……………………………………………….
F-6

 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of
Kush Bottles, Inc.
 
We have audited the accompanying consolidated balance sheets of Kush Bottles, Inc. (the “Company”) as of August 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kush Bottles, Inc. at August 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has sustained recurring net losses, negative cash flow from operations, and faces uncertainties surrounding the Company's ability to raise additional funds. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ RBSM LLP
 
April 9, 2015
 
New York, New York

F-1

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
KUSH BOTTLES, INC.
Consolidated Balance Sheets
As of August 31, 2014 and 2013
         
       
August 31,
 
August 31,
       
2014
 
2013
ASSETS
           
             
 
 
CURRENT ASSETS
           
                 
 
Cash
 
$
               23,004
 
 $
               23,664
 
Accounts receivable, net of allowance
   
               50,313
   
                 1,774
 
Prepaids
   
             128,202
   
                       -
 
Inventory
   
             153,040
   
             160,214
                 
   
Total Current Assets
   
             354,559
   
             185,652
                 
PROPERTY AND EQUIPMENT, net
   
               21,551
   
               13,417
                 
   
TOTAL ASSETS
 
$
             376,110
 
$
             199,069
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
           
                 
CURRENT LIABILITIES
           
                 
 
Accounts payable
 
$
               97,071
 
$
               49,069
 
Accrued expenses and other current liabilties
   
               48,157
   
               44,415
 
Notes payable - related parties
   
               50,000
   
               20,000
 
Notes payable - current portion
   
                 5,812
   
                 7,716
                 
   
Total Current Liabilities
   
             201,040
   
             121,200
                 
LONG-TERM DEBT
           
                 
 
Notes payable
   
                 7,662
   
               13,473
                 
   
TOTAL LIABILITIES
   
             208,702
   
             134,673
                 
COMMITMENTS and CONTINGENCIES
   
                         -
   
                         -
                 
STOCKHOLDERS' EQUITY
           
                 
 
Preferred stock, $0.001 par value, 10,000,000 shares
           
 
authorized, no shares issued and outstanding
   
                         -
   
                         -
 
Common stock, $0.001 par value, 265,000,000 shares authorized,
         
  40,720,000 and 32,400,000 shares issued and outstanding, respectively     40,720      32,400 
   Common stock to be issued, 750,000 and 0 shares, respectively     750      -
 
Additional paid-in capital
   
             535,082
   
               45,623
 
Accumulated deficit
   
            (409,144)
   
              (13,627)
                 
   
Total Stockholders' Equity
   
             167,408
   
               64,396
                 
   
TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY
 
$
             376,110
 
$
             199,069
                 
See accompanying notes to the consolidated financial statements

F-2 
 

 


KUSH BOTTLES, INC.
Consolidated Statements of Operations
               
     
For the Years Ended
     
August 31,
     
2014
 
2013
               
               
REVENUE
$
        1,710,286
 
$
       1,293,421
COST OF GOODS SOLD
 
           987,094
   
          808,087
               
GROSS MARGIN
 
           723,192
   
          485,334
               
OPERATING EXPENSES
         
               
 
Depreciation
 
               6,147
   
            17,198
 
Stock compensation expense
 
           278,529
   
                     -
 
Selling, general and administrative
 
           828,901
   
          556,852
               
   
Total Operating Expenses
 
        1,113,577
   
          574,050
               
LOSS FROM OPERATIONS
 
          (390,385)
   
          (88,716)
               
OTHER INCOME (EXPENSES)
         
               
 
Interest expense
 
              (5,132)
   
            (3,311)
               
   
Total Other Income (Expenses)
 
              (5,132)
   
            (3,311)
               
LOSS BEFORE INCOME TAXES
 
          (395,517)
   
          (92,027)
               
PROVISION FOR INCOME TAXES
 
                       -
   
                     -
               
NET LOSS
$
          (395,517)
 
$
          (92,027)
       
 
   
 
BASIC AND DILUTED LOSS PER SHARE
$
(0.010)
 
$
(0.003)
               
WEIGHTED AVERAGE NUMBER OF
         
COMMON SHARES OUTSTANDING -
         
BASIC AND DILUTED
 
40,269,973
   
32,400,000
               
See accompanying notes to the consolidated financial statements

F-3 
 

 


KUSH BOTTLES, INC.
Consolidated Statements of Stockholders' Equity
For the Years Ended August 31, 2013 and 2014
                     
 
   
 
       
           
Common Stock
 
Additional
 
Retained Earnings
 
 
Common Stock
 
to be Issued
 
Paid-in
 
(Accumulated
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit)
 
Total
                                     
Balance, August 31, 2012 (as adjusted for recapitalization)
      32,400,000
 
$
              32,400
 
                     -
 
$
                      -
 
$
         45,623
 
$
                78,400
 
$
           156,423
                                     
Net loss for the year ended
                                   
August 31, 2013
                     -
   
                      -
 
                     -
   
                      -
   
                 -
   
               (92,027)
   
            (92,027)
                                     
Balance, August 31, 2013
      32,400,000
   
              32,400
 
                       -
   
                      -
 
 
         45,623
 
 
               (13,627)
 
 
             64,396
                                     
Stock issued for services
        7,600,000
   
                7,600
 
             50,000
   
                     50
   
       169,433
   
                          -
   
           177,083
                                     
Stock sold to investors
           220,000
   
                   220
 
           100,000
   
                   100
   
       219,680
   
                          -
   
           220,000
       
 
       
 
                 
Stock compensation
           500,000
   
                   500
 
           600,000
   
                   600
   
       100,346
   
                          -
   
           101,446
                                     
Net loss for the year ended
                                   
August 31, 2014
                     -
   
                      -
 
                     -
   
                      -
   
                 -
   
(395,517)
   
(395,517)
                                     
Balance, August 31, 2014
40,720,000
 
$
40,720
 
750,000
 
$
750
 
$
535,082
 
$
(409,144)
 
$
167,408
                                     
See accompanying notes to the consolidated financial statements

F-4 
 

 
 

KUSH BOTTLES, INC.
Consolidated Statements of Cash Flows
                 
       
For the Years Ended
       
August 31,
       
2014
 
2013
       
 
       
CASH FLOWS FROM OPERATING ACTIVITIES
         
 
Net loss
$
             (395,517)
 
$
             (92,027)
 
Adjustments to reconcile net loss to net
         
 
   cash used in operating activities:
         
   
Depreciation
 
                   6,147
   
               17,198
   
Stock compensation expense
 
               278,529
   
                         -
                 
 
Changes in operating assets and liabilities
         
   
Accounts receivable
 
               (48,539)
   
               10,326
   
Prepaids
 
             (128,202)
   
                    800
   
Inventory
 
                   7,174
   
               (9,203)
   
Accounts payable
 
                 48,002
   
               38,757
   
Accrued expenses and other current liabilties
 
                   3,742
   
               32,333
                 
     
Net cash used in operating activities
 
             (228,664)
   
               (1,816)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
         
                 
 
Purchase of property and equipment
 
               (14,281)
   
               (9,116)
                 
     
Net cash used in investing activities
 
               (14,281)
   
               (9,116)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
         
 
 
     
 
   
 
 
Proceeds from related party loan
 
                 50,000
   
               20,000
 
Repayment of related party loan
 
               (20,000)
   
                         -
 
Proceeds from notes payable
 
                           -
   
                 7,117
 
Repayment of notes payable
 
                 (7,715)
   
               (5,347)
 
Proceeds from sale of stock
 
               220,000
   
                         -
                 
     
Net cash provided by financing activities
 
               242,285
   
               21,770
                 
NET (DECREASE) INCREASE IN CASH
 
                    (660)
   
               10,838
                 
CASH AT BEGINNING OF YEAR
 
                 23,664
   
               12,826
                 
CASH AT END OF YEAR
 $
                 23,004
 
 $
               23,664
                 
SUPPLEMENTAL DISCLOSURES OF
         
 
CASH FLOW INFORMATION:
         
                 
 
CASH PAID FOR:
         
   
Interest
$
                   5,132
 
$
                 3,311
   
Income taxes
$
                         -
 
$
                       -
                 
See accompanying notes to the consolidated financial statements

F-5 
 

 
 
 
KUSH BOTTLES, INC.
Notes to Consolidated Financial Statements
As of August 31, 2014 and 2013

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
   
Nature of Business
 
Kush Bottles, Inc. (“the Company”) was incorporated in the state of Nevada on February 26, 2014.  The Company specializes in the wholesale distribution of packaging supplies for the cannabis industry. The Company’s wholly owned subsidiary Kim International Corporation (KIM) was originally incorporated as Hy Gro Economics Corporation ("Hy Gro") on December 2, 2010. On October 30, 2012, Hy Gro amended its articles of incorporation to reflect a name change to KIM International Corporation (KIM).
 
Recapitalization
 
On March 4, 2014, the shareholders of KIM exchanged all 10,000 of their common shares for 32,400,000 common shares of Kush Bottles, Inc. The operations of KIM became the operations of Kush after the share exchange and accordingly the transaction is accounted for as a recapitalization of KIM whereby the historical financial statements of KIM are presented as the historical financial statements of the combined entity.
 
Subsequent to the share exchange, the members of KIM owned 32,400,000 of shares of Company’s common stock, effectively obtaining operational and management control of Kush. Kush had no operations prior to the share exchange. As a result of the recapitalization, KIM was the acquiring entity in accordance with ASC 805, Business Combinations. The accumulated losses of KIM were carried forward after the completion of the share exchange. Operations prior to the share exchange were those of KIM.
 
All reference to common stock shares and per share amounts have been restated to effect the recapitalization which occurred on March 4, 2014.
 
Basis of Presentation
 
The accompanying consolidated financial statements and related notes include the activity of the Company and its wholly owned subsidiary KIM and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant inter-company transactions and balances have been eliminated in consolidation.

The consolidated financial statements were prepared on a going concern basis. During the year ended August 31, 2014, the Company had a net loss of $395,517 and negative cash flow from operations of $228,664. Historically, the Company has had operating losses and negative cash flows from operations. Whether, and when, the Company can attain profitability and positive cash flows from operations is uncertain. These uncertainties cast significant doubt upon the Company’s ability to continue as a going concern. The Company will need to raise capital in order to fund its operations. This need may be adversely impacted by uncertain market conditions and changes in the regulatory environment. To address its financing requirements, the Company will seek financing through debt and equity issuances and rights offerings to existing shareholders. The outcome of these matters cannot be predicted at this time.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
  
Cash and Cash Equivalents

The Company considers cash and cash equivalents to consist of cash on hand and investments having an original maturity of 90 days or less that are readily convertible into cash.  As of August 31, 2014 and 2013, the Company had $23,004 and $23,664, respectively.
 
 
Accounts Receivable

Trade accounts receivable are carried at their estimated collectible amounts.  Trade credit is generally extended on a short-term basis, thus trade receivables do not bear interest.  Trade accounts receivables are periodically evaluated for collectability based on past credit history and their current financial condition. The Company’s allowance for doubtful accounts was $28,000 and $-0- as of August 31, 2014 and 2013, respectively.

Inventory

Inventories are stated at the lower of cost or net realizable value using the first-in first out (FIFO) method. The Company’s inventory consists of finished goods of $153,040 and $160,214 as of August 31, 2014 and 2013, respectively.

Property and Equipment

Property and equipment is recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, after the asset is placed in service. Asset lives range from 3 to 7 years. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred.  Maintenance and repairs are expensed as incurred.

Earnings (Loss) Per Share

The Company computes net loss per share under Accounting Standards Codification subtopic 260-10, "Earnings Per Share" (“ASC 260-10”).  Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock.  Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period.

Revenue Recognition

It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 605 "Revenue Recognition".  Four basic criteria must be met before revenue can be recognized; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.  Determination of criteria (3) and (4) are based on management’s judgments regarding fixed nature in selling prices of the products delivered and the collectability of those amounts.  The Company has not implemented any specific rebate programs. Provisions for discounts to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.  As of August 31, 2014 and 2013, we had provisions for discounts of $2,648 and $1,097, respectively. The Company has not established a formal customer incentive program, but considers and accomodates discounts to certain customers on a case by case basis, including by way of example, for volume shipping or for certain new customers with orders over a specific discretionary dollar threshold. During the year ended August 31, 2014 and 2013, the Company had a refund allowance of $0 and $726, respectively. Consistent with ASC 605-15-25-1, the Company considers factors such as historical return of products, estimated remaining shelf life, price changes from competitors, and introductions of competing products in establishing a refund allowance.The Company recognizes revenues as risk and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured.   The Company defers any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

Share-based Compensation

The Company account for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, "Compensation", which requires fair value measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including restricted stock awards.  The Company estimates the fair value of stock using the stock price on the date of the approval of the award.  The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount is recognized in the consolidated statements of operations.

Advertising

The Company conducts advertising for the promotion of its services. In accordance with ASC Topic 720-35-25, advertising costs are charged to operations when incurred.

F-6
 

 
Income Taxes

The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

The Company applies the provisions of ASC 740, "Accounting for Uncertainty in Income Taxes". The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements.  The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed.  The Company did not recognize any interest or penalties for unrecognized tax benefits during the years ended August 31, 2014 and 2013, nor were any interest or penalties accrued as of August 31, 2014 and 2013.

Fair Value of Financial Instruments

The Company adopted ASC 820 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under this standard certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.

The Company currently does not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
     
Level 3 - Unobservable inputs that reflect management’s assumptions about the assumptions that market participants would use in pricing the asset or liability.

Reclassification

Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.

Recently Issued Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued).

The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of ASU No. 2014-15 on the Company’s consolidated financial statements once adopted.
 
In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company is currently evaluating the impact of adopting this guidance.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
 
NOTE 2 – GOING CONCERN

The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has a net loss of $395,517 for the year ended August 31, 2014, and has an accumulated deficit of $409,144 as of August 31, 2014. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.

In order to continue as a going concern achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by sale of common shares. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its plans and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 – CONCENTRATIONS OF RISK

Supplier Concentrations

The Company purchases inventory from various suppliers and manufacturers. For the fiscal years ended August 31, 2014 and 2013, three vendors accounted for approximately 80% and 68%, respectively, of total inventory purchases.

Customer Concentrations

For the fiscal years ended August 31, 2014 and 2013, one customer represented 22% and 0% of the Company's revenues, respectively.
 
NOTE 4 – RELATED-PARTY TRANSACTIONS

Shareholders have made loans to the Company. The loans are non-interest bearing, unsecured and due upon demand. The Company owes $50,000 and $20,000 for such loans as of August 31, 2014 and 2013, respectively.

The Company leases its primary facilities from a related party. During the years ended August 31, 2014 and 2013, the Company made rent payments of $73,500 and $35,500, respectively. Total rent expense, including facilities leased from non-related parties, for the years ended August 31, 2014 and 2013 was $91,900 and $40,200, respectively.

During the year ended August 31, 2014, the Company purchased $131,302 of inventory from a related party.

F - 7
 

 
NOTE 5 – PROPERTY AND EQUIPMENT

The major classes of fixed assets consist of the following as of August 31:

   
2014
 
2013
Office Equipment
$
         7,260
$
               -
Machinery and equipment
 
         7,020
 
               -
Vehicles
 
       30,615
 
       30,615
   
       44,895
 
       30,615
Accumulated Depreciation
 
      (23,344)
 
      (17,198)
 
$
       21,551
$
       13,417

Depreciation expense was $6,147 and $17,198, for the years ended August 31, 2014 and 2013, respectively

NOTE 6 – LONG TERM DEBT

Automobile Contracts Payable
The Company has entered into purchase contracts for its vehicles.  The loans are secured by the vehicles and bear interest at an average interest rate of approximately 12% per annum. The composition of these automobile contracts payable is summarized in the table below:

   
 Principal
Due
2015
$
                          5,812
2016
 
                          4,954
2017
 
                          2,708
 
$
                        13,474

NOTE 7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following as of August 31:

   
2014
 
2013
Credit card liabilities
$
       25,296
$
       26,567
Accrued payroll
 
       22,861
 
       10,551
Sales tax payable
 
               -
 
         7,297
 
$
       48,157
$
       44,415

NOTE 8 – STOCKHOLDERS' EQUITY
 
Preferred Stock

The authorized preferred stock is 10,000,000 shares with a par value of $0.001. As of August 31, 2014 and 2013, the Company has no shares of preferred stock issued or outstanding.

Common Stock

The authorized common stock is 265,000,000 shares with a par value of $0.001. As of August 31, 2014 and 2013, 40,720,000 and 32,400,000 shares were issued and outstanding, respectively.

On March 4, 2014, the shareholders of KIM exchanged all 10,000 of the common shares for 32,400,000 common shares of Kush. The operations of KIM became the operations of Kush after the share exchange and accordingly the transaction is accounted for as a recapitalization of KIM.

During the year ended August 31, 2014, the Company sold 320,000 shares of its common stock to investors in exchange for cash of $220,000. As of August 31, 2014, 100,000 of these shares, purchased for $50,000, had not yet been issued.

Share-based Compensation

The Company recorded compensation expense of $278,529 and $0 for the years ended August 31, 2014 and 2013, respectively, in connection with the issuance of shares of common stock and options to purchase common stock.

In conjunction with issuance of the 32,400,000 common shares to the shareholders of KIM on March 4, 2014, Kush granted 7,650,000 shares for services rendered. The shares were valued at $0.02 per share for a total of $177,083. As of August 31, 2014, 50,000 of these shares had not yet been issued.

On July 28, 2014, the Company granted 100,000 shares of common stock to an officer of the Company upon execution of the officer's employment agreement. The shares vested immediately and accordingly, the Company recognized $68,750 of stock compensation expense. As of August 31, 2014, the shares had not yet been issued.

On February 14, 2014, the Company granted 1,000,000 shares of common stock to an officer of the Company upon execution of the officer's employment agreement. The shares were valued at $0.02 per share and $23,148 was recognized as stock compensation expense. As of August 31, 2014, 500,000 of these shares had not yet been issued.

Stock Options

Per the employment agreement dated February 14, 2014, the Company also awarded the officer the right to purchase 1,000,000 shares of common stock at a fixed price of $0.05. The option fully vested upon execution of the officer's employment agreement and is exercisable immediately. Using the Black-Scholes option pricing model, management estimated the fair value of the option to be $9,548. Accordingly, $9,548 was recognized as stock compensation expense.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of our stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the years ended August 31, 2014 and 2013:

 
August 31,
August 31,
 
2014
2013
Expected term (years)
5.0
 N/A
Expected volatility
70%
 N/A
Weighted-average volatility
70%
 N/A
Risk-free interest rate
1.53%
 N/A
Dividend yield
0%
 N/A
Expected forfeiture rate
0%
 N/A

The expected life is computed using the simplified method, which is the average of the vesting term and the contractual term. The expected volatility is based on management's analysis of historical volatility for comparable companies. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected term of the related option at the time of the grant. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.
 
F- 8
 

 
A summary of the Company’s stock option activity during the year ended August 31, 2014 and 2013 is presented below:

         
Weighted
   
     
Weighted
 
Average
   
     
Average
 
Remaining
 
Aggregate
 
No. of
 
Exercise
 
Contractual
 
Intrinsic
 
Options
 
Price
 
Term
 
Value
Balance Outstanding, August 31, 2012
                    -
$
                   -
 
                   -
 
-
Granted
                    -
 
                     -
 
                   -
 
                 -
Exercised
                    -
 
                     -
 
                   -
 
                 -
Balance Outstanding, August 31, 2013
                    -
 
                     -
 
                   -
 
                 -
Granted
       1,000,000
 
                 0.05
 
 5 years
 
                 -
Exercised
                    -
 
                     -
 
                   -
 
                 -
Balance Outstanding, August 31, 2014
       1,000,000
$
                 0.05
 
 4.46 years
$
        637,500
Exercisable, August 31, 2014
       1,000,000
$
                 0.05
 
 4.46 years
$
        637,500
:
NOTE 9 – INCOME TAXES

For the year ended August 31, 2014, the Company has incurred a net loss of $395,517.  The net deferred tax asset generated by the loss carry-forward has been fully reserved.  The cumulative net operating loss carry-forward is $111,019 at August 31, 2014 and will expire beginning in the year 2034. Due to a change in control the net operating losses from the year ended August 31, 2013 have become unusable for subsequent years.

The provision for income tax consists of the following for the fiscal years ended August 31:

   
2014
 
2013
Federal income (tax) benefit attributable to:
       
Current operations
$
167,506
$
 45,341
Stock compensation expense
 
(119,767)
 
-
Depreciation
$
(2,567)
 
(5,769)
Less: valuation allowance
 
(47,738)
 
(39,572)
Net provision for Federal income taxes
$
 -
$
 -

The cumulative tax effect at the expected rate of 43% of significant items comprising our net deferred tax amount is as follows as of August 31:

   
2014
 
2013
Deferred tax asset attributable to:
       
Net operating loss carryover
$
47,738
$
45,341
Depreciation
 
(3,203)
 
(5,769)
Valuation allowance
 
(44,535)
 
     (39,572)
Net deferred tax asset
$
-
$
 -

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $111,019 for Federal income tax reporting purposes are subject to annual limitations.  Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years. The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes.  As of August 31, 2014 and 2013, the Company had no accrued interest or penalties related to uncertain tax positions. The tax years that remain subject to examination by major taxing jurisdictions are for the years ended August 31, 2014 and 2013.

NOTE 10 – LOSS PER SHARE

We calculate basic loss per share by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per share reflect the effects of potentially diluted securities. Because we incurred net losses for the fiscal year ended August 31, 2014 and 2013, common stock equivalents are anti-dilutive accordingly basic and diluted loss per share were the same. The summary of the basic and diluted earnings per share computations is as follows:
 
   
2014
 
2013
Net loss
$
      (395,517)
$
        (92,027)
Basic net loss per share:
       
     Weighted-average shares outstanding - basic and diluted
 
   40,269,973
 
   32,400,000
Basic net loss per share:
$
          (0.010)
$
          (0.003)
Diluted net loss per share:
       
     Weighted-average shares outstanding - basic
 
   40,269,973
 
   32,400,000
     Weighted-average shares outstanding - diluted
 
   40,269,973
 
   32,400,000
Diluted loss per share
$
          (0.010)
$
          (0.003)

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Lease

The Company’s corporate head-quarters and primary distribution center is located in Santa Ana, California. The Company also has a facility located in Auburn, Washington. Each facility is leased. The California facility lease expires on August 1, 2015 and requires monthly payments of $8,000 for a total of $88,000 in lease commitments through the end of term. The Washington facility lease has a term of 6 months and provides for monthly payments of $1,700, and expires on January 1, 2015. The Company renewed its Washington facility lease, extending it for a term of 12 months, effective January 1, 2015 and expiring December 31, 2015. The lease provides for monthly payments of $1,739. The total future commitments for these Washington facility leases total $27,668.

Litigation

The Company may be subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. The Company had no pending legal proceedings or claims as of August 31, 2014 and 2013.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent issuance of Common Stock

Subsequent to August 31, 2014 and through May 22, 2015, the Company sold 1,227,779 shares of its common stock to investors in exchange for cash consideration of $732,000. In September 2014, the Company also issued 100,000 shares and 50,000 shares owed to an investor and an individual, as of August 31, 2014, respectively.

In September 2014 and November 2014, the Company issued 500,000 shares and 100,000 shares, respectively, of common stock owed to officers as of August 31, 2014.

Subsequent financing

On December 3, 2014, the Company entered into a promissory note receivable agreement with its largest customer, Dank Bottles, LLC, a re-distributor in Colorado. In exchange for assigning the rights to $75,000 of prepaid inventory, the Company will receive the principal amount of $75,000 plus a service fee of $11,250, payable in six equal installments of $14,375 beginning January 1, 2015. On April 10, 2015, the Company acquired this customer and as of April 10, 2015, the Company had received four installment payments totaling $57,500.

F-9
 

 
Subsequent Acquisition

In April 2015, the Company entered into an equity purchase agreement to acquire all of the issued and outstanding membership interests in Dank Bottles, LLC, a Colorado limited liability company. In exchange for the purchased interests, the Company paid cash consideration of $373,725 and issued 3,500,000 shares of common stock. Of the $373,725 of cash consideration, $273,725 was paid on April 10, 2015 and the remaining $100,000 is to be paid in 10 monthly installments beginning on July 31, 2015 and ending April 30, 2016.

Subsequent Financing

In April 2015, the Company entered into a $240,000 revolving line of credit facility with a financial institution. The minimum advance is $10,000. Interest accrues at prime plus 2.75% and is payable monthly. The loan is secured by the assets of the Company excluding patents. The loan matures on April 1, 2016. As of the date of this filing, the Company has not drawn down on this line of credit.
 

 
F-10
 

 

 
KUSH BOTTLES, INC.
 
Unaudited Condensed Consolidated Financial Statements
 
February 28, 2015

 

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
Unaudited Condensed Consolidated Balance Sheets ...........................................
F-12
   
Unaudited Condensed Consolidated Statements of Operations .........................
F-13
   
Unaudited Condensed Consolidated Statements of Stockholders’ Equity ........
F-14
   
Unaudited Condensed Consolidated Statements of Cash Flows .........................
F-15
   
Notes to the Unaudited Condensed Consolidated Financial Statements ..........
F-16
 
F-11
 

 

 
KUSH BOTTLES, INC.
Condensed Consolidated Balance Sheets
             
     
February 28,
   
     
2015
August 31,
     
(Unaudited)
2014
ASSETS
       
         
 
 
CURRENT ASSETS
       
             
 
Cash
$
             211,192
 $
               23,004
 
Accounts receivable, net of allowance
 
               48,295
 
               50,313
 
Prepaids
 
               33,550
 
             128,202
 
Inventory
 
             262,164
 
             153,040
 
Note receivable
 
               57,500
 
                         -
             
   
Total Current Assets
 
             612,701
 
             354,559
             
PROPERTY AND EQUIPMENT, net
 
               47,770
 
               21,551
             
   
TOTAL ASSETS
$
             660,471
$
             376,110
             
LIABILITIES AND STOCKHOLDERS' EQUITY
       
             
CURRENT LIABILITIES
       
             
 
Accounts payable
$
               88,351
$
               97,071
 
Accrued expenses and other current liabilties
 
               58,957
 
               48,157
 
Notes payable - related parties
 
                         -
 
               50,000
 
Notes payable - current portion
 
                 8,931
 
                 5,812
             
   
Total Current Liabilities
 
             156,239
 
             201,040
             
LONG-TERM DEBT
       
             
 
Notes payable
 
               16,379
 
                 7,662
             
   
TOTAL LIABILITIES
 
             172,618
 
             208,702
             
COMMITMENTS and CONTINGENCIES
 
                         -
 
                         -
             
STOCKHOLDERS' EQUITY
       
             
 
Preferred stock, $0.001 par value, 10,000,000 shares
       
 
authorized, no shares issued and outstanding
 
                         -
 
                         -
 
Common stock, $0.001 par value, 265,000,000 shares authorized,
     
 
42,169,112 and 40,720,000 shares issued and outstanding, respectively
  42,169    40,720 
 
Common stock to be issued, 20,000 and 750,000 shares, respectively
  20    750 
 
Additional paid-in capital
 
          1,019,363
 
             535,082
 
Accumulated deficit
 
            (573,699)
 
            (409,144)
             
   
Total Stockholders' Equity
 
             487,853
 
             167,408
             
   
TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY
$
             660,471
$
             376,110
             
See accompanying notes to the unaudited condensed consolidated financial statements

F-12
 

 


KUSH BOTTLES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
     
 
   
 
   
 
   
 
 
     
For the Three Months Ended
 
For the Six Months Ended
     
February 28,
 
February 28,
     
2015
 
2014
 
2015
 
2014
                           
REVENUE
$
           659,293
 
$
          444,499
 
$
        1,279,618
 
$
          766,552
COST OF GOODS SOLD
 
           402,190
   
          235,757
   
           805,523
   
          405,902
                           
GROSS MARGIN
 
           257,103
   
          208,742
   
           474,095
   
          360,650
                           
OPERATING EXPENSES
                     
                           
 
Depreciation
 
               4,503
   
                     -
   
               7,782
   
                     -
 
Selling, general and administrative
 
           340,102
   
          169,270
   
           641,081
   
          320,392
                           
   
Total Operating Expenses
 
           344,605
   
          169,270
   
           648,863
   
          320,392
                           
LOSS FROM OPERATIONS
 
            (87,502)
   
            39,472
   
          (174,768)
   
            40,258
                           
OTHER INCOME (EXPENSES)
                     
                           
 
Gain on sale of assets
 
                       -
   
                     -
   
               1,736
   
                     -
 
Other income
 
             11,250
   
                     -
   
             11,250
   
                     -
 
Interest expense
 
                 (910)
   
            (1,597)
   
              (2,773)
   
            (2,383)
                           
   
Total Other Income (Expenses)
 
             10,340
   
            (1,597)
   
             10,213
   
            (2,383)
                           
LOSS BEFORE INCOME TAXES
 
            (77,162)
   
            37,875
   
          (164,555)
   
            37,875
                           
PROVISION FOR INCOME TAXES
 
                       -
   
                     -
   
                       -
   
                     -
                           
NET LOSS
$
            (77,162)
 
$
            37,875
 
$
          (164,555)
 
$
            37,875
       
 
   
 
   
 
   
 
BASIC AND DILUTED LOSS PER SHARE
$
(0.002)
 
$
0.001
 
$
(0.004)
 
$
0.001
                           
WEIGHTED AVERAGE NUMBER OF
                     
COMMON SHARES OUTSTANDING -
                     
BASIC AND DILUTED
 
41,305,987
   
32,400,000
   
41,454,601
   
32,400,000
                           
See accompanying notes to the unaudited condensed consolidated financial statements

F-13
 

 

KUSH BOTTLES, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
               
 
 
 
     
         
Common Stock
Additional
       
    Common Stock    to be Issued  Paid-in     Accumulated    
  Shares    Amount    Shares    Amount    Capital    Defocot    Total
Balance, August 31, 2013
      32,400,000
$
              32,400
 
                       -
$
                      -
$
            45,623
$
           (13,627)
$
             64,396
                           
Stock issued for services
        7,600,000
 
                7,600
 
             50,000
 
                     50
 
          169,433
 
                      -
 
           177,083
                           
Stock sold to investors
           220,000
 
                   220
 
           100,000
 
                   100
 
          219,680
 
                      -
 
           220,000
     
 
     
 
           
Stock compensation
           500,000
 
                   500
 
           600,000
 
                   600
 
          100,346
 
                      -
 
           101,446
                           
Net loss for the year ended
                         
August 31, 2014
                     -
 
                      -
 
                     -
 
                      -
 
                    -
 
(395,517)
 
          (395,517)
                           
Balance, August 31, 2014
40,720,000
 
40,720
 
750,000
 
750
 
535,082
 
(409,144)
 
167,408
                           
Stock issued for services
             50,000
 
                     50
 
           (50,000)
 
                   (50)
 
                    -
 
                    -
 
                     -
                           
Stock sold to investors
           799,112
 
                   799
 
           (80,000)
 
                   (80)
 
          484,281
 
                    -
 
           485,000
                           
Stock compensation
           600,000
 
                   600
 
         (600,000)
 
                 (600)
 
                    -
 
                    -
 
                     -
                           
Net loss for the six months ended
                       
February 28, 2015
                     -
 
                      -
 
                     -
 
                      -
 
                    -
 
         (164,555)
 
          (164,555)
                           
Balance, February 28, 2015
      42,169,112
$
              42,169
 
             20,000
$
                     20
$
       1,019,363
$
         (573,699)
$
           487,853
 
 
 
 
 
 
 
 
 
 
       
See accompanying notes to the unaudited condensed consolidated financial statements

F-14 
 

 

 
KUSH BOTTLES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
       
 
     
 
       
For the Six Months Ended
       
February 28,
       
2015
 
2014
       
 
       
CASH FLOWS FROM OPERATING ACTIVITIES
         
 
Net (loss) income
$
             (164,555)
 
$
               37,875
 
Adjustments to reconcile net (loss) income to net
         
 
   cash (used in) provided by operating activities:
         
   
Depreciation
 
                   7,782
   
                       -
                 
 
Changes in operating assets and liabilities
         
   
Accounts receivable
 
                   2,018
   
             (65,981)
   
Prepaids and note receivable
 
                 37,152
   
                       -
   
Inventory
 
             (109,124)
   
               56,107
   
Accounts payable
 
                 (8,720)
   
               67,663
   
Accrued expenses and other current liabilties
 
                 10,800
   
             (14,134)
                 
     
Net cash (used in) provided by operating activities
 
             (224,647)
   
               81,530
                 
CASH FLOWS FROM INVESTING ACTIVITIES
         
                 
 
Purchase of property and equipment
 
               (34,001)
   
                       -
                 
     
Net cash used in investing activities
 
               (34,001)
   
                       -
                 
CASH FLOWS FROM FINANCING ACTIVITIES
         
 
 
     
 
   
 
 
Repayment of related party loan
 
               (50,000)
   
             (20,000)
 
Proceeds from notes payable
 
                 15,026
   
                       -
 
Repayment of notes payable
 
                 (3,190)
   
               (3,849)
 
Proceeds from sale of stock
 
               485,000
   
                       -
                 
     
Net cash provided by (used in) financing activities
 
               446,836
   
             (23,849)
                 
NET INCREASE IN CASH
 
               188,188
   
               57,681
                 
CASH AT BEGINNING OF PERIOD
 
                 23,004
   
               23,664
                 
CASH AT END OF PERIOD
 $
               211,192
 
 $
               81,345
                 
SUPPLEMENTAL DISCLOSURES OF
         
 
CASH FLOW INFORMATION:
         
                 
 
CASH PAID FOR:
         
   
Interest
$
                   2,773
 
$
                 2,383
   
Income taxes
$
                         -
 
$
                       -
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES
$
                         -
 
$
                       -
                 
See accompanying notes to the condensed consolidated financial statements

F-15
 

 

KUSH BOTTLES, INC.
Notes to Condensed Consolidated Financial Statements


NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
   
Nature of Business
 
Kush Bottles, Inc. (“the Company”) was incorporated in the state of Nevada on February 26, 2014.  The Company specializes in the wholesale distribution of packaging supplies for the cannabis industry. The Company’s wholly owned subsidiary Kim International Corporation (KIM), a California corporation, was originally incorporated as Hy Gro Economics Corporation ("Hy Gro") on December 2, 2010. On October 30, 2012, Hy Gro amended its articles of incorporation to reflect a name change to KIM International Corporation (KIM).
 
Recapitalization
 
On March 4, 2014, the shareholders of KIM exchanged all 10,000 of their common shares for 32,400,000 common shares of Kush Bottles, Inc. The operations of KIM became the operations of Kush after the share exchange and accordingly the transaction is accounted for as a recapitalization of KIM whereby the historical financial statements of KIM are presented as the historical financial statements of the combined entity.
 
Subsequent to the share exchange, the members of KIM owned 32,400,000 of shares of Company’s common stock, effectively obtaining operational and management control of Kush. Kush had no operations prior to the share exchange. As a result of the recapitalization, KIM was the acquiring entity in accordance with ASC 805, Business Combinations. The accumulated losses of KIM were carried forward after the completion of the share exchange. Operations prior to the share exchange were those of KIM.
 
All reference to common stock shares and per share amounts have been restated to effect the recapitalization which occurred on March 4, 2014.
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements and related notes include the activity of the Company and its wholly owned subsidiary KIM and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Our operating results for the three and six-month period ended February 28, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ended August 31, 2015, or for any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes the fiscal year ended August 31, 2014.

Going Concern Matters

The accompanying condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has a net loss of $164,555 for the six month period ended February 28, 2015, and has an accumulated deficit of $573,699 as of February 28, 2015. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.

In order to continue as a going concern achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by sale of common shares. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its plans and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
  
Cash and Cash Equivalents

The Company considers cash and cash equivalents to consist of cash on hand and investments having an orginal maturity of 90 days or less that are readily convertible into cash.
  
Accounts Receivable

Trade accounts receivable are carried at their estimated collectible amounts.  Trade credit is generally extended on a short-term basis, thus trade receivables do not bear interest.  Trade accounts receivables are periodically evaluated for collectability based on past credit history and their current financial condition. The Company’s allowance for doubtful accounts was $0 and $28,000 as of February 28, 2015 and August 31, 2014, respectively.

Inventory

Inventories are stated at the lower of cost or net realizable value using the first-in first out (FIFO) method. The Company’s inventory consists of finished goods of $262,164 and $153,040 as of February 28, 2015 and August 31, 2014, respectively.

Property and Equipment

Property and equipment is recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, after the asset is placed in service. Asset lives range from 3 to 7 years. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred.  Maintenance and repairs are expensed as incurred.

Earnings (Loss) Per Share

The Company computes net loss per share under Accounting Standards Codification subtopic 260-10, "Earnings per Share" (“ASC 260-10”).  Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock.  Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period.

Revenue Recognition

It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 605 "Revenue Recognition".  Four basic criteria must be met before revenue can be recognized; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.  Determination of criteria (3) and (4) are based on management’s judgments regarding fixed nature in selling prices of the products delivered and the collectability of those amounts.  The Company has not implemented any specific rebate programs. Provisions for discounts to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.  As of February 28, 2015 and 2014, we had provisions for discounts of $3,562 and $1,633, respectively.  The Company has not established a formal customer incentive program, but considers and accomodates discounts to certain customers on a case by case basis, including by way of example, for volume shipping or for certain new customers with orders over a specific discretionary dollar threshold. As of February 28, 2015 and 2014 the Company had a refund allowance of $0. Consistent with ASC 605-15-25-1, the Company considers factors such as historical return of products, estimated remaining shelf life, price changes from competitors, and introductions of competing products in establishing a refund allowance.The Company recognizes revenues as risk and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured.   The Company defers any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
 
F-16
 

 
Share-based Compensation

The Company account for its stock based award in accordance with Accounting Standards Codification subtopic 718-10, "Compensation", which requires fair value measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including restricted stock awards.  The Company estimates the fair value of stock using the stock price on the date of the approval of the award.  The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount is recognized in the consolidated statements of operations.

Advertising

The Company conducts advertising for the promotion of its services. In accordance with ASC Topic 720-35-25, advertising costs are charged to operations when incurred.
 
Income Taxes

The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

The Company applies the provisions of ASC 740, "Accounting for Uncertainty in Income Taxes". The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements.  The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed.  The Company did not recognize any interest or penalties for unrecognized tax benefits during the six months ended February 28, 2015 and the fiscal year ended August 31, 2014, nor were any interest or penalties accrued as of February 28, 2015 and August 31, 2014.

Fair Value of Financial Instruments

The Company adopted ASC 820 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under this standard certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.

The Company currently does not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
     
Level 3 - Unobservable inputs that reflect management’s assumptions about the assumptions that market participants would use in pricing the asset or liability.

Reclassification

Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.

Recently Issued Accounting Pronouncements

ASU 2015-02
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.

ASU 2014-15
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)". ASU 2014-15 provides guidance related to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.

ASU 2014-12
In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position, results of operations or cash flows.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
 
NOTE 2 – CONCENTRATIONS OF RISK

Supplier Concentrations

The Company purchases inventory from various suppliers and manufacturers. For the six months ended February 28, 2015 and 2014, three vendors accounted for approximately 72% and 82%, respectively, of total inventory purchases.

Customer Concentrations

For the six months ended February 28, 2015 and 2014, one customer represented 28% and 9% of the Company's revenues, respectively.

NOTE 3 – RELATED-PARTY TRANSACTIONS

Shareholders have made loans to the Company. The loans are non interest bearing, unsecured and due upon demand. The Company owes $0 and $50,000 for such loans as of February 28, 2015 and August 31, 2014, respectively.

The Company leases its primary facilities from a related party. During the six months ended February 28, 2015 and 2014, the Company made rent payments of $47,000 and $25,500, respectively. Total rent expense, including facilities leased from non-related parties, for the the three months ended February 28, 2015 and 2014 was $57,278 and $34,500, respectively.

During the six months ended February 28, 2015 and 2014, the Company purchased inventories of $0 and $131,302 from a related party, respectively.

F-17
 

 
NOTE 4 – PROPERTY AND EQUIPMENT

The major classes of fixed assets consist of the following as of February 28, 2015 and August 31, 2014:

   
February 28,
2015
 
August 31, 2014
Office Equipment
$
        10,266
$
         7,260
Machinery and equipment
 
        20,555
 
         7,020
Vehicles
 
38,929
 
       30,615
Sub Total
 
69,750
 
       44,895
Accumulated Depreciation
 
      (21,980)
 
      (23,344)
 
$
   47,770
$
       21,551

Depreciation expense was $7,782 and $0, for the six months ended February 28, 2015 and 2014, respectively.

NOTE 5 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

   
February 28,
 
August 31,
   
2015
 
2014
Credit card liabilities
$
                   12,716
$
                25,296
Accrued payroll
 
                   37,634
 
                22,861
Sales tax payable
 
                     8,607
 
                       -
 
$
                   58,957
$
                48,157

NOTE 6 – STOCKHOLDERS' EQUITY
 
Preferred Stock

The authorized preferred stock is 10,000,000 shares with a par value of $0.001. As of February 28, 2015 and August 31, 2014, the Company has no shares of preferred stock issued or outstanding.

Common Stock

The authorized common stock is 265,000,000 shares with a par value of $0.001. As of February 28, 2015 and August 31, 2014, 42,169,112 and 40,720,000 shares were issued and outstanding, respectively.

During the six months ended February 28, 2015, the Company sold 799,112 shares of its common stock to investors in exchange for cash of $485,000. As of February 28, 2015, 20,000 of these shares, purchased for $17,500, had not yet been issued.

Stock Options

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of our stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.
 
A summary of the Company’s stock option activity during the year ended February 28, 2015 and August 31, 2014 is presented below:

           
Weighted
   
       
Weighted
 
Average
   
       
Average
 
Remaining
 
Aggregate
   
No. of
 
Exercise
 
Contractual
 
Intrinsic
   
Options
 
Price
 
Term
 
Value
Balance Outstanding, August 31, 2013
 
                    -
$
                     -
 
                   -
 
                 -
Granted
 
       1,000,000
 
                 0.05
 
 5 years
 
                 -
Exercised
 
                    -
 
                     -
 
                   -
 
                 -
Balance Outstanding, August 31, 2014
 
       1,000,000
 
                 0.05
 
 4.46 years
$
        637,500
Granted
 
                    -
 
                     -
 
                   -
 
                 -
Exercised
 
                    -
 
                     -
 
                   -
 
                 -
Balance Outstanding, February 28, 2015
 
       1,000,000
$
                 0.05
 
 3.96 years
$
        628,464
Exercisable, February 28, 2015
 
       1,000,000
$
                 0.05
 
 3.96 years
$
        628,464

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Lease

The Company’s corporate head-quarters and primary distribution center is located in Santa Ana, California. The Company also has a facility located in Auburn, Washington. Each facility is leased. The California facility lease expires on August 1, 2015 and requires monthly payments of $8,000 for a total of $64,000 in lease commitments through the end of term. The Washington facility lease has a term of 6 months and provides for monthly payments of $1,700, and expires on January 1, 2015. The Company renewed its Washington facility lease, extending it for a term of 12 months, effective January 1, 2015 and expiring December 31, 2015. The lease provides for monthly payments of $1,739 for a total of $20,868 through the end of the term.

Litigation

The Company may be subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. The Company had no pending legal proceedings or claims as of February 28, 2015 and August 31, 2014.

NOTE 8 – SUBSEQUENT EVENTS

Subsequent issuance of Common Stock

Subsequent to February 28, 2015 and through May 22, 2015, the Company sold 508,667 shares of its common stock to investors in exchange for cash consideration of $247,000. In March 2015, the Company also issued 20,000 shares owed to investors as of February 28, 2015.

Subsequent Acquisition

On April 10, 2015, the Company entered into an equity purchase agreement to acquire all of the issued and outstanding membership interests in Dank Bottles, LLC, a Colorado limited liability company. In exchange for the purchased interests, the Company paid cash consideration of $373,725 and issued 3,500,000 shares of common stock. Of the $373,725 of cash consideration, $273,725 was paid on April 10, 2015 and the remaining $100,000 is to be paid in 10 monthly installments beginning on July 31, 2015 and ending April 30, 2016.

Subsequent Financing

On April 6, 2015, the Company entered into a $240,000 revolving line of credit facility with a financial institution. The minimum advance is $10,000. Interest accrues at prime plus 2.75% and is payable monthly. The loan is secured by the assets of the Company excluding patents. The loan matures on April 1, 2016. As of the date of this filing, the Company has not drawn down on this line of credit.

F-18
 

 
 


[ seal ]                      ROSS MILLER
Secretary of State
204 North Carson Street, Suite 4
Carson City, Nevada 89701-4520
(775) 684-5708
Website:  www.nvsos.com


 


 
 
Articles of Incorporation
(PURSUANT TO NRS CHAPTER 78)
 
Filed in the office of
 
 
Ross Miller
Secretary of State
State of Nevada
Document Number
20140141848-33
 
Filing Date and Time
02/26/2014 3:24 PM
 
Entity Number
E0103382014-8
 


1.   Name of Corporation : KUSH BOTTLES, INC.

2. Registered Agent for Service of Process :

X      Commercial Registered Agent : NEVADA BUSINESS CENTER, LLC

3.   Authorized Stock : ( number of shares corporation is authorized to issue )

Number of shares with par value:   50,000,000
Par value per share:   $0.0010
Number of shares without par value:   0

4.   Names and Addresses of the Board of Directors/Trustees: ( each Director/Trustee must be a natural person at least 18 years of age; attach additional page if more than two directors/trustee )

1)   Name: DALLAS IMBIMBO
       Street Address: 311 WEST THIRD STREET                                                                                      City: CARSON CITY                                            State: NV                       Zip Code: 89703

5. Purpose : ( optional; required only if Benefit Corporation status selected )
The purpose of the corporation shall be:   ANY LEGAL PURPOSE

6. Benefit Corporation : ( see instructions )                                                                            N/A

7. Name, Address and Signature of Incorporator : ( attach additional page if more than one incorporator )

I declare, to the best of my knowledge under penalty of perjury, that the information contained herein is correct and acknowledge that pursuant to NRS 239.330, it is a category C felony to knowingly offer any false or forged instrument for filing in the Office of the Secretary of State.

Name : MATTHEW A TAYLOR
Address : 311 WEST THIRD STREET                                                                             City : CARSON CITY                                             State : NV                        Zip Code : 89703

X MATTHEW A TAYLOR
Incorporator Signature

8. Certificate of Acceptance of Appointment of Registered Agent :
I hereby accept appointment as Registered Agent for the above named Entity.

X  NEVADA BUSINESS CENTER, LLC__________________________________                                                                                                                                                       2/26/2014
Authorized Signature of Registered Agent or On Behalf of Registered Agent Entity                                                                                                                                                     Date


 
 

 



[ seal ]                      ROSS MILLER
Secretary of State
204 North Carson Street, Suite 4
Carson City, Nevada 89701-4520
(775) 684-5708
Website:   www.nvsos.com

 
 
Certificate of Amendment
(PURSUANT TO NRS CHAPTER 78.380)
 
Filed in the office of
 
 
 
Ross Miller
Secretary of State
State of Nevada
Document Number
20140173043-75
 
Filing Date and Time
03/07/2014 11:00 AM
 
Entity Number
E0103382014-8
 

 
USE BLACK INK ONLY - DO NOT HIGHLIGHT         ABOVE SPACE IS FOR OFFICE USE ONLY
 

 
Certificate   of   Amendment   to   Articl es   of   I ncorporation
For   N evada   Profit   Corporation

(Pursuant to NRS 78.380 – Before issuance of Stock)


1. Name of corporation:  Kush Bottles, Inc.

2. The articles have been amended as follows:  (provide article numbers, if available))

Article 3 of the articles is amended in its entirety as follows: (Continued ...)

3. The undersigned declare that they constitute at least two-thirds of the following:

(check only one box)                                      [ X ] incorporators                                   [  ]   board of directors

4.   Effective date and time of filing: (optional)   Date:  3/4/14   Time:
  (must not be later than 90 days after the certificate is filed)

5.   The undersigned affirmatively declare that to the date of this certificate, no stock of the corporation has been issued.

6.   Signatures: (If more than two signatures, attach an 8 1/2" x 11" plain sheet with the additional signatures .)

X___________________________________                                                                                     X_______________________________________
Authorized Signature                                                                                     Authorized Signature


 
 

 

 
The total number of shares of capital stock which the Corporation shall have the authority to issue is Two Hundred Seventy Five Million (275,000,000) which shall be divided into two classes: (1) Common Stock in the amount of Two Hundred Sixty Five Million (265,000,000) shares having par value of $0.00I each; and (2) Preferred Stock in the amount of Ten Million (10,000,000) shares having par value of $0.001 each. One Million (1,000,000) shares of the Corporation' s Preferred Stock has been designated as Series A Preferred Stock held.

Holders of the Corporation' s common stock shall have one (1) vote per share of common stock

The Corporation' s Preferred Stock may be issued from time to time in one or more series. The board of directors, is authorized to fix the number of shares of any series of Preferred Stock, to determine the designation of any such series and to determine or alter the rights, preferences, privileges, qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series.

All capital stock when issued shall be fully paid and nonassessable. No holder of shares of capital stock of the Corporation shall be entitled as such to any pre-emptive or preferential rights to subscribe to any unissued stock, or any other securities, which the corporation may now or hereafter be authorized to issue.

The Corporation's capital stock may be issued and sold from time to time for such consideration as may be fixed by the Board of Directors, provided that the consideration so faxed is not less than par value.

Rights, Preferences, Privileges and Restrictions
of
Series A Preferred Stock

The Series A Preferred Stock ("Series A Preferred Stock'') of the Corporation is authorized by its Articles of Incorporation. The rights, preferences, privileges, and restrictions granted to and imposed upon the Series A Preferred Stock, which shall consist of One Million (1,000,000) shares are set forth herein. Subject to compliance with applicable protective voting rights which have been or may be granted to any other preferred stock, or series thereof in the Articles of Incorporation ("Protective Provisions"), but notwithstanding any other rights of any other preferred stock or any series thereof, the rights, preferences, privileges and restrictions of any such additional series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to dividend, liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent}, or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. Subject to compliance with applicable Protective Provisions, the Board is also authorized to increase or decrease the number of shares of any series, prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

I. Dividend Rate and Rights. Holders of the Series A Preferred Stock shall be entitled to receive dividends or other distributions with the holders of the Common Stock on an as converted basis when, as, and if declared by the Directors of the Corporation.

 
 

 


II.           Conversion into Common Stock.

A.   Right   to   Convert . Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof and subject to notice requirements described herein, at any time, into five (S) shares of the Corporation's Common Stock.

B.   Notice   of   Conversion . Each Series A Preferred Stock stockholder who desires to convert into the Corporation's Common Stock must provide a ten (10) day written notice to the Corporation of its intent to convert one or more shares of Series A Preferred Stock into Common Stock. The Corporation may, in its sole discretion, waive the written notice requirement and allow the immediate exercise of the right to convert.

C.   Mechanics   of   Conversion . No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock and the number of shares of Common Stock to be issued shall be determined by rounding to the nearest whole share (a half share being treated as a full share for this purpose). Such conversion shall be determined Oil the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and such rounding shall apply to the number of shares of Common Stock issuable upon aggregate conversion. Before any holder shall be entitled to convert, he shall surrender the certificate or certificates representing Series A Preferred Stock to be converted, duly endorsed or accompanied by proper instruments of transfer, at the office of the Corporation or of any transfer agent, and shall given written notice to the Corporation at such office that he elects to convert the same. The Corporation shall, as soon as practicable thereafter, issue a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled. The Corporation shall, as soon as practicable after delivery of such certificates, or such agreement and indemnification in the case of a lost, stolen or destroyed certificate, issue and deliver to such holder of Series A Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder is entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted.

D.    Adjustments   to   Conversion   Price   -   Merger   or   Reorganization .    In case of any consolidation or merger of the Corporation as a result of which holders of Common Stock become entitled to receive other stock or securities or property, or in case of any conveyance of all or substantially all of the assets of the Corporation to another corporation, the Corporation shall mail to each holder of Series A Preferred Stock at least thirty (30) days prior to the consummation of such event a notice thereof, and each such holder shall have the option to either (i) convert such holder's shares of Series A Preferred Stock into shares of Common Stock pursuant to this Section 2 and thereafter receive the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series A Preferred Stock would have been entitled upon such consolidation, merger or conveyance, or (ii) exercise such holder's rights pursuant to Section 3 hereof.

E.   No   Impairment . The Corporation will not, by amendment of 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock against impairment.

F.   Certificate   as   to   A d justments . Upon the occurrence of each adjustment or readjustment of the Conversion Price of the Series A Preferred Stock pursuant to this Section 2, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and the calculation on which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, and (ii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A Preferred Stock.



G. Notices   of   Record   Date . In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarter) or other distribution, the Corporation shall mail to each holder of Series A Preferred Stock at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose  of such dividend or distribution.

H. C ommon   S t ock   Reserved . The Corporation shall take such action as is necessary to amend the Articles of Incorporation to authorize such number of shares of Common Stock as shall from time to time be sufficient to effect (a) conversion of the Series A Preferred Stock, and {b) issuance of Common Stock pursuant to any outstanding option, warrant, or other rights to acquire Common Stock.

III.           Liquidation Preference.

A.   In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation"), the assets of the Corporation available for distribution to its stockholders shall be distributed as follows:

I.   The holders of the Series A Preferred Stock shall be entitled to receive, prior to the holders of the other series of Preferred Stock and prior and in preference to any distribution of the assets or surplus funds of the Corporation to the holders of any other shares of stock of the corporation by reason of their ownership of such stock, an amount equal to $1.00 per share with respect to each share of Series A Preferred Stock, plus all declared but unpaid dividends with respect to such share.

2. If upon occurrence of a Liquidation the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series A Preferred Stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled.

3. After payment of the full amounts to the holders of Series A Preferred Stock as set forth above in paragraph (1), any remaining assets of the Corporation shall be distributed pro rata to the holders of the Preferred Stock and Common Stock (in the case of the Preferred Stock, on an "as converted" basis into Common Stock).

B.   For purposes of this Section 3, and unless a majority of the holders of the Series A Preferred Stock affirmatively vote or agree by written consent to the contrary, a Liquidation shall be deemed to include (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) and (ii) a sale of al] or substantially all of the assets of the Corporation, unless the Corporation' s

 
 

 


stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) ho]d at least fifty percent (50%} of the voting power of the surviving or acquiring entity.

C. If any of the assets of the Corporation are to be distributed other than in cash under this Section 3, then the Board of the Corporation shall promptly engage independent competent appraisers to determine the value of the assets to be distributed to the holders of Preferred Stock or Common Stock. The Corporation shall, upon receipt of such appraiser's valuation, give prompt written notice to each holder of shares of Preferred Stock or Common Stock of the appraiser's valuation.

IV. Voting   Rights . Except as otherwise required by law, the holders of Series A Preferred Stock and the holders of Common Stock shall be entitled to notice of any stockholders' meeting and to vote as a single class upon any matter submitted to the stockholders for a vote as follows: (i) the holders of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of :Series A Preferred Stock held by such holder, (b) the number of issued and outstanding shares of the- Corporation's Series A Preferred Stock and Common Stock (co1lectively, the "Common Stock") on a Fully-Diluted Basis (as hereinafter defined), as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.0000015; and (ii) the holders of Common Stock shall have one vote per share of Common Stock held as of such date. "Fully-Diluted Basis" shall mean that the total number of issued and outstanding shares of the Corporation's Common Stock shall be calculated to include (a) the shares of Common Stock issuable upon exercise and/or conversion of all of the following securities (collectively, "Common Stock Equivalents"): all outstanding (a) securities convertible into or exchangeable for Common Stock, whether or not then convertible or exchangeable (collectively, "Convertible Securities,(b) subscriptions, rights, options and warrants to purchase shares of Common Stock, whether or not then exercisable (collectively, "Options"), and (c) securities convertible into or exchangeable or exercisable for Options or Convertible Securities and any such underlying Options and/or Convertible Securities.
 
V. Covenants
 
             A.   In addition to any other rights provided by  law, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock, do any of the following:
 
             1.   take any action which would either alter, change or affect the rights, preferences, privileges or restrictions of the Series A Preferred Stock or increase the number of shares of such Series A Preferred Stock authorized hereby or designate any other series of Preferred Stock;
 
             2.   increase the size of any equity incentive plan(s) or arrangements;
 
             3. make fundamental changes to the business of the Corporation;
 
             4.   make any changes to the terms of the Series A Preferred Stock or to the Corporation's Articles of Incorporation or Bylaws, including by designation of any stock;
 
             5 .   create any new class of shares having preferences over or being on a parity with the Series A Preferred Stock as to dividends or assets, unless the purpose of creation of such class is, and the proceeds to be derived from the sale and issuance thereof are to be used for, the retirement of all Series A Preferred Stock then outstanding;

 
 

 

             6.           make any change in the size or number of authorized directors;
 
             7.   repurchase any of the Corporation's Common Stock;
 
               8.   sell, convey or otherwise dispose of, or create or incur any mortgage, lien, charge or encumbrance on or security interest in or pledge of, or sell and leaseback all or substantially all of the property or business of the Corporation or more than SO% of the stock of the Corporation in a single transaction; or
 
            9.   make any payment of dividends or other distributions or any redemption or repurchase of stock or options or warrants 'to purchase stock of the Corporation.
 
             10.           make  any sale of additional Preferred Stock.

VI. Reissuance. No share or shares of Series A Preferred Stock acquired by the Corporation by· awn of conversion or otherwise shall be reissued as Series A Preferred Stock, and all such shares thereafter shall be returned to the status of undesignated and unissued shares of Preferred Stock of the Corporation.

VII. Notices. Unless otherwise specified in the Corporation' s Articles of Incorporation or Bylaws, all notices or communications given hereunder shall be in writing and, if to the Corporation, shall be delivered to it as its principal executive offices, and if to any holder of Series A Preferred Stock, shall be  delivered  to  it  at  its  address  as it  appears  on  the  stock  books  of  the  Corporation.

 
 

 


BYLAWS
OF
 
KUSH BOTTLES, INC.
A Nevada Corporation
 
ARTICLE I
 

 
OFFICES
 
Section 1.   PRINCIPAL OFFICES .  The principal office shall be 311 West Third Street, Carson City, NV 89703.
 
Section 2.   OTHER OFFICES .  The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business.
 
ARTICLE II
 

 
MEETINGS OF STOCKHOLDERS
 
Section 1.   PLACE OF MEETINGS .  Meetings of stockholders shall be held at any place within or without the State of Nevada designated by the board of directors.  In the absence of any such designation, stockholders’ meetings shall be held at the principal executive office of the corporation.
 
Section 2.   ANNUAL MEETINGS .  The annual meetings of stockholders shall be held at a date and time designated by the board of directors.  (At such meetings, directors shall be elected and any other proper business may be transacted by a plurality vote of stockholders.)
 
Section 3.   SPECIAL MEETINGS .  A special meeting of the stockholders, for any purpose or purposes whatsoever, unless prescribed by statute or by the articles of incorporation, may be called at any time by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders holding shares in the aggregate entitled to cast not less than a majority of the votes at any such meeting.
 
The request shall be in writing, specifying the time of such meeting, the place where it is to be held and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation.  The officer receiving such request forthwith shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request.  If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice.  Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held.
 
Section 4.   NOTICE OF STOCKHOLDERS’ MEETINGS .  All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting being noticed.  The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting the general nature of the business to be transacted, or (ii) in the case of the annual meeting those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders.  The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees which, at the time of the notice, management intends to present for election.
 
If action is proposed to be taken at any meeting for approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, (ii) an amendment to the articles of incorporation, (iii) a reorganization of the corporation, (iv) dissolution of the corporation, or (v) a distribution to preferred stockholders, the notice shall also state the general nature of such proposal.
 
Section 5.   MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE .  Notice of any meeting of stockholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the stockholder at the address of such stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice.  If no such address appears on the corporation’s books or is given, notice shall be deemed to have been given if sent by mail or telegram to the corporation’s principal executive office, or if published at least once in a newspaper of general circulation in the county where this office is located.  Personal delivery of any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership.  Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.  In the event of the transfer of stock after delivery or mailing of the notice of and prior to the holding of the meeting, it shall not be necessary to deliver or mail notice of the meeting to the transferee.
 
If any notice addressed to a stockholder at the address of such stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder upon written demand of the stockholder at the principal executive office of the corporation for a period of one year from the date of the giving of such notice.
 
An affidavit of the mailing or other means of giving any notice of any stockholders’ meeting shall be executed by the secretary, assistant secretary or any transfer agent of the corporation giving such notice, and shall be filed and maintained in the minute book of the corporation.
 
Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
 
Section 6.   QUORUM .  The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of stockholders shall constitute a quorum for the transaction of business, except as otherwise provided by statute or the articles of incorporation.  The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.
 
Section 7.   ADJOURNED MEETING AND NOTICE THEREOF .  Any stockholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at such meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at such meeting.
 
When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at a meeting at which the adjournment is taken.  At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.
 
Section 8.   VOTING .  Unless a record date set for voting purposes be fixed as provided in Section 1 of Article VIII of these bylaws, only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the business day next preceding the day on which notice is given (or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held) shall be entitled to vote at such meeting.  Any stockholder entitled to vote on any matter other than elections of directors or officers, may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares such stockholder is voting affirmatively, it will be conclusively presumed that the stockholder’s approving vote is with respect to all shares such stockholder is entitled to vote.  Such vote may be by voice vote or by ballot; provided, however, that all elections for directors must be by ballot upon demand by a stockholder at any election and before the voting begins.
 
When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the articles of incorporation a different vote is required in which case such express provision shall govern and control the decision of such question.  Every stockholder of record of the corporation shall be entitled at each meeting of stockholders to one vote for each share of stock standing in his name on the books of the corporation.
 
Section 9.   WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS .  The transactions at any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes thereof.  The waiver of notice or consent need not specify either the business to be transacted or the purpose of any regular or special meeting of stockholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of such proposal.  All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
 
Attendance of a person at a meeting shall also constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice if such objection is expressly made at the meeting.
 
Section 10.   STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING .  Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records.  Any stockholder giving a written consent, or the stockholder’s proxy holders, or a transferee of the shares of a personal representative of the stockholder of their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary.
 
Section 11.   PROXIES .  Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation.  A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney in fact.  A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless revoked by the person executing it, prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or attendance at the meeting and voting in person by the person executing the proxy; provided, however, that no such proxy shall be valid after the expiration of six (6) months from the date of such proxy, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution.  Subject to the above and Nevada Law, any proxy duly executed is not revoked and continues in full force and effect until an instrument revoking it or a duly executed proxy bearing a later date is filed with the secretary of the corporation.
 
Section 12.   INSPECTORS OF ELECTION .  Before any meeting of stockholders, the board of directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment.  If no inspectors of election are appointed, the chairman of the meeting may, and on the request of any stockholder or his proxy shall, appoint inspectors of election at the meeting.  The number of inspectors shall be either one (1) or three (3).  If inspectors are appointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed.  If any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors before the meeting, or by the chairman at the meeting.
 
The duties of these inspectors shall be as follows:
 
(a)   Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;
 
(b)   Receive votes, ballots, or consents;
 
(c)   Hear and determine all challenges and questions in any way arising in connection with the right to vote;
 
(d)   Count and tabulate all votes or consents;
 
(e)   Determine the election result; and
 
(f)   Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.
 
ARTICLE III
 
DIRECTORS
 
Section 1.   POWERS .  Subject to the provisions of the Nevada Revised Statutes and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
 
Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the power and authority to:
 
(a)   Select and remove all officers, agents, and employees of the corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service.
 
(b)   Change the principal executive office or the principal business office from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or foreign country and conduct business within or without the State; designate any place within or without the State for the holding of any stockholders’ meeting, or meetings, including annual meetings; adopt, make and use a corporate seal, and prescribe the forms of certificates of stock, and alter the form of such seal and of such certificates from time to time as in their judgment they may deem best, provided that such forms shall at all times comply with the provisions of law.
 
(c)   Authorize the issuance of shares of stock of the corporation from time to time, upon such terms as may be lawful, in consideration of money paid, labor done or services actually rendered, debts or securities cancelled, tangible or intangible property actually received.
 
(d)   Borrow money and incur indebtedness for the purpose of the corporation, and cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor.
 
Section 2.   NUMBER OF DIRECTORS .  The number of directors which shall constitute the whole board shall not be less than one (1) nor more than seven (7).  The exact number of authorized directors shall be set by resolution of the board of directors, within the limits specified above.  The maximum or minimum number of directors cannot be changed, nor can a fixed number be substituted for the maximum and minimum numbers, except by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw.
 
Section 3.   QUALIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS .  Directors shall be elected at each annual meeting of the stockholders to hold office until the next annual meeting, but if any such annual meeting is not held or the directors are not elected at any annual meeting, the directors may be elected at any special meeting of stockholders held for that purpose, or at the next annual meeting of stockholders held thereafter.  Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified or until his earlier resignation or removal or his office has been declared vacant in the manner provided in these bylaws.  Directors need not be stockholders.
 
Section 4.   RESIGNATION AND REMOVAL OF DIRECTORS .  Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation, in which case such resignation shall be effective at the time specified.  Unless such resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective.  The board of directors may declare vacant the office of a director who has been declared of unsound mind by an order of a court or convicted of a felony.  Any or all of the directors may be removed without cause of such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote.  No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires.
 
Section 5.   VACANCIES .  Vacancies in the board of directors, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director.  Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified.
 
A vacancy in the board of directors exists as to any authorized position of directors which is not then filled by a duly elected director, whether caused by death, resignation, removal, increase in the authorized number of directors or otherwise.
 
The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote.  If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.
 
If after the filling of any vacancy by the directors, the directors then in office who have been elected by the stockholders shall constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent or more of the total number of shares at the time outstanding having the right to vote for such directors may call a special meeting of the stockholders to elect the entire board.  The term of office of any director not elected by the stockholders shall terminate upon the election of a successor.
 
Section 6.   PLACE OF MEETINGS .  Regular meetings of the board of directors shall be held at any place within or without the State of Nevada that has been designated from time to time by resolution of the board.  In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation.  Special meetings of the board shall be held at any place within or without the State of Nevada that has been designated in the notice of the meeting or, if not stated in the notice or there is not notice, at the principal executive office of the corporation.  Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in such meeting can hear one another, and all such directors shall be deemed to be present in person at such meeting.
 
Section 7.   ANNUAL MEETINGS .  Immediately following each annual meeting of stockholders, the board of directors shall hold a regular meeting for the purpose of transaction of other business.  Notice of this meeting shall not be required.
 
Section 8.   OTHER REGULAR MEETINGS .  Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors.  Such regular meetings may be held without notice, provided the notice of any change in the time of any such meetings shall be given to all of the directors.  Notice of a change in the determination of the time shall be given to each director in the same manner as notice for special meetings of the board of directors.
 
Section 9.   SPECIAL MEETINGS .  Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors.
 
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at his or her address as it is shown upon the records of the corporation.  In case such notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting.  In case such notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours prior to the time of the holding of the meeting.  Any oral notice given personally or by telephone may be communicated to either the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director.  The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.
 
Section 10.   QUORUM .  A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided.  Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.
 
Section 11.   WAIVER OF NOTICE .  The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof.  The waiver of notice of consent need not specify the purpose of the meeting.  All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.  Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director.
 
Section 12.   ADJOURNMENT .  A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.
 
Section 13.   NOTICE OF ADJOURNMENT .  Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of such time and place shall be given prior to the time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of the adjournment.
 
Section 14.   ACTION WITHOUT MEETING .  Any action required or permitted to be taken by the board of directors may be taken without a meeting, if a consent in writing, setting forth the action so taken, is signed by the directors having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting of directors entitled to vote thereon were present and voted.  Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors.  Such written consent or consents shall be filed with the minutes of the proceedings of the board.
 
Section 15.   FEES AND COMPENSATION OF DIRECTORS .  Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors.  Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for such services.  Members of special or standing committees may be allowed like compensation for attending committee meetings.
 
Section 16.   DETERMINATION OF MAJORITY OF AUTHORIZED NUMBER OF DIRECTORS .  Two (2) directors shall constitute a majority of the authorized number of directors when the whole board of directors consists of two (2) directors pursuant to Article III, Section 2.
 
ARTICLE IV
 
COMMITTEES
 
Section 1.   COMMITTEES OF DIRECTORS .  The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of one or more directors, to serve at the pleasure of the board.  The board may designate one or more directors as alternate members of any committees, who may replace any absent member at any meeting of the committee.  Any such committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with regard to:
 
(a)   the approval of any action which, under Nevada Law, also requires stockholders’ approval or approval of the outstanding shares;
 
(b)   the filing of vacancies on the board of directors or in any committees;
 
(c)   the fixing of compensation of the directors for serving on the board or on any committee;
 
(d)   the amendment or repeal of bylaws or the adoption of new bylaws;
 
(e)   the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable;
 
(f)   a distribution to the stockholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or
 
(g)   the appointment of any other committees of the board of directors or the members thereof.
 
Section 2.   MEETINGS AND ACTION BY COMMITTEES .  Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III, Sections 6 (place of meetings), 8 (regular meetings), 9 (special meetings and notice), 10 (quorum), 11 (waiver of notice), 12 (adjournment), 13 (notice of adjournment) and 14 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time or regular meetings of committees may be determined by resolutions of the board of directors and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee.  The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.  The committees shall keep regular minutes of their proceedings and report the same to the board when required.
 
ARTICLE V
 
OFFICERS
 
Section 1.   OFFICERS .  The officers of the corporation shall be a president, a secretary and a treasurer.  The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V.  Any two or more offices may be held by the same person.
 
Section 2.   ELECTION OF OFFICERS .  The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment.  The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a vice president, a secretary and a treasurer, none of whom need be a member of the board.  The salaries of all officers and agents of the corporation shall be fixed by the board of directors.
 
Section 3.   SUBORDINATE OFFICERS, ETC .  The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine.
 
Section 4.   REMOVAL AND RESIGNATION OF OFFICERS .  The officers of the corporation shall hold office until their successors are chosen and qualify.  Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power or removal may be conferred by the board of directors.
 
Any officer may resign at any time by giving written notice to the corporation.  Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.  Any such resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
 
Section 5.   VACANCIES IN OFFICES .  A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office.
 
Section 6.   CHAIRMAN OF THE BOARD .  The chairman of the board, if such an officer be elected, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the bylaws.  If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V.
 
Section 7.   PRESIDENT .  Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation.  He shall preside at all meetings of the stockholders and, in the absence of the chairman of the board, of if there be none, at all meetings of the board of directors.  He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws.  He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation.
 
Section 8.   VICE PRESIDENTS .  In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president.  The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws, the president or the chairman of the board.
 
Section 9.   SECRETARY .  The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and shall record, keep or cause to be kept, at the principal executive office or such other place as the board of directors may order, a book of minutes of all meetings of directors, committees of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ and committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.
 
The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
 
The secretary shall give, or cause to be given, notice of all meetings of stockholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation in safe custody, as may be prescribed by the board of directors or by the bylaws.
 
Section 10.   TREASURER .  The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares.  The books of account shall at all reasonable times be open to inspection by any director.
 
The treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors.  He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the bylaws.
 
If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation.
 
ARTICLE VI
 
 
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
 
AND OTHER AGENTS
 
Section 1.   ACTIONS OTHER THAN BY THE CORPORATION .  The corporation may 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 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, has no reasonable cause to believe his conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act 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 that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful.
 
Section 2.   ACTIONS BY THE CORPORATION .  The corporation may 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 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.  Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
 
Section 3.   SUCCESSFUL DEFENSE .  To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.
 
Section 4.   REQUIRED APPROVAL .  Any indemnification under Sections 1 and 2, unless ordered by a court or advanced pursuant to Section 5, must 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 act, suit or proceeding;
 
(c)   If a majority vote of a quorum  consisting of directors who were not parties to the act, 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 act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.
 
Section 5.   ADVANCE OF EXPENSES .  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 action, 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 of this section do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law.
 
Section 6.   OTHER RIGHTS .  The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article VI:
 
(a)   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 stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to Section 2 or for the advancement of expenses made pursuant to Section 5, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action.
 
(b)   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.
 
Section 7.   INSURANCE .  The corporation may purchase and maintain insurance 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 incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI.
 
Section 8.   RELIANCE ON PROVISIONS .  Each person who shall act as an authorized representative of the corporation shall be deemed to be doing so in reliance upon the rights of indemnification provided by this Article.
 
Section 9.   SEVERABILITY .  If any of the provisions of this Article are held to be invalid or unenforceable, this Article shall be construed as if it did not contain such invalid or unenforceable provision and the remaining provisions of this Article shall remain in full force and effect.
 
Section 10.   RETROACTIVE EFFECT .  To the extent permitted by applicable law, the rights and powers granted pursuant to this Article VI shall apply to acts and actions occurring or in progress prior to its adoption by the board of directors.
 
ARTICLE VII
 
RECORDS AND BOOKS
 
Section 1.   MAINTENANCE OF SHARE REGISTER .  The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of shares held by each stockholder.
 
Section 2.   MAINTENANCE OF BYLAWS .  The corporation shall keep at its principal executive office, or if its principal executive office is not in this State at its principal business office in this State, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the stockholders at all reasonable times during office hours.  If the principal executive office of the corporation is outside this state and the corporation has no principal business office in this state, the secretary shall, upon the written request of any stockholder, furnish to such stockholder a copy of the bylaws as amended to date.
 
Section 3.   MAINTENANCE OF OTHER CORPORATE RECORDS .  The accounting books and records and minutes of proceedings of the stockholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation.  The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form.
 
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of this corporation and any subsidiary of this corporation.  Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts.  The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation.
 
Section 4.   ANNUAL REPORT TO STOCKHOLDERS .  Nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the stockholders of the corporation as they deem appropriate.
 
Section 5.   FINANCIAL STATEMENTS .  A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months.
 
Section 6.   ANNUAL LIST OF DIRECTORS, OFFICERS AND RESIDENT AGENTS .  The corporation shall file with the Secretary of State of the State of Nevada, on the prescribed form, a list of its officers and directors and a designation of its resident agent in Nevada.
 
ARTICLE VIII
 
GENERAL CORPORATE MATTERS
 
Section 1.   RECORD DATE .  For purposes of determining the stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of any such meeting nor more than sixty (60) days prior to any other action, and in such case only stockholders of record on the date so fixed are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date fixed as aforesaid, except as otherwise provided in Nevada Law.
 
If the board of directors does not so fix a record date:
 
(a)   The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
 
(b)   The record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the board has been taken, shall be the day on which the first written consent is given.
 
(c)   The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.
 
Section 2.   CLOSING OF TRANSFER BOOKS PROHIBITED .  In connection with the determination of stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any right in respect of any other lawful action, the board of directors shall not close the stock transfer books of the corporation for any reason but shall instead fix a record date for such determination in the manner provided in Section 1 of Article VIII of these bylaws.
 
Section 3.   REGISTERED STOCKHOLDERS .  The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada.
 
Section 4.   CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS .  All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors.
 
Section 5.   CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED .  The board of directors, except as in the bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount.
 
Section 6.   STOCK CERTIFICATES .  A certificate or certificates for shares of the capital stock of the corporation shall be issued to each stockholder when any such shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon.  All certificates shall be signed in the name of the corporation by the president or vice president and by the treasurer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the stockholder.  When the corporation is authorized to issue shares of more than one class or more than one series of any class, there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any stockholders upon request and without charge, a full or summary statement of the designations, preferences and relatives, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights, and, if the corporation shall be authorized to issue only special stock, such certificate must set forth in full or summarize the rights of the holders of such stock.  Any or all of the signatures on the certificate may be facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
 
No new certificate for shares shall be issued in place of any certificate theretofore issued unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate may be issued without the surrender and cancellation of the old certificate if the certificate thereto fore issued is alleged to have been lost, stolen or destroyed.  In case of any such allegedly lost, stolen or destroyed certificate, the corporation may require the owner thereof or the legal representative of such owner to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
 
Section 7.   DIVIDENDS .  Dividends upon the capital stock of the corporation, subject to the provisions of the articles of incorporation, if any, may be declared by the board of directors at any regular or special meeting pursuant to law.  Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the articles of incorporation.
 
Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserves in the manner in which it was created.
 
Section 8.   FISCAL YEAR .  The fiscal year of the corporation shall be fixed by resolution of the board of directors.
 
Section 9.   SEAL .  The corporate seal shall have inscribed thereon the name of the corporation, the year of its incorporation and the words “Corporate Seal, Nevada.”
 
Section 10.   REPRESENTATION OF SHARES OF OTHER CORPORA­TIONS .  The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation.  The authority herein granted to said officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by proxy duly executed by said officer.
 
Section 11.   CONSTRUCTION AND DEFINITIONS .  Unless the context requires otherwise, the general provisions, rules of construction, and definitions in Nevada Law shall govern the construction of the bylaws.  Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
 
ARTICLE IX
 
 
AMENDMENTS
 
Section 1.   AMENDMENT BY STOCKHOLDERS .  New bylaws may be adopted or these bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by the written assent of stockholders entitled to vote such shares, except as otherwise provided by law or by the articles of incorporation.
 
Section 2.   AMENDMENT BY DIRECTORS .  Subject to the rights of the stockholders as provided in Section 1 of this Article, bylaws may be adopted, amended or repealed by the board of directors.
 


Kush Bottles, Inc.
Bylaws
 
 

 
 

 

C E R T I F I C A T E  O F  S E C R E T A R Y
 
I, the undersigned, do hereby certify:
 
1.           That I am the duly elected and acting secretary of Kush Bottles, Inc., a Nevada corporation; and
 
2.           That the foregoing Bylaws constitute the Bylaws of said corporation as duly adopted by the board of directors of said corporation by a Unanimous Written Consent dated as of March 7, 2014.
 
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this March 7, 2014
 
/s/ Dallas Imbimbo
 

Dallas Imbimbo
 
Secretary

February 14, 2014
 
Ben Wu
[Redacted]
 
Re: Formal Offer Letter
 
Dear Ben,
 
This letter is to confirm our understanding with respect to your future employment by KIM International Corp (dba Kush Bottles) or any present or future parent, subsidiary, affiliate or successor thereof (collectively, the “ Company ”). The terms and conditions agreed to in this letter are hereinafter referred to as this “Agreement.”
 
In consideration of the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, we have agreed as follows:
 
1.  
Employment
 
a.   General. Subject to the terms and conditions of this Agreement, you will be employed by the Company as the Chief Executive Officer and President, reporting to the Board of Directors of the Company (the “ Board ”). You will have the responsibilities, duties and authority commensurate with the position of Chief Executive Officer and President as determined by the Board from time to time. The principal location at which you will perform such services will be in the Company’s Santa Ana facility in California. Your duties will be conducted principally from the Company’s administrative offices in Santa Ana, California, with travel to such other locations from time to time as reasonably required.
 
 
b.   Devotion to Duties . For so long as you are employed hereunder, you will use your best efforts, skills, and abilities to perform faithfully all duties assigned to you pursuant to this Agreement and will devote your full business time and energies to the business and affairs of the Company, provided that nothing contained in this Section 1b will be deemed to prevent or limit your right to manage your personal investments on your own personal time, including, without limitation, the right to make passive investments in the securities of (i) any entity which you do not control, directly, or indirectly, and which does not compete with the Company, or (ii) any publicly held entity so long as your aggregate direct and indirect interest does not exceed 4.99% of the issued and outstanding securities of any class of securities of such publicly-held entity (on a fully-diluted basis); and provided further that nothing herein will prevent you from serving as a director on the board of directors of other companies or charities so long as such service does not conflict or interfere with the performance of your duties hereunder.
 
2.  
Term of Employment
 
a.   Term; Termination. Subject to the terms hereof, your employment hereunder will commence on February 18, 2014 (the “ Commencement Date ”) and will continue until December 31, 2014 (the “ Initial Term ”), provided that on December 31, 2014 and each December 31 thereafter, the term of your employment hereunder will be automatically extended for additional periods of one year (each such period, a “ Subsequent Term ”) unless either you or the Company has given written notice to the other that such automatic extension will not occur (a “ Non-Renewal Notice ”), which notice shall be given not less than 90 days prior to the last day of the Initial Term or any Subsequent Term, as applicable. The Initial Term and any Subsequent Term are referred to herein as the “ Term .”
 
Notwithstanding the foregoing, your employment hereunder will terminate upon the first to occur of the following:
 
i.  
Immediately upon your death;
 
ii.  
By the Company:
 
A.   By written notice to you effective at the date of such notice, following your failure, due to illness, accident, or any other physical or mental incapacity, to perform the essential functions of your position, with or without reasonable accommodation, for an aggregate of 90 days within any period of 180 consecutive days during the term hereof as determined by a physician selected by the Company (“ Disability ”);
 
B.   By written notice to you, effective the date of such notice, for Cause (as defined below); or
 
C.   By written notice to you, effective 30 days after the date of such notice and subject to Section 4 hereof, without Cause; or
 
iii.  
By you:
 
A.   At any time by written notice to the Company, effective 30 days after the date of such notice.
 
b.   Definition of “Cause.” For purposes of this Agreement, “ Cause ” means (i) your conviction of a felony, (ii) the commission by you of an act of fraud or embezzlement against the Company, (iii) your willful disregard of a written directive of the Board, where the directive involves a matter of material importance to the Company and you have failed to comply with such directive within 30 days of receiving written notice from the Board of your failure, (iv) a material breach by you of any material provision of this Agreement, (v) your engaging in conduct which is intended to bring disrepute or to damage the reputation and operation of the Company, (vi) your unexcused repeated absenteeism in connection with your employment hereunder (not including disability) or (vii) your use of illegal substances that significantly impairs your ability to perform your duties.
 
3.  
Compensation.
 
a.   Base Salary . While you are employed hereunder, you will be paid a base salary at the annual rate of $96,000 (the “ Base Salary ”). The Base Salary will be payable in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time. The Company will deduct from each such installment any amounts required to be deducted or withheld under applicable law or under any employee benefit plan in which you participate. The Base Salary will be subject to not less than annual review by the Board and may be increased (bot not decreased, except if decreased as party of a general salary reduction program applicable, at an equal percentage, to all executive officers of the Company and, in any event, not to exceed an aggregate 10% reduction) at the discretion of the Board.
 
b.   Incentive Compensation . You shall be eligible to receive a percentage of your Base Salary as incentive compensation if certain individual and corporate performance goals and targets established by the Board from time to time, in its sole discretion, are met. Such goals and targets shall be established by the Board for (i) the period ending December 31, 2014 and (ii) each calendar year thereafter within the Term. The Board shall review actual performance against the applicable performance goals and targets and shall notify you of the amount of your incentive compensation, if any. The Board shall have the sole and absolute discretion to determine whether the applicable performance goals have been met. Your incentive compensation, if any, (i) for 2014, shall be paid to you in 2015 within a reasonable time after the end of the period to which it relates, and (ii) thereafter, shall be paid to you at the same time and under the same terms and conditions as other executives of the Company. We would expect that the goals and targets for the period ending December 31, 2014, subject to approval by the Board, shall be tied primarily to (1) revenue growth, (2) EBITDA growth and (3) improvements to the Company’s operations and infrastructure, such specific targets to be determined by the Board.
 
c.   Equity Compensation
 
i.  
Common Shares . On or before the Commencement Date, you will granted 1,000,000 shares of the Company’s common stock (or the equivalent) (the “ Common Shares ”).
 
ii.  
Common Shares Vesting . All 1,000,000 of the Common Shares granted to you pursuant 3(c)(i) shall vest immediately on the Commencement Date.
 
iii.  
Purchase of Additional Common Shares . You may purchase an additional 1,000,000 shares of the Company’s common stock at $0.05 per share.
 
iv.  
Incentive Compensation : You may elect to receive Board approved incentive compensation in the form of shares of the Company’s common stock at fair value on the date of the award.
 
d.   Vacation . You will be entitled to three weeks paid vacation during the Initial Term and four weeks paid vacation during each applicable Subsequent Term along with paid holidays and personal days in accordance with the Company’s policies as in effect from time to time.
 
e.   Reimbursement of Expenses . Company shall reimburse you for all reasonable out-of-pocket expenses incurred by you in connection with the performance of your duties in accordance with its regular reimbursement policies as in effect from time to time and upon receipt of itemized vouchers and such other supporting information as dictated by the Board-approved policies of the Company.
 
f.   Indemnification . The Company will indemnify you to the maximum extent permitted by its organizational documents and any other governing document in effect from time to time and by applicable law as in effect from time to time against all costs, charges and expenses, including, without limitation, attorneys’ fees, incurred or sustained by you in connection with any action, suit or proceeding to which you may be made a party by reason of being an officer, director or employee of the Company. The Company shall advance the costs of any defense in accordance with the Company’s policies. In connection with the foregoing, you will be covered under the liability insurance policy carried by the Company from time to time that protects other officers of the Company, which the Company shall maintain as long as it is commercially reasonable to do so.
 
4.  
Severance Compensation .
 
a.   Definition of Accrued Obligations and Severance Amount . For purposes of this Agreement, “ Accrued Obligations ” means the greater of (i) the Severance Amount (as defined below) and (ii) the portion of your Base Salary in respect of the remaining portion of the term, if any, as of the termination of your employment with the Company that has not yet been paid as of immediately prior to such termination. However, in no event shall the Accrued Obligation exceed $20,000 if termination occurs in the Initial Term or $30,000 if termination occurs in the Subsequent Term. Any Accrued Obligations to be paid pursuant to this Agreement shall be paid out on a monthly basis in accordance with the Company’s payroll practices as in effect from time to time, provided however , that you shall not be entitled to any Accrued Obligations unless you execute and do not revoke a written release, in a form acceptable to the Company, of any and all claims against the Company and all related parties with respect to all matters arising out of your employment by the Company, or the termination thereof (the “Release”).
 
For purposes of this Agreement, “ Severance Amount ” means:
 
i.   In the event of any of the conditions triggering a payment under Section 4(b) is effected as of date within six (6) months of the Commencement Date, an amount equal to two (2) months of Base Salary;
 
ii.   In the event of any of the conditions triggering a payment under Section 4(b) is effected as of date on or after six (6) months of the Commencement Date, an amount equal to three (3) months of Base Salary.
 
b.   Payments upon Termination . If (i) your employment hereunder is terminated by the Company (A) without Cause, (B) by delivery of a Non-Renewal Notice by the Company, (C) by reason of your death or disability, or (D) your title or duties are materially modified, the Company changes its primary place of business or the location at which you are expected to be by more than 50 miles, the Company materially breaches a material provision of this Agreement or the Company otherwise materially and adversely changes the conditions of your employment; or (ii) (A) a Change of Control is consummated (“ Change of Control ” means any of the following: any consolidation, merger, or recapitalization of the Company with, or any sale of Company equity to, any other non-affiliated entity as a result of which, in any such case, the beneficial holders of the issued and outstanding equity securities of the Company immediately prior to such transaction possess less than 50% of the voting power of the surviving entity immediately after such transaction; or any sale or transfer of all or substantially all of the assets of the Company), (B) you are not offered substantially equivalent employment with the surviving company (provided that any failure to offer you a position with the title of “Chief Executive Officer” shall not be considered for purposes of determining such substantial equivalence) following the Change of Control and (C) you resign or otherwise voluntarily fail to continue employment with the Company or the surviving company following such Change of Control, as your sole and exclusive right and remedy:
 
i.  
The Company will pay the Accrued Obligations to you.
 
c.   Other Termination Events . If termination of your employment hereunder occurs for any reason or under circumstance other than as specifically stated in paragraph (b) above, you shall receive no payment and have no right or remedy under or in connection with this Agreement or the termination hereof.
 
5.  
General
 
a.   Notices . All notices, requests, consents and other communications hereunder will be in writing, will be addressed to the receiving party’s address set forth above or to such address as a party may designate by notice hereunder, and will be either (i) delivered by hand, (ii) sent by overnight courier, or (iii) sent by registered or certified mail, return receipt requested, postage prepaid. All notices, requests, consents and other communications hereunder will be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iii) if sent by registered or certified mail, on the fifth business day following the day such mailing is made.
 
b.   Entire Agreement . This Agreement, together with any other agreements specifically referred to herein, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement will affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.
 
c.   Modifications and Amendments . The terms and provisions of this Agreement may be modified or amended only by written agreement executed by you and the Company or, as applicable, the Company’s successor or assign.
 
d.   Waivers and Consents . The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only written document executed by the party entitled to the benefits of such terms and provisions. No such waiver or consent will be deemed to be or will constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent will be effective only in the specific instance and for the purpose for which it was given, and will not constitute a continuing waiver or consent.
 
e.   Assignment . The Company may assign its rights and obligations hereunder to any person or entity that succeeds to or is otherwise assigned (whether from a change of control, sale of assets or otherwise) all or substantially all of the Company’s business or that aspect of the Company’s business in which you are principally involved. You may not assign your rights and obligations under this Agreement without the prior written consent of the Company.
 
f.   Benefit . All statements, representations, warranties, covenants and agreements in this Agreement will be binding on the parties hereto and will inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement will be construed to create any rights or obligations except among the parties hereto, and no person or entity will be regarded as a third-party beneficiary of this Agreement.
 
g.   Governing Law . This Agreement and the rights and obligations of the parties hereunder will be construed in accordance with and governed by the law of the State of California, without giving effect to the conflict of law principles thereof.
 
h.   Jurisdiction, Venue and Service of Process . Any legal action or proceeding with respect to this Agreement that is not subject to arbitration pursuant to Section 7(i) below will be brought in the courts of the State of California or federal courts sitting in the State of California. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts.
 
i.   Arbitration . Any controversy, dispute or claim arising out of or in connection with this Agreement, will be settled by final and binding arbitration to be conducted in California, pursuant to the national rules for the resolution of employment disputes of the American Arbitration Association then in effect. The Company shall pay for the costs of such arbitration. The prevailing party in any such arbitration shall be entitled to receive reimbursement of its reasonable costs and expenses (including attorney’s fees) from the other party. The decision or award in any such arbitration will be final and binding upon the parties and judgment upon such decision or award may be entered in any court of competent jurisdiction or application may be made to any such court for judicial acceptance of such decision or award and an order of enforcement. In the event that any procedural matter is not covered by aforesaid rules, the procedural law of the State of California will govern. Any disagreement as to whether a particular dispute is arbitrable under this Agreement shall itself be subject to arbitration in accordance with the procedures set forth herein.
 
j.   Severability . The parties intend this Agreement to be enforced as written. However, if any portion of provision of this Agreement is to any extend declared illegal or unenforceable by a duly authorized court having jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, will not be affected thereby, and each portion and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law.
 
k.   Headings and Captions . The heading and captions of the various subdivisions of this Agreements are for convenience of reference only and will in no way modify or affect the meaning or construction of any of the terms or provisions thereof.
 
l.   No Waiver of Rights, Powers and Remedies . No failure or delay by a party hereto in exercising any right, power, or remedy under this Agreement, and no course of dealing between the parties hereto, will operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, will preclude such party from any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder.  The election of any remedy by a party hereto will not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement will entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other further action in any circumstances without such notice or demand.
 
m.   Counterparts . This Agreement may be executed in two or more counterparts (including facsimiles thereof), and by different parties hereto on separate counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
 
n.   Opportunity to Review . You hereby acknowledge that you have had adequate opportunity to review these terms and conditions and to reflect upon and consider the terms and conditions of this Agreement, and that you have had the opportunity to consult with counsel of your own choosing regarding such terms. You further acknowledge that you fully understand the terms of this Agreement and have voluntarily executed this agreement.
 
o.   Waiver of Jury Trial . 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 litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney or the other party has represented, expressly or otherwise, that the other party would not, in the event of litigation, seek to enforce the foregoing waiver, and (b) acknowledges that he or it and the other parties hereto have been induced to enter this Agreement, by, among other things, the mutual waivers and certifications of this Section.
 
p.   Action by the Company . For all purposes relating to this Agreement, action of the Company shall be undertaken by the Board or the Board’s designee, and shall not require any action by, and may not be inhibited by, any action by you as an officer of the Company.
 
q.   Representation . You hereby represent to the Company that you are not subject to any agreement or restriction which prohibits, restricts, conflicts with or would be violated by the terms and conditions of this Agreement or any related agreement, and you acknowledge that the Company is relying upon this representation in executing this Agreement and hiring you hereunder.
 
 
If the foregoing accurately sets forth our agreement, please so indicate by signing and returning to us the enclosed copy of this letter.
 
 
Very truly yours,
 
KIM International Corporation (dba Kush Bottles)
 

 
By:  /s/ Nick Kovacevick
 
Name: Nick Kovacevich
Title: Board Director

 
Accepted and Approved
 
/s/ Ben Wu
 
_________________________                                                                      _____________________, 2014
Ben Wu                                                Date

 

 
 

 


July 28, 2014
Chris Martin
 
 
[Redacted]

Re: Formal Offer Letter

Dear Chris,

This letter is to confirm our understanding with respect to your future employment by Kush Bottles, Inc. or any present or future parent, subsidiary, affiliate or successor thereof (collectively, the “ Company ”). The terms and conditions agreed to in this letter are hereinafter referred to as this “Agreement.”
In consideration of the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, we have agreed as follows:

1.  
Employment

a.   General. Subject to the terms and conditions of this Agreement, you will be employed by the Company as the Chief Financial Officer, reporting to the Board of Directors of the Company (the “ Board ”). You will have the responsibilities, duties and authority commensurate with the position of Chief Financial Officer as determined by the Board from time to time. The principal location at which you will perform such services will be in the Company’s Santa Ana facility in California. Your duties will be conducted principally from the Company’s administrative offices in Santa Ana, California, with travel to such other locations from time to time as reasonably required.

b.   Devotion to Duties . For so long as you are employed hereunder, you will use your best efforts, skills, and abilities to perform faithfully all duties assigned to you pursuant to this Agreement and will devote your full business time and energies to the business and affairs of the Company, provided that nothing contained in this Section 1b will be deemed to prevent or limit your right to manage your personal investments on your own personal time, including, without limitation, the right to make passive investments in the securities of (i) any entity which you do not control, directly, or indirectly, and which does not compete with the Company, or (ii) any publicly held entity so long as your aggregate direct and indirect interest does not exceed 4.99% of the issued and outstanding securities of any class of securities of such publicly-held entity (on a fully-diluted basis); and provided further that nothing herein will prevent you from serving as a director on the board of directors of other companies or charities so long as such service does not conflict or interfere with the performance of your duties hereunder.
 
 
2.  
Term of Employment
a.   Term; Termination. Subject to the terms hereof, your employment hereunder will commence on July 28, 2014 (the “ Commencement Date ”) and will continue until August 31, 2015 (the “ Initial Term ”), provided that on August 31, 2015 and each August 31 thereafter, the term of your employment hereunder will be automatically extended for additional periods of one year (each such period, a “ Subsequent Term ”) unless either you or the Company has given written notice to the other that such automatic extension will not occur (a “ Non-Renewal Notice ”), which notice shall be given not less than 90 days prior to the last day of the Initial Term or any Subsequent Term, as applicable. The Initial Term and any Subsequent Term are referred to herein as the “ Term .”

Notwithstanding the foregoing, your employment hereunder will terminate upon the first to occur of the following:
i.  
Immediately upon your death;
ii.  
By the Company:
A.   By written notice to you effective at the date of such notice, following your failure, due to illness, accident, or any other physical or mental incapacity, to perform the essential functions of your position, with or without reasonable accommodation, for an aggregate of 90 days within any period of 180 consecutive days during the term hereof as determined by a physician selected by the Company (“ Disability ”);
B.   By written notice to you, effective the date of such notice, for Cause (as defined below); or
C.   By written notice to you, effective 30 days after the date of such notice and subject to Section 4 hereof, without Cause; or
iii.  
By you:
A.   At any time by written notice to the Company, effective 30 days after the date of such notice.
b.   Definition of “Cause.” For purposes of this Agreement, “ Cause ” means (i) your conviction of a felony, (ii) the commission by you of an act of fraud or embezzlement against the Company, (iii) your willful disregard of a written directive of the Board, where the directive involves a matter of material importance to the Company and you have failed to comply with such directive within 30 days of receiving written notice from the Board of your failure, (iv) a material breach by you of any material provision of this Agreement, (v) your engaging in conduct which is intended to bring disrepute or to damage the reputation and operation of the Company, (vi) your unexcused repeated absenteeism in connection with your employment hereunder (not including disability) or (vii) your use of illegal substances that significantly impairs your ability to perform your duties.

3.  
Compensation.
a.   Base Salary . While you are employed hereunder, you will be paid a base salary at the annual rate of $84,000 (the “ Base Salary ”). The Base Salary will be payable in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time. The Company will deduct from each such installment any amounts required to be deducted or withheld under applicable law or under any employee benefit plan in which you participate. The Base Salary will be subject to not less than annual review by the Board and may be increased (bot not decreased, except if decreased as party of a general salary reduction program applicable, at an equal percentage, to all executive officers of the Company and, in any event, not to exceed an aggregate 10% reduction) at the discretion of the Board.

b.   Incentive Compensation . You shall be eligible to receive a percentage of your Base Salary as incentive compensation if certain individual and corporate performance goals and targets established by the Board from time to time, in its sole discretion, are met. Such goals and targets shall be established by the Board for (i) the period ending August 31, 2015 and (ii) each fiscal year thereafter within the Term. The Board shall review actual performance against the applicable performance goals and targets and shall notify you of the amount of your incentive compensation, if any. The Board shall have the sole and absolute discretion to determine whether the applicable performance goals have been met. Your incentive compensation, if any, (i) for 2015, shall be paid to you in fiscal year 2016 within a reasonable time after the end of the period to which it relates, and (ii) thereafter, shall be paid to you at the same time and under the same terms and conditions as other executives of the Company. We would expect that the goals and targets for the period ending August 31, 2015, subject to approval by the Board, shall be tied primarily to (1) revenue growth, (2) EBITDA growth and (3) improvements to the Company’s operations and infrastructure, such specific targets to be determined by the Board.

c.   Equity Compensation

i.  
Common Shares . On or before the Commencement Date, you will granted 100,000 shares of the Company’s common stock (or the equivalent) (the “ Common Shares ”).
ii.  
Common Shares Vesting . All 100,000 of the Common Shares granted to you pursuant 3(c)(i) shall vest immediately on the Commencement Date.
iii.  
Purchase of Additional Common Shares . You may purchase an additional 1,000,000 shares of the Company’s common stock at $0.05 per share based on a total equity value of the Company of $2,500,000.

d.   Vacation . You will be entitled to three weeks paid vacation during the Initial Term and four weeks paid vacation during each applicable Subsequent Term along with paid holidays and personal days in accordance with the Company’s policies as in effect from time to time.

e.   Reimbursement of Expenses . Company shall reimburse you for all reasonable out-of-pocket expenses incurred by you in connection with the performance of your duties in accordance with its regular reimbursement policies as in effect from time to time and upon receipt of itemized vouchers and such other supporting information as dictated by the Board-approved policies of the Company.

f.   Indemnification . The Company will indemnify you to the maximum extent permitted by its organizational documents and any other governing document in effect from time to time and by applicable law as in effect from time to time against all costs, charges and expenses, including, without limitation, attorneys’ fees, incurred or sustained by you in connection with any action, suit or proceeding to which you may be made a party by reason of being an officer, director or employee of the Company. The Company shall advance the costs of any defense in accordance with the Company’s policies. In connection with the foregoing, you will be covered under the liability insurance policy carried by the Company from time to time that protects other officers of the Company, which the Company shall maintain as long as it is commercially reasonable to do so.

4.  
Severance Compensation .

a.   Definition of Accrued Obligations and Severance Amount . For purposes of this Agreement, “ Accrued Obligations ” means the greater of (i) the Severance Amount (as defined below) and (ii) the portion of your Base Salary in respect of the remaining portion of the term, if any, as of the termination of your employment with the Company that has not yet been paid as of immediately prior to such termination. However, in no event shall the Accrued Obligation exceed $20,000 if termination occurs in the Initial Term or $30,000 if termination occurs in the Subsequent Term. Any Accrued Obligations to be paid pursuant to this Agreement shall be paid out on a monthly basis in accordance with the Company’s payroll practices as in effect from time to time, provided however , that you shall not be entitled to any Accrued Obligations unless you execute and do not revoke a written release, in a form acceptable to the Company, of any and all claims against the Company and all related parties with respect to all matters arising out of your employment by the Company, or the termination thereof (the “Release”).
For purposes of this Agreement, “ Severance Amount ” means:
i.   In the event of any of the conditions triggering a payment under Section 4(b) is effected as of date within six (6) months of the Commencement Date, an amount equal to two (2) months of Base Salary;
ii.   In the event of any of the conditions triggering a payment under Section 4(b) is effected as of date on or after six (6) months of the Commencement Date, an amount equal to three (3) months of Base Salary.

b.   Payments upon Termination . If (i) your employment hereunder is terminated by the Company (A) without Cause, (B) by delivery of a Non-Renewal Notice by the Company, (C) by reason of your death or disability, or (D) your title or duties are materially modified, the Company changes its primary place of business or the location at which you are expected to be by more than 50 miles, the Company materially breaches a material provision of this Agreement or the Company otherwise materially and adversely changes the conditions of your employment; or (ii) (A) a Change of Control is consummated (“ Change of Control ” means any of the following: any consolidation, merger, or recapitalization of the Company with, or any sale of Company equity to, any other non-affiliated entity as a result of which, in any such case, the beneficial holders of the issued and outstanding equity securities of the Company immediately prior to such transaction possess less than 50% of the voting power of the surviving entity immediately after such transaction; or any sale or transfer of all or substantially all of the assets of the Company), (B) you are not offered substantially equivalent employment with the surviving company (provided that any failure to offer you a position with the title of “Chief Financial Officer” shall not be considered for purposes of determining such substantial equivalence) following the Change of Control and (C) you resign or otherwise voluntarily fail to continue employment with the Company or the surviving company following such Change of Control, as your sole and exclusive right and remedy:

i.  
The Company will pay the Accrued Obligations to you.

c.   Other Termination Events . If termination of your employment hereunder occurs for any reason or under circumstance other than as specifically stated in paragraph (b) above, you shall receive no payment and have no right or remedy under or in connection with this Agreement or the termination hereof.

5.  
General
a.   Notices . All notices, requests, consents and other communications hereunder will be in writing, will be addressed to the receiving party’s address set forth above or to such address as a party may designate by notice hereunder, and will be either (i) delivered by hand, (ii) sent by overnight courier, or (iii) sent by registered or certified mail, return receipt requested, postage prepaid. All notices, requests, consents and other communications hereunder will be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iii) if sent by registered or certified mail, on the fifth business day following the day such mailing is made.
b.   Entire Agreement . This Agreement, together with any other agreements specifically referred to herein, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement will affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.
c.   Modifications and Amendments . The terms and provisions of this Agreement may be modified or amended only by written agreement executed by you and the Company or, as applicable, the Company’s successor or assign.
d.   Waivers and Consents . The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only written document executed by the party entitled to the benefits of such terms and provisions. No such waiver or consent will be deemed to be or will constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent will be effective only in the specific instance and for the purpose for which it was given, and will not constitute a continuing waiver or consent.
e.   Assignment . The Company may assign its rights and obligations hereunder to any person or entity that succeeds to or is otherwise assigned (whether from a change of control, sale of assets or otherwise) all or substantially all of the Company’s business or that aspect of the Company’s business in which you are principally involved. You may not assign your rights and obligations under this Agreement without the prior written consent of the Company.
f.   Benefit . All statements, representations, warranties, covenants and agreements in this Agreement will be binding on the parties hereto and will inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement will be construed to create any rights or obligations except among the parties hereto, and no person or entity will be regarded as a third-party beneficiary of this Agreement.
g.   Governing Law . This Agreement and the rights and obligations of the parties hereunder will be construed in accordance with and governed by the law of the State of California, without giving effect to the conflict of law principles thereof.
h.   Jurisdiction, Venue and Service of Process . Any legal action or proceeding with respect to this Agreement that is not subject to arbitration pursuant to Section 7(i) below will be brought in the courts of the State of California or federal courts sitting in the State of California. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts.
i.   Arbitration . Any controversy, dispute or claim arising out of or in connection with this Agreement, will be settled by final and binding arbitration to be conducted in California, pursuant to the national rules for the resolution of employment disputes of the American Arbitration Association then in effect. The Company shall pay for the costs of such arbitration. The prevailing party in any such arbitration shall be entitled to receive reimbursement of its reasonable costs and expenses (including attorney’s fees) from the other party. The decision or award in any such arbitration will be final and binding upon the parties and judgment upon such decision or award may be entered in any court of competent jurisdiction or application may be made to any such court for judicial acceptance of such decision or award and an order of enforcement. In the event that any procedural matter is not covered by aforesaid rules, the procedural law of the State of California will govern. Any disagreement as to whether a particular dispute is arbitrable under this Agreement shall itself be subject to arbitration in accordance with the procedures set forth herein.
j.   Severability . The parties intend this Agreement to be enforced as written. However, if any portion of provision of this Agreement is to any extend declared illegal or unenforceable by a duly authorized court having jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, will not be affected thereby, and each portion and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law.
k.   Headings and Captions . The heading and captions of the various subdivisions of this Agreements are for convenience of reference only and will in no way modify or affect the meaning or construction of any of the terms or provisions thereof.
l.   No Waiver of Rights, Powers and Remedies . No failure or delay by a party hereto in exercising any right, power, or remedy under this Agreement, and no course of dealing between the parties hereto, will operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, will preclude such party from any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder.  The election of any remedy by a party hereto will not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement will entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other further action in any circumstances without such notice or demand.
m.   Counterparts . This Agreement may be executed in two or more counterparts (including facsimiles thereof), and by different parties hereto on separate counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
n.   Opportunity to Review . You hereby acknowledge that you have had adequate opportunity to review these terms and conditions and to reflect upon and consider the terms and conditions of this Agreement, and that you have had the opportunity to consult with counsel of your own choosing regarding such terms. You further acknowledge that you fully understand the terms of this Agreement and have voluntarily executed this agreement.
o.   Waiver of Jury Trial . 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 litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney or the other party has represented, expressly or otherwise, that the other party would not, in the event of litigation, seek to enforce the foregoing waiver, and (b) acknowledges that he or it and the other parties hereto have been induced to enter this Agreement, by, among other things, the mutual waivers and certifications of this Section.
p.   Action by the Company . For all purposes relating to this Agreement, action of the Company shall be undertaken by the Board or the Board’s designee, and shall not require any action by, and may not be inhibited by, any action by you as an officer of the Company.
q.   Representation . You hereby represent to the Company that you are not subject to any agreement or restriction which prohibits, restricts, conflicts with or would be violated by the terms and conditions of this Agreement or any related agreement, and you acknowledge that the Company is relying upon this representation in executing this Agreement and hiring you hereunder.

If the foregoing accurately sets forth our agreement, please so indicate by signing and returning to us the enclosed copy of this letter.

Very truly yours,
Kush Bottles, Inc.

By: ______________________________________
Name: Nick Kovacevich
Title: Board Director, Chief Executive Officer

Accepted and Approved

_________________________                                                                      _____________________, 2014
Chris Martin                                                           Date

 
 

 


KB Mold Company– Mold Development and Royalty Agreement for
Child Resistant Tube Containers


This Royalty Agreement for Child Resistant Tube Containers (this “Agreement) is entered into as of September 11, 2014 (the “Effective Date”) and is between KB Mold Company (“Mold Owner”) and KIM International Corporation dba Kush Bottles (or its successors), a California Corporation with its principal place of business at 1800 Newport Circle, Santa Ana, CA 92705; hereinafter “Kush”.  In consideration of the following mutual promises, and intending to be legally bound, the parties hereto agree as follows:

1.  
Terms and Conditions.   Mold Owner hereby agrees to procure for Kush, on the terms and conditions contained in this Agreement, a mold and insert (“Mold”) to manufacture “Child Resistant Joint and Cone Tube Containers” (“Products”).

2.  
Term and Termination.

 
a.  
Length of Term.   Subject to the limitations set forth in this Agreement during the ramp up period (as defined below), the Agreement shall be effective as of the Effective Date and continue until December 31, 2019 (“Initial Term”).  This Agreement shall be automatically renewed at the conclusion of the Initial Term for successive twelve (12) month periods (“Successive Periods”).

b.  
Termination. Prior to the expiration of the Initial Term, this Agreement may only be terminated upon the occurrence of Mold Owner obtaining from Kush the patent on the Mold (“Mold IP”) or Kush obtaining the Mold from Mold Owner. As to any Successive periods Kush may terminate upon 60 day written notice to Mold Owner.

 
3.  
Minimum Orders; Quantities.

a.  
During the “Ramp Up Period”, which is defined as the time period between the Effective Date and the date the Mold begins to be used to manufacture Products, Kush is entitled to continue to purchase similar products from other sources.

b.  
After the Ramp Up Period, Kush agrees to purchase from the manufacturer of the Products, JB Plastics, a contract plastic injection molder, a minimum of 325,000 Products, every three (3) months, for the Initial Term of the Agreement.

 
4.  
Royalty and Payment.

a.  
Royalty Payment.  Kush shall pay to Mold Owner a royalty of one-and-a-half cents ($0.015) per Products ordered (“Royalty”).

b.  
Billing and Payment.  Mold Owner shall submit to Kush an invoice for the Royalty showing the volume of Products ordered by Kush from the manufacturer of the Products.  Kush shall pay each invoice, by cash, check or wire-transfer within thirty (30) days following date of invoice receipt.

 
c.  
It is understood between the parties, while Mold Owner is responsible for development of the Mold, manufacturing of the Products is expected to be done by JB Plastics. Kush will continue to be responsible for paying JB Plastics for the manufacturing and supply of the Products.  JB Plastic’s costs shall be documented by invoices directly from JB Plastics to Kush on terms negotiated between JB Plastics and Kush.

 
d.  
Kush agrees to fully indemnify, hold harmless and defend Mold Owner from and against all claims, actions, suits, demands, damages, liabilities, obligations, losses, settlements, judgments, costs and expenses (“Actions”) except any Actions due to or resulting from the intentional misconduct, negligence, or strict liability of Mold Owner.

5.  
Tooling and Intellectual Property.

a.  
The Mold.  Mold Owner will be responsible for the purchase and testing of the necessary tooling required to produce the Mold, the costs for which are estimated to be approximately $150,000.  It is expected the development of the Mold will take about fourteen (14) weeks from the Effective Date, hence the Ramp Up Period.

i.  
After ordering and having paid Royalty payments to Mold Owner on a minimum of 2,250,000 Products, Kush will have the option to purchase the Mold from Mold Owner for the amount of all direct costs invested into the Mold (including delivery charges, taxes, testing expenses, etc.). Upon completion of the development of the Mold, Mold Owner shall provide Kush with the initial cost figures for the Mold.  Mold Owner shall continue to update Kush with additional cost figures, such as periodic maintenance costs, as they are incurred.

b.  
The Patent.  Kush will be responsible for the patent development costs, estimated to be approximately $20,000, and upon completion of development, Kush will own the Mold IP. Mold Owner will have exclusive rights to use the Mold IP with no royalty, fees or restrictions.  Upon successful development of the Mold IP, Kush shall provide Mold Owner with the total direct cost figures for the Mold.

i.  
In the event Kush breaches this Agreement or threatens insolvency, the patent will then be transferred to Mold Owner free and clear.

ii.  
In no event shall Kush allow a lien to be placed upon the Product IP without Mold Owner’s prior written consent.

iii.  
If Kush does not purchase the Mold from Mold Owner by November 30, 2019, Mold Owner shall have the option to buy the Mold IP for the amount of all direct costs invested into the development of the Mold IP.

 
6.  
Information Access.   Mold Owner shall have access to all sales documents, invoices and payment information between Kush and JB Plastics.  Kush shall carbon copy Mold Owner on every purchase order submitted to JB Plastics for the manufacturing of Products.

7.  
Assignment.   No party hereto may assign this Agreement without the prior written consent of the other party, and any attempted assignment in violation of this Agreement shall be null and void.

 
IN WITNESS WHEREOF, the undersigned authorized agents of the parties designated below have executed this Agreement as of the date first set forth above.


KUSH BOTTLES                                                                                           KB Mold Company


By: /s/ Nick Kovacevick                                                                            By:  /s/ Kevin Tom
Nick Kovacevich                                                                                                 Kevin Tom
Chief Executive Officer                                                                                       Chief Executive Officer


 
 

 


COMMERCIAL SUBLEASE AGREEMENT

This Commercial Sublease (this “Sublease”) is made effective as of August 1 st , 2012, by and between 3 Kings Ventures (“Tenant”), and Kush Bottles (“Subtenant”). Tenant has previously entered into a lease agreement with Tri-Star Interiors (“Landlord”) dated August 1 st , 2012 (the “Prime Lease”), a copy of which is attached as an exhibit to this Sublease. Tenant now desires to sublet the leased property to Subtenant and Subtenant desires to sublet the leased property from Tenant. Therefore, the parties agree as follows:

PREMISES. Tenant, in consideration of the sublease payments provided in this Agreement, sublets to subtenant 3500 sq ft. located at 1800 Newport Circle, Santa Ana, CA, 92705 (the “Premises”).

TERM AND POSSESSION. The term of this Sublease will begin on August 1 st , 2012 and unless terminated sooner pursuant to the terms of this Sublease, it will continue for the remainder of the term provided in the Prime Lease, which terminates August 1 st , 2015.

SUBLEASE PAYMENTS. Subtenant shall pay to Tenant sublease payments of $3000.00 per month, payable in advance on the first day of each month. Sublease payments shall be made to Tenant at 1800 Newport Circle, Santa Ana, CA 92705, which may be changed from time to time by Tenant.

Tenant shall pay for all utilities used or consumed at the Demised Premises during the term of this Agreement as currently obligated by the Tenant under the Prime Lease. The cost of utilities used by Subtenant under the Prime Lease. The cost of utilities used by Subtenant will be built into the monthly rent.

DEFAULTS. Subtenant shall be in default of this Sublease if Subtenant fails to fulfill any lease obligation or term by which Subtenant is bound. Subject to any governing provisions of law to the contrary, if Subtenant fails to cure any financial obligation within 5 days (or any other obligation within 10 days) after written notice of such a default is provided by Landlord to Subtenant, Landlord may take possession of the Premises without any further notice (to the extent permitted by law), and without prejudicing Landlord’s rights to damages. In the alternative, Landlord may elect to cure any default and the cost of such action shall be added to the Subtenant’s financial obligations under this Sublease. Subtenant shall pay all costs, damages, and expenses (including reasonable attorney fees and expenses) suffered by Landlord by reason of Subtenant’s defaults. All sums of money or charges required to be paid by Subtenant under this Sublease shall be additional rent, whether or not such sums or charges are designated as “additional rent” . The rights provided by this paragraph are cumulative in nature and are in addition to any other rights afforded by law.

 
 

 

LATE PAYMENTS. For any payment that is not paid within (6) days after its due date, Subtenant shall pay a late fee of $100.00.

SECURITY DEPOSIT. At the time of the signing of this Sublease, Subtenant shall pay to Landlord, in trust, a security deposit of $0.00 to be held and disbursed for Subtenant damages to the Premises or other defaults under this Sublease (if any) as provided by law.

CUMULATIVE RIGHTS. The rights of the parties under this Sublease are cumulative, and shall not be construed as exclusive unless otherwise required by law.

NON-SUFFICIENT FUNDS. Subtenant shall be charged a fee of $1,000,000.00 for each check that is returned to Landlord for lack of sufficient funds.

PROPERTY INSURANCE. Lessor, Tenant, and Subtenant shall each maintain appropriate insurance for their respective interests in the Premises and property located on the Premises. Lessor and Tenant shall be named as an additional insured in such policies. Subtenant shall deliver appropriate evidence to Tenant as proof that adequate insurance is in force issued by companies reasonably satisfactory to Tenant. Tenant shall receive advance written notice from insurer prior to any termination of such insurance policies. Subtenant shall also maintain any other insurance which Tenant or Lessor may reasonably require for the protection of Tenant or Lessors interest in the Premises. Subtenant is responsible for maintaining casualty insurance on its own property.

LIABILITY INSURANCE. Subtenant shall maintain liability insurance on the Premises in a total aggregate sum of at least $0.00. Subtenant shall deliver appropriate evidence to Tenant as proof that adequate insurance is in force issiued by companies reasonably satisfactory to Tenant and Lessor. Tenant and Lessor shall receive advance written notice from the insurer prior to any termination of such policies.

WAIVER OF RIGHTS. Each of the Tenant and Subtenant agrees to, and does hereby, waive all rights of recovery and causes of action against the other, their respective agents and employees, and all persons claiming through or under the other, relating loss of business, business interruption or loss of rentals resulting from any damage or destruction to the Demised Premises or and of Subtenant’s property contained therein, notwithstanding that any such damage or destruction may be due to the negligence of Tenant or Subtenant, their respective agents or employees. Tenant and Subtenant also waive rights of recovery and causes of action against Lessor for loss of business, business interruption or loss of rentals, resulting from any such damage or destruction, notwithstanding that such damage or destruction may be due to the negligence of Tenant or Subtenant, their respective agents and employees.

 
 

 

GOVERNING LAW. This Sublease shall be construed in accordance with the laws of the State of California.


INCORPORATION OF PRIME LEASE. This Sublease is subject to all of the terms of the Prime Lease with the same force and effect as if each provision of the Prime Lease were included in this Sublease, except as otherwise provided in this Sublease. All of the obligations and rights of Tenant under the Prime Lease shall be binding upon Subtenant. All of the obligations of Landlord under the Prime Lease shall inure to the benefit of Subtenant. It is the intent of the parties that, except as otherwise provided in this Sublease, the relationship between Tenant and Subtenant shall be governed by the various provisions of the Prime Lease as if those provisions were included in this Sublease in full, except that the terms “Landlord,” “Tenant” and “Lease” as used in the Prime Lease, shall instead refer to, respectively, “Tenant,” “Subtenant” and “Sublease.” The Subtenant herein executes this Sublease with the express acknowledgement that Subtenant has read, reviewed, understands and agrees to comply with all obligations, rights, limitations and responsibilities contained in the Prime Lease.
































AMENDMENTS TO SUBLEASE AGREEMENT

·  
4,500 square feet for $3,500 per month effective April 1, 2013 through January 31, 2014
 

 
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10,000 square feet for $8,000 per month effective February 1, 2014 through August 1, 2015
 






 
 

 


 
 

 
       
LEASE AGREEMENT
Multi Tenant Triple Net (NNN Lease)



THIS LEASE AGREEMENT (the “Lease”) is entered into and effective as of this 1st day of January , 20 15 between TW Associates, LLC (“Landlord) and Kim International Corporation (Tenant”).  Landlord and Tenant agree as follows:

1.   LEASE SUMMARY .
 
 
a.   Leased Premises .  The leased commercial real estate  i) consists of an agreed area of 2,400 rentable square feet and is outlined on the floor plan attached as Exhibit A (the “Premises”); ii) is located on the land legally described on attached Exhibit B; and iii) is commonly known as 420 37 th Street NW, Suite F, Auburn WA 98001 (suite number and address).  The Premises do not include, and Landlord reserves, the exterior walls and roof of the building in which the Premises are located (the “Building”), the land beneath the Building, the pipes and ducts, conduits, wires, fixtures, and equipment above the suspended ceiling; and the structural elements of the Building.  The Building, the land upon which it is situated, all other improvements located on such land, and all common areas appurtenant to the Building are referred to as the “Property.”  The Building and all other buildings on the Property as of the date of this Lease consist of an agreed area of 21,600 rentable square feet.
 
 
b.   Lease Commencement Date .  The term of this Lease shall be for a period of twelve (12) months   and shall commence on 01/01/15 or such earlier or later date as provided in Section 3 (the “Commencement Date”).
 
 
c.   Lease Termination Date .  The term of this Lease shall terminate at midnight on Dec 31 , 20 15 or such earlier or later date as provided in Section 3 (the “Termination Date”).    Tenant shall have no right or option to extend this Lease, unless otherwise set forth in a rider attached to this Lease (e.g., Option to Extend Rider, CBA Form OR).
 
 
d.   Base Rent .  The base monthly rent shall be (check one):   $ 1330.76 + $408 NNN, with month to month option of $1570 + current NNN beginning January 1, 2016 , or  according to the Rent Rider attached hereto (“Base Rent”).  Rent shall be payable at Landlord’s address shown in Section 1(h) below, or such other place designated in writing by Landlord.
 
 
e.   Prepaid Rent .  Upon execution of this Lease, Tenant shall deliver to Landlord the sum of $ 0 as prepaid rent, to be applied to the Rent due for the months       through       of the Lease.
 
 
f.   Security Deposit .  Upon execution of this Lease, Tenant shall deliver to Landlord the sum of $ 0.00 ( Existing deposit from prior lease for $1500.00 on 6/10/13 currently being held ) to be held as a security deposit pursuant to Section 5 below.  The security deposit shall be in the form of (check one):   cash, or  letter of credit according to the Letter of Credit Rider (CBA Form LCR) attached hereto.
 
 
g.   Permitted Use .  The Premises shall be used only for administration and warehousing for pharmaceutical bottle company nd for no other purpose without the prior written consent of Landlord (the “Permitted Use”).
 

 
 
 

 
       
LEASE AGREEMENT
Multi Tenant Triple Net (NNN Lease)



 
 
h.   Notice and Payment Addresses :
 

Landlord: TW Associates. LLC
Attn:  Troy Thomas
Email:   troythomas@allnewglass.com
319 D. St. NW. Ste. 104
Auburn, WA 98001

Tenant: Kim International Corporation – Attn: Nick Kovacevich
Phone:
Fax:
Email:
 
i.   Tenant’s Pro Rata Share .  Landlord and Tenant agree that Tenant’s Pro Rata Share is 11 %, based on the ratio of the agreed rentable area of the Premises to the agreed rentable area of the Building and all other buildings on the Property as of the date of this Lease.  Any adjustment to the Premises’ or Building’s rentable floor area measurements will be reflected in an adjustment to Tenant’s Base Rent or Pro Rata Share.
 

2.   PREMISES .
 
a.   Lease of Premises.   Landlord leases to Tenant, and Tenant leases from Landlord, the Premises upon the terms specified in this Lease.

b.   Acceptance of Premises .  Except as specified elsewhere in this Lease, Landlord makes no representations or warranties to Tenant regarding the Premises, including the structural condition of the Premises or the condition of all mechanical, electrical, and other systems on the Premises.  Except for any tenant improvements to be completed by Landlord as described on attached Exhibit C (the “Landlord’s Work”), Tenant shall be responsible for performing any work necessary to bring the Premises into a condition satisfactory to Tenant.  By signing this Lease, Tenant acknowledges that it has had an adequate opportunity to investigate the Premises; acknowledges responsibility for making any corrections, alterations and repairs to the Premises (other than the Landlord’s Work); and acknowledges that the time needed to complete any such items shall not delay the Commencement Date.

c.   Tenant Improvements .  Attached Exhibit C sets forth all Landlord’s Work, if any, and all tenant improvements to be completed by Tenant (the “Tenant’s Work”), if any, that will be performed on the Premises.  Responsibility for design, payment and performance of all such work shall be as set forth on attached Exhibit C.  If Tenant fails to notify Landlord of any defects in the Landlord’s Work within thirty (30) days of delivery of possession to Tenant, Tenant shall be deemed to have accepted the Premises in their then condition.  If Tenant discovers any major defects in the Landlord’s Work during this 30-day period that would prevent Tenant from using the Premises for the Permitted Use, Tenant shall notify Landlord and the Commencement Date shall be delayed until after Landlord has notified Tenant that Landlord has corrected the major defects and Tenant has had five (5) days to inspect and approve the Premises.  The Commencement Date shall not be delayed if Tenant’s inspection reveals minor defects in the Landlord’s Work that will not prevent Tenant from using the Premises for the Permitted Use.  Tenant shall prepare a punch list of all minor defects in Landlord’s Work and provide the punch list to Landlord, which Landlord shall promptly correct.

3.   TERM .  The term of this Lease shall commence on the Commencement Date specified in Section 1, or on such earlier or later date as may be specified by notice delivered by Landlord to Tenant advising Tenant that the Premises are ready for possession and specifying the Commencement Date, which shall not be less than       days (thirty (30) days if not filled in) following the date of such notice.
 
a.             Early Possession.   If Landlord permits Tenant to possess and occupy the Premises prior to the Commencement Date specified in Section 1, then such early occupancy shall not advance the Commencement Date or the Termination Date set forth in Section 1, but otherwise all terms and conditions of this Lease shall nevertheless apply during the period of early occupancy before the Commencement Date.
 
b.             Delayed Possession.   Landlord shall act diligently to make the Premises available to Tenant; provided, however, neither Landlord nor any agent or employee of Landlord shall be liable for any damage or loss due to Landlord’s inability or failure to deliver possession of the Premises to Tenant as provided in this Lease.  If possession is delayed, the Commencement Date set forth in Section 1 shall also be delayed.  In addition, the Termination Date set forth in Section 1 shall be modified so that the length of the Lease term remains the same.  If Landlord does not deliver possession of the Premises to Tenant within       days (sixty (60) days if not filled in) after the Commencement Date specified in Section 1, Tenant may elect to cancel this Lease by giving written notice to Landlord within ten (10) days after such time period ends.  If Tenant gives such notice of cancellation, the Lease shall be cancelled, all prepaid rent and security deposits shall be refunded to Tenant, and neither Landlord nor Tenant shall have any further obligations to the other.  The first “Lease year” shall commence on the Commencement Date and shall end on the date which is twelve (12) months from the end of the month in which the Commencement Date occurs.  Each successive Lease year during the initial term and any extension terms shall be twelve (12) months, commencing on the first day following the end of the preceding Lease year.  To the extent that the tenant improvements are not completed in time for the Tenant to occupy or take possession of the Premises on the Commencement Date due to the failure of Tenant to fulfill any of its obligations under this Lease, the Lease shall nevertheless commence on the Commencement Date set forth in Section 1.
 
4.   RENT .
 
 
a.   Payment of Rent .  Tenant shall pay Landlord without notice, demand, deduction or offset, in lawful money of the United States, the monthly Base Rent stated in Section 1 in advance on or before the first day of each month during the Lease term beginning on (check one):  the Commencement Date, or         ( if no date specified, then on the Commencement Date), and shall also pay any other additional payments due to Landlord (“Additional Rent”), including Operating Costs (collectively the “Rent”) when required under this Lease.  Payments for any partial month at the beginning or end of the Lease shall be prorated.  All payments due to Landlord under this Lease, including late fees and interest, shall also constitute Additional Rent, and upon failure of Tenant to pay any such costs, charges or expenses, Landlord shall have the same rights and remedies as otherwise provided in this Lease for the failure of Tenant to pay rent.
 
 
b.   Triple Net Lease.   This Lease is what is commonly called a “Net, Net, Net” or “triple-net” Lease, which means that, except as otherwise expressly provided herein, Landlord shall receive all Base Rent free and clear of any and all other impositions, taxes, liens, charges or expenses of any nature whatsoever in connection with the ownership and operation of the Premises.  In addition to Base Rent, Tenant shall pay to the parties respectively entitled thereto, or satisfy directly, all Additional Rent and other impositions, insurance premiums, repair and maintenance charges, and any other charges, costs, obligations, liabilities, requirements, and expenses, including without limitation the Operating Costs described in Section 8, which arise with regard to the Premises or may be contemplated under any other provision of the Lease during its term, except for costs and expenses expressly made the obligation of Landlord in this Lease.
 
 
c.   Late Charges; Default Interest .  If any sums payable by Tenant to Landlord under this Lease are not received within five (5) business days after their due date, Tenant shall pay Landlord an amount equal to the greater of $100 or five percent (5%) of the delinquent amount for the cost of collecting and handling such late payment in addition to the amount due and as Additional Rent. All delinquent sums payable by Tenant to Landlord and not paid within five (5) business days after their due date shall, at Landlord’s option, bear interest at the rate of fifteen percent (15%) per annum, or the highest rate of interest allowable by law, whichever is less (the “Default Rate”).  Interest on all delinquent amounts shall be calculated from the original due date to the date of payment.
 
 
d.   Less Than Full Payment.   Landlord’s acceptance of less than the full amount of any payment due from Tenant shall not be deemed an accord and satisfaction or compromise of such payment unless Landlord specifically consents in writing to payment of such lesser sum as an accord and satisfaction or compromise of the amount which Landlord claims.  Any portion that remains to be paid by Tenant shall be subject to the late charges and default interest provisions of this Section 4.
 

5.   SECURITY DEPOSIT .  Upon execution of this Lease, Tenant shall deliver to Landlord the security deposit specified in Section 1 above.  Landlord’s obligations with respect to the security deposit are those of a debtor and not of a trustee, and Landlord may commingle the security deposit with its other funds.  If Tenant breaches any covenant or condition of this Lease, including but not limited to the payment of Rent, Landlord may apply all or any part of the security deposit to the payment of any sum in default and any damage suffered by Landlord as a result of Tenant’s breach. Tenant acknowledges, however, that the security deposit shall not be considered as a measure of Tenant’s damages in case of default by Tenant, and any payment to Landlord from the security deposit shall not be construed as a payment of liquidated damages for Tenant’s default.  If Landlord applies the security deposit as contemplated by this Section, Tenant shall, within five (5) days after written demand therefore by Landlord, deposit with Landlord the amount so applied.  If Tenant complies with all of the covenants and conditions of this Lease throughout the Lease term, the security deposit shall be repaid to Tenant without interest within thirty (30) days after the surrender of the Premises by Tenant in the condition required hereunder by Section 13 of this Lease.
 
6.   USES .  The Premises shall be used only for the Permitted Use specified in Section 1 above, and for no other business or purpose without the prior written consent of Landlord.  No act shall be done on or around the Premises that is unlawful or that will increase the existing rate of insurance on the Premises, the Building, or the Property, or cause the cancellation of any insurance on the Premises, the Building, or the Property.  Tenant shall not commit or allow to be committed any waste upon the Premises, or any public or private nuisance.  Tenant shall not do or permit anything to be done on the Premises, the Building, or the Property which will obstruct or interfere with the rights of other tenants or occupants of the Property, or their  employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees or to injure or annoy such persons.
 
7.   COMPLIANCE WITH LAWS .  Tenant shall not cause or permit the Premises to be used in any way which violates any law, ordinance, or governmental regulation or order.  Landlord represents to Tenant that, as of the Commencement Date, to Landlord’s knowledge, but without duty of investigation, and with the exception of any Tenant’s Work, the Premises comply with all applicable laws, rules, regulations, or orders, including without limitation, the Americans With Disabilities Act, if applicable, and Landlord shall be responsible to promptly cure at its sole cost any noncompliance which existed on the Commencement Date.  Tenant shall be responsible for complying with all laws applicable to the Premises as a result of the Permitted Use, and Tenant shall be responsible for making any changes or alterations as may be required by law, rule, regulation, or order for Tenant’s Permitted Use at its sole cost and expense.  Otherwise, if changes or alterations are required by law, rule, regulation, or order unrelated to the Permitted Use, Landlord shall make changes and alterations at its expense.
 
8.   OPERATING COSTS .
 
 
a.   Definition .  As used herein, “Operating Costs” shall mean all costs of operating, maintaining and repairing the Premises, the Building, and the Property, determined in accordance with generally accepted accounting principles, and including without limitation the following: all taxes and assessments (including, but not limited to, real and personal property taxes and assessments, local improvement district assessments and other special purpose assessments, and taxes on rent or gross receipts); insurance premiums paid by Landlord and (to the extent used) deductibles for insurance applicable to the Property; water, sewer and all other utility charges (other than utilities separately metered and paid directly by Tenant or other tenants); janitorial and all other cleaning services; refuse and trash removal; supplies, materials, tools, and equipment used in the operation, repair, and maintenance of the Property; refurbishing and repainting; carpet replacement; to the extent serving areas other than just the Premises, heating, ventilation and air conditioning (”HVAC”) service and repair and replacement of HVAC when necessary; elevator service and repair and replacement of elevators when necessary; pest control; lighting systems, fire detection and security services; landscape maintenance; management (fees and/or personnel costs); parking lot, road, sidewalk and driveway patching, resurfacing and maintenance; snow and ice removal; repair, maintenance, and, where reasonably required, replacement of signage; amortization of capital improvements as Landlord may in the future install to comply with governmental regulations and rules or undertaken in good faith with a reasonable expectation of reducing operating costs (the useful life of which shall be a reasonable period of time as determined by Landlord);  costs of legal services (except those incurred directly relating to a particular occupant of the Building); and accounting services, labor, supplies, materials and tools.  Landlord and Tenant agree that if the Building is not ninety percent (90%) occupied during any calendar year (including the Base Year, if applicable), on a monthly average, then those portions of the Operating Costs that are driven by occupancy rates, as reasonably determined by Landlord, shall be increased to reflect the Operating Costs of the Building as though it were ninety percent (90%) occupied and Tenant’s Pro Rata Share of Operating Costs shall be based upon Operating Costs as so adjusted.  Operating Costs shall not include: Landlord’s income tax or general corporate overhead; depreciation on the Building or equipment therein; loan payments; real estate broker’s commissions; capital improvements to or major repairs of the Building shell (i.e., the Building structure, exterior walls, roof, and structural floors and foundations), except as described above; or any costs regarding the operation, maintenance and repair of the Premises, the Building, or the Property paid directly by Tenant or other tenants in the Building, or otherwise reimbursed to Landlord.  If Tenant is renting a pad separate from any other structures on the Property for which Landlord separately furnishes the services described in this paragraph, then the term “Operating Costs” shall not include those costs of operating, repairing, and maintaining the enclosed mall which can be separately allocated to the tenants of the other structures.  Operating Costs which cannot be separately allocated to the tenants of other structures may include but are not limited to: insurance premiums; taxes and assessments; management (fees and/or personnel costs); exterior lighting; parking lot, road, sidewalk and driveway patching, resurfacing and maintenance; snow and ice removal; and costs of legal services and accounting services.
 
 
b.   Type of Payment .  Options one and two below address the manner in which Operating Costs are paid under this Lease .  To select the pure triple net option, check option 1.  To select the base year option, check option 2.
 

OPTION ONE: TRIPLE NET .  As additional Rent, Tenant shall pay to Landlord on the first of each month with payment of Tenant’s base Rent one-twelfth of Tenant’s Pro Rata Share of Operating Costs.

OPTION TWO: BASE YEAR .  The Base Rent paid by Tenant under this Lease includes Tenant’s Pro Rata Share of Operating Costs for the calendar year in which the Commencement Date occurs (the “Base Year”).  As additional Rent, Tenant shall pay to Landlord on the first day of each month commencing on the first day of the first year after the Commencement Date, with Tenant’s payment of Base Rent, one-twelfth of the amount, if any, by which Tenant’s Pro Rata Share of Operating Costs exceeds Tenant’s annualized Pro Rata Share of Operating Costs for the Base Year.
 
c.   Method of Payment .   Tenant shall pay to Landlord Operating Costs pursuant to the following procedure:
 

(i)   Landlord shall provide to Tenant, at or before the Commencement Date, a good faith estimate of annual Operating Costs for the calendar year in which the Commencement Date occurs.  Landlord shall also provide to Tenant, as soon as possible following the first day of each succeeding calendar year, a good faith estimate of Tenant’s annual Pro Rata Share of Operating Costs for the then-current year.

(ii)   Each estimate of Tenant’s annual Pro Rata Share of Operating Costs determined by Landlord, as described above, shall be divided into twelve (12) equal monthly installments.  If Tenant pays Operating Costs under Option One, Tenant shall pay to Landlord such monthly installment of Operating Costs with each monthly payment of Base Rent.  If Tenant pays Operating Costs under Option Two, Tenant shall pay to Landlord with each monthly payment of Base Rent the amount, if any, by which such monthly installments of Operating Costs exceed one twelfth of Tenant’s annualized Pro Rate Share of Operating Costs for the Base Year.  In the event the estimated amount of Tenant’s Pro Rata Share of Operating Costs has not yet been determined for any calendar year, Tenant shall pay the monthly installment in the estimated amount determined for the preceding calendar year until the estimate for the current calendar year has been provided to Tenant.  When the estimate for the current calendar year is received, Tenant shall then pay any shortfall or receive a credit for any surplus for the preceding months of the current calendar year and shall, thereafter, make the monthly installment payments in accordance with the current estimate.

(iii)   As soon as reasonably possible following the end of each calendar year of the Lease term, Landlord shall determine and provide to Tenant a statement (the “Operating Costs Statement”) setting forth the amount of Operating Costs actually incurred and the amount of Tenant’s Pro Rata Share of Operating Costs actually payable by Tenant with respect to such calendar year.  In the event the amount of Tenant’s Pro Rata Share of Operating Costs exceeds the sum of the monthly installments actually paid by Tenant for such calendar year, Tenant shall pay to Landlord the difference within thirty (30) days following receipt of the Operating Costs Statement.  In the event the sum of the monthly installments actually paid by Tenant for such calendar year exceeds the amount of Tenant’s Pro Rata Share of Operating Costs actually due and owing, the difference shall be applied as a credit to Tenant’s future Pro Rata Share of Operating Costs payable by Tenant pursuant to this Section, or if the term has expired, the excess shall be refunded to Tenant within thirty (30) days after delivery of such Operating Costs Statement.

(iv)   Should Tenant dispute any amount shown on the Operating Costs Statement, Tenant may audit Landlord’s books and records for the calendar year covered by such Operating Costs Statement upon written notice to Landlord given within ninety (90) days after Tenant’s receipt of such Operating Costs Statement.  If Tenant fail to provide notice of dispute within such ninety (90) day period, the Operating Costs Statement shall be final and conclusive.  Any audit conducted by Tenant shall be completed within sixty (60) days after Tenant’s request therefor.  In the event the amount of Tenant’s Pro Rata Share of Operating Costs exceeds the sum of the monthly installments actually paid by Tenant for such calendar year, Tenant shall pay to Landlord the difference within thirty (30) days following completion of the audit.  In the event the sum of the monthly installments actually paid by Tenant for such calendar year exceeds the amount of Tenant’s Pro Rata Share of Operating Costs actually due and owing, the difference shall be applied as a credit to Tenant’s future Pro Rata Share of Operating Costs payable by Tenant pursuant to this Section, or if the term has expired, the excess shall be refunded to Tenant within thirty (30) days after completion of the audit.  Landlord and Tenant shall cooperate as may be reasonably necessary in order to facilitate the timely completion of any audit.  Nothing in this section shall in any manner modify Tenant’s obligations to make payments as and when provided under this Lease.

9.   UTILITIES AND SERVICES .  Landlord shall provide the Premises the following services, the cost of which shall be included in the Operating Costs, to the extent not separately metered to the Premises: water and electricity for the Premises seven (7) days per week, twenty-four (24) hours per day, and HVAC from       a.m. to       p.m. Monday through Friday;       a.m. to       p.m. on Saturday; and       a.m. to       p.m. on Sunday.  Landlord shall provide janitorial service to the Premises and Building five (5) nights each week, exclusive of holidays, the cost of which shall also be included in Operating Costs.  HVAC services will also be provided by Landlord to the Premises during additional hours on reasonable notice to Landlord, at Tenant’s sole cost and expense, at an hourly rate reasonably established by Landlord from time to time and payable by Tenant, as and when billed, as Additional Rent.  Notwithstanding the foregoing, if Tenant’s use of the Premises incurs utility service charges which are above those usual and customary for the Permitted Use, Landlord reserves the right to require Tenant to pay a reasonable additional charge for such usage.  Landlord shall not be liable for any loss, injury or damage to person or property caused by or resulting from any variation, interruption, or failure of utilities due to any cause whatsoever, and Rent shall not abate as a result thereof.
 
Tenant shall furnish all other utilities (including, but not limited to, telephone, Internet, and cable service if available) and other services which Tenant requires with respect to the Premises, and shall pay, at Tenant’s sole expense, the cost of all utilities separately metered to the Premises, and of all other utilities and other services which Tenant requires with respect to the Premises, except those to be provided by Landlord and included in Operating Expenses as described above.

10.   TAXES .  Tenant shall pay all taxes, assessments, liens and license fees (“Taxes”) levied, assessed or imposed by any authority having the direct or indirect power to tax or assess any such liens, related to or required by Tenant’s use of the Premises as well as all Taxes on Tenant’s personal property located on the Premises.  Landlord shall pay all taxes and assessments with respect to the Property, including any taxes resulting from a reassessment of the Building or the Property due to a change of ownership or otherwise, all of which shall be included in Operating Costs and subject to partial reimbursement by Tenant as set forth in Section 8.
 
11.   COMMON AREAS .
 
 
a.   Definition .  The term “Common Areas” means all areas, facilities and building systems that are provided and designated from time to time by Landlord for the general non-exclusive use and convenience of Tenant with other tenants and which are not leased or held for the exclusive use of a particular tenant.  To the extent that such areas and facilities exist within the Property, Common Areas include hallways, entryways, stairs, elevators, driveways, walkways, terraces, docks, loading areas, restrooms, trash facilities, parking areas and garages, roadways, pedestrian sidewalks, landscaped areas, security areas, lobby or mall areas, common heating, ventilating and air conditioning systems, common electrical service, equipment and facilities, and common mechanical systems, equipment and facilities.  Tenant shall comply with reasonable rules and regulations concerning the use of the Common Areas adopted by Landlord from time to time.  Without advance notice to Tenant and without any liability to Tenant, Landlord may change the size, use, or nature of any Common Areas, erect improvements on the Common Areas or convert any portion of the Common Areas to the exclusive use of Landlord or selected tenants, so long as Tenant is not thereby deprived of the substantial benefit of the Premises.  Landlord reserves the use of exterior walls and the roof, and the right to install, maintain, use, repair and replace pipes, ducts, conduits, and wires leading through the Premises in areas which will not materially interfere with Tenant’s use thereof.
 
 
b.   Use of the Common Areas .  Tenant shall have the non-exclusive right, in common with such other tenants to whom Landlord has granted or may grant such rights, to use the Common Areas.  Tenant shall abide by rules and regulations adopted by Landlord from time to time and shall use its best efforts to cause its employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees to comply with those rules and regulations, and not interfere with the use of Common Areas by others.
 
 
c.   Maintenance of Common Areas .  Landlord shall maintain the Common Areas in good order, condition and repair.  This maintenance cost shall be an Operating Cost chargeable to Tenant pursuant to Section 8.  In performing such maintenance, Landlord shall use reasonable efforts to minimize interference with Tenant’s use and enjoyment of the Premises.
 

12.   ALTERATIONS .  Tenant may make alterations, additions or improvements to the Premises, including any Tenant Work identified on attached Exhibit C (the “Alterations”), only with the                   prior written consent of Landlord, which, with respect to Alterations not affecting the structural components of the Premises or utility systems therein, shall not be unreasonably withheld, conditioned, or delayed.  Landlord shall have thirty (30) days in which to respond to Tenant’s request for any Alterations so long as such request includes the name of Tenant’s contractors and reasonably detailed plans and specifications therefor.  The term “Alterations” shall not include the installation of shelves, movable partitions, Tenant’s equipment, and trade fixtures that may be performed without damaging existing improvements or the structural integrity of the Premises, the Building, or the Property, and Landlord’s consent shall not be required for Tenant’s installation or removal of those items.  Tenant shall perform all work at Tenant’s expense and in compliance with all applicable laws and shall complete all Alterations in accordance with plans and specifications approved by Landlord, using contractors approved by Landlord, and in a manner so as not to unreasonably interfere with other tenants.  Tenant shall pay, when due, or furnish a bond for payment (as set forth in Section 20) all claims for labor or materials furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanics’ or materialmens’ liens against the Premises or the Property or any interest therein.   Tenant shall remove all Alterations at the end of the Lease term unless Landlord conditioned its consent upon Tenant leaving a specified Alteration at the Premises, in which case Tenant shall not remove such Alteration, and it shall become Landlord’s property.  Tenant shall immediately repair any damage to the Premises caused by removal of Alterations.
 
13.   REPAIRS AND MAINTENANCE; SURRENDER .  Tenant shall, at its sole expense, maintain the entire Premises in good condition and promptly make all non-structural repairs and replacements necessary to keep the Premises safe and in good condition, including all HVAC components and other utilities and systems to the extent exclusively serving the Premises.  Landlord shall maintain and repair the Building structure, foundation, subfloor, exterior walls, roof structure and surface, and HVAC components and other utilities and systems serving more than just the Premises, and the Common Areas, the costs of which shall be included as an Operating Cost.  Tenant shall not damage any demising wall or disturb the structural integrity of the Premises, the Building, or the Property and shall promptly repair any damage or injury done to any such demising walls or structural elements caused by Tenant or its employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees.  Notwithstanding anything in this Section to the contrary, Tenant shall not be responsible for any repairs to the Premises made necessary by the negligence or willful misconduct of Landlord or its employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees therein.  If Tenant fails to perform Tenant’s obligations under this Section, Landlord may at Landlord’s option enter upon the Premises after ten (10) days’ prior notice to Tenant and put the same in good order, condition and repair and the cost thereof together with interest thereon at the default rate set forth in Section 4 shall be due and payable as additional rent to Landlord together with Tenant’s next installment of Base Rent.  Upon expiration of the Lease term, whether by lapse of time or otherwise, Tenant shall promptly and peacefully surrender the Premises, together with all keys, to Landlord in as good condition as when received by Tenant from Landlord or as thereafter improved, reasonable wear and tear and insured casualty excepted.
 
14.   ACCESS AND RIGHT OF ENTRY .  After twenty-four (24) hours’ notice from Landlord (except in cases of emergency, when no notice shall be required), Tenant shall permit Landlord and its agents, employees and contractors to enter the Premises at all reasonable times to make repairs, inspections, alterations or improvements, provided that Landlord shall use reasonable efforts to minimize interference with Tenant’s use and enjoyment of the Premises.  This Section shall not impose any repair or other obligation upon Landlord not expressly stated elsewhere in this Lease.  After reasonable notice to Tenant, Landlord shall have the right to enter the Premises for the purpose of (a) showing the Premises to prospective purchasers or lenders at any time, and to prospective tenants within one hundred eighty (180) days prior to the expiration or sooner termination of the Lease term; and (b) posting “for lease” signs within one hundred eighty (180) days prior to the expiration or sooner termination of the Lease term.
 
15.   SIGNAGE .  Tenant shall obtain Landlord’s written consent as to size, location, materials, method of attachment, and appearance, before installing any signs upon the Premises.  Tenant shall install any approved signage at Tenant’s sole expense and in compliance with all applicable laws.  Tenant shall not damage or deface the Premises in installing or removing signage and shall repair any injury or damage to the Premises caused by such installation or removal.
 
16.   DESTRUCTION OR CONDEMNATION .
 
 
a.   Damage and Repair .  If the Premises or the portion of the Building or the Property necessary for Tenant’s occupancy are partially damaged but not rendered untenantable, by fire or other insured casualty, then Landlord shall diligently restore the Premises and the portion of the Property necessary for Tenant’s occupancy to the extent required below and this Lease shall not terminate.  Tenant may, however, terminate the Lease if Landlord is unable to restore the Premises within six (6) months of the casualty event by giving twenty (20) days written notice of termination.
 
 
The Premises or the portion of the Building or the Property necessary for Tenant’s occupancy shall not be deemed untenantable if twenty-five percent (25%) or less of each of those areas are damaged.  If insurance proceeds are not available or are not sufficient to pay the entire cost of restoring the Premises, or if Landlord’s lender does not permit all or any part of the insurance proceeds to be applied toward restoration, then Landlord may elect to terminate this Lease and keep the insurance proceeds, by notifying Tenant within sixty (60) days of the date of such casualty.
 
 
If the Premises, the portion of the Building or the Property necessary for Tenant’s occupancy, or fifty percent (50%) or more of the rentable area of the Property are entirely destroyed, or partially damaged and rendered untenantable, by fire or other casualty, Landlord may, at its option: (a) terminate this Lease as provided herein, or (b) restore the Premises and the portion of the Property necessary for Tenant’s occupancy to their previous condition to the extent required below; provided, however, if such casualty event occurs during the last six (6) months of the Lease term (after considering any option to extend the term timely exercised by Tenant) then either Tenant or Landlord may elect to terminate the Lease.  If, within sixty (60) days after receipt by Landlord from Tenant of written notice that Tenant deems the Premises or the portion of the Property necessary for Tenant’s occupancy untenantable, Landlord fails to notify Tenant of its election to restore those areas, or if Landlord is unable to restore those areas within six (6) months of the date of the casualty event, then Tenant may elect to terminate the Lease upon twenty (20) days’ notice to Landlord unless Landlord, within such twenty (20) day period, notifies Tenant that it will in fact restore the Premises or actually completes such restoration work to the extent required below, as applicable.
 
 
If Landlord restores the Premises or the Property under this Section, Landlord shall proceed with reasonable diligence to complete the work, and the Rent shall be abated in the same proportion as the untenantable portion of the Premises bears to the whole Premises, provided that there shall be a Rent abatement only if the damage or destruction of the Premises or the Property did not result from, or was not contributed to directly or indirectly by the act, fault or neglect of Tenant, or Tenant’s employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees.  No damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance directly, incidentally or consequentially arising from any repair or restoration of any portion of the Premises or the Property.  Landlord shall have no obligation to carry insurance of any kind for the protection of Tenant; any alterations or improvements paid for by Tenant; any Tenant’s Work identified in Exhibit C (regardless of who may have completed them); Tenant’s furniture; or on any fixtures, equipment, improvements or appurtenances of Tenant under this Lease, and Landlord’s restoration obligations hereunder shall not include any obligation to repair any damage thereto or replace the same.
 
 
b.   Condemnation .  If the Premises, the portion of the Building or the Property necessary for Tenant’s occupancy, or 50% or more of the rentable area of the Property are made untenantable by eminent domain, or conveyed under a threat of condemnation, this Lease shall terminate at the option of either Landlord or Tenant as of the earlier of the date title vests in the condemning authority or the condemning authority first has possession of the Premises or the portion of the Property taken by the condemning authority.   All Rents and other payments shall be paid to that date.
 
 
If the condemning authority takes a portion of the Premises or of the Building or the Property necessary for Tenant’s occupancy that does not render them untenantable, then this Lease shall continue in full force and effect and the Rent shall be equitably reduced based on the proportion by which the floor area of any structures is reduced. The reduction in Rent shall be effective on the earlier of the date the condemning authority first has possession of such portion or title vests in the condemning authority.  The Premises or the portion of the Building or the Property necessary for Tenant’s occupancy shall not be deemed untenantable if twenty-five percent (25%) or less of each of those areas are condemned.  Landlord shall be entitled to the entire award from the condemning authority attributable to the value of the Premises or the Building or the Property and Tenant shall make no claim for the value of its leasehold.  Tenant shall be permitted to make a separate claim against the condemning authority for moving expenses if Tenant may terminate the Lease under this Section, provided that in no event shall Tenant’s claim reduce Landlord’s award.
 

17.   INSURANCE .
 
 
a.   Tenant’s Liability Insurance .   During the Lease term, Tenant shall pay for and maintain commercial general liability insurance with broad form property damage and contractual liability endorsements.  This policy shall name Landlord, its property manager (if any), and other parties designated by Landlord as additional insureds using an endorsement form acceptable to Landlord,  and shall insure Tenant’s activities and those of Tenant’s employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees  with respect to the Premises against loss, damage or liability for personal injury or bodily injury (including death) or loss or damage to property with a combined single limit of not less than $2,000,000, and a deductible of not more than $10,000.  Tenant’s insurance will be primary and noncontributory with any liability insurance carried by Landlord.  Landlord may also require Tenant to obtain and maintain business income coverage for at least six (6) months, business auto liability coverage, and, if applicable to Tenant’s Permitted Use, liquor liability insurance and/or warehouseman’s coverage.
 
 
b.   Tenant’s Property Insurance .   During the Lease term, Tenant shall pay for and maintain special form clauses of loss coverage property insurance (with coverage for earthquake if required by Landlord’s lender and, if the Premises are situated in a flood plain, flood damage) for all of Tenant’s personal property, fixtures and equipment in the amount of their full replacement value, with a deductible of not more than $10,000.
 
 
c.   Miscellaneous .  Tenant’s insurance required under this Section shall be with companies rated A-/VII or better in Best’s Insurance Guide, and which are admitted in the State in which the Premises are located.  No insurance policy shall be cancelled or reduced in coverage and each such policy shall provide that it is not subject to cancellation or a reduction in coverage except after thirty (30) days prior written notice to Landlord.  Tenant shall deliver to Landlord upon commencement of the Lease and from time to time thereafter, copies of the insurance policies or evidence of insurance and copies of endorsements required by this Section.  In no event shall the limits of such policies be considered as limiting the liability of Tenant under this Lease.  If Tenant fails to acquire or maintain any insurance or provide any policy or evidence of insurance required by this Section, and such failure continues for three (3) days after notice from Landlord, Landlord may, but shall not be required to, obtain such insurance for Landlord’s benefit and Tenant shall reimburse Landlord for the costs of such insurance upon demand.  Such amounts shall be Additional Rent payable by Tenant hereunder and in the event of non-payment thereof, Landlord shall have the same rights and remedies with respect to such non-payment as it has with respect to any other non-payment of Rent hereunder.
 
 
d.   Landlord’s Insurance .   Landlord shall carry special form clauses of loss coverage property insurance of the Building shell and core in the amount of their full replacement value, liability insurance with respect to the Common Areas, and such other insurance of such types and amounts as Landlord, in its discretion, shall deem reasonably appropriate .  The cost of any such insurance shall be included in the Operating Costs, and if such insurance is provided by a “blanket policy” insuring other parties or locations in addition to the Building, then only the portion of the premiums allocable to the Building and Property shall be included in the Operating Costs.
 
 
e.   Waiver of Subrogation .  Landlord and Tenant hereby release each other and any other tenant, their agents or employees, from responsibility for, and waive their entire claim of recovery for any loss or damage arising from any cause covered by property insurance required to be carried or otherwise carried by each of them.  Each party shall provide notice to the property insurance carrier or carriers of this mutual waiver of subrogation, and shall cause its respective property insurance carriers to waive all rights of subrogation against the other.  This waiver shall not apply to the extent of the deductible amounts to any such property policies or to the extent of liabilities exceeding the limits of such policies.
 

18.   INDEMNIFICATION .
 
 
a.   Indemnification by Tenant .  Tenant shall defend, indemnify, and hold Landlord and its property manager (if any) harmless against all liabilities, damages, costs, and expenses, including attorneys’ fees, for personal injury, bodily injury (including death) or property damage arising from any negligent or wrongful act or omission of Tenant or Tenant’s employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees  on or around the Premises or the Property, or arising from any breach of this Lease by Tenant.  Tenant shall use legal counsel reasonably acceptable to Landlord in defense of any action within Tenant’s defense obligation.
 
 
b.   Indemnification by Landlord .  Landlord shall defend, indemnify and hold Tenant harmless against all liabilities, damages, costs, and expenses, including attorneys’ fees, for personal injury, bodily injury (including death) or property damage arising from any negligent or wrongful act or omission of Landlord or Landlord’s employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees  on or around the Premises or the Property, or arising from any breach of this Lease by Landlord.  Landlord shall use legal counsel reasonably acceptable to Tenant in defense of any action within Landlord’s defense obligation.
 
 
c.   Waiver of Immunity .  Landlord and Tenant each specifically and expressly waive any immunity that each may be granted under the Washington State Industrial Insurance Act, Title 51 RCW.  Neither party’s indemnity obligations under this Lease shall be limited by any limitation on the amount or type of damages, compensation, or benefits payable to or for any third party under the Worker Compensation Acts, Disability Benefit Acts or other employee benefit acts.
 
 
d.   Exemption of Landlord from Liability .  Except to the extent of claims arising out of Landlord’s gross negligence or intentional misconduct, Landlord shall not be liable for injury to Tenant’s business or assets or any loss of income therefrom or for damage to any property of Tenant or of its employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees, or any other person in or about the Premises or the Property.
 
 
e.   Survival .  The provisions of this Section 18 shall survive expiration or termination of this Lease.
 

19.   ASSIGNMENT AND SUBLETTING .  Tenant shall not assign, sublet, mortgage, encumber or otherwise transfer any interest in this Lease (collectively referred to as a “Transfer”) or any part of the Premises, without first obtaining Landlord’s written consent, which shall not be unreasonably withheld, conditioned, or delayed.  No Transfer shall relieve Tenant of any liability under this Lease notwithstanding Landlord’s consent to such Transfer.  Consent to any Transfer shall not operate as a waiver of the necessity for Landlord’s consent to any subsequent Transfer.  In connection with each request for consent to a Transfer, Tenant shall pay the reasonable cost of processing same, including attorneys’ fees, upon demand of Landlord, up to a maximum of $1,250.
 
If Tenant is a partnership, limited liability company, corporation, or other entity, any transfer of this Lease by merger, consolidation, redemption or liquidation, or any change in the ownership of, or power to vote, which singularly or collectively represents a majority of the beneficial interest in Tenant, shall constitute a Transfer under this Section.

As a condition to Landlord’s approval, if given, any potential assignee or sublessee otherwise approved by Landlord shall assume all obligations of Tenant under this Lease and shall be jointly and severally liable with Tenant and any guarantor, if required, for the payment of Rent and performance of all terms of this Lease.  In connection with any Transfer, Tenant shall provide Landlord with copies of all assignments, subleases and assumption agreement or documents.

20.   LIENS .  Tenant shall not subject the Landlord’s assets to any liens or claims of lien.  Tenant shall keep the Premises free from any liens created by or through Tenant.  Tenant shall indemnify and hold Landlord harmless from liability for any such liens including, without limitation, liens arising from any Alterations.  If a lien is filed against the Premises by any person claiming by, through or under Tenant, Tenant shall, within ten (10) days after Landlord’s demand, at Tenant’s expense, either remove the lien or furnish to Landlord a bond in form and amount and issued by a surety satisfactory to Landlord, indemnifying Landlord and the Premises against all liabilities, costs and expenses, including attorneys’ fees, which Landlord could reasonably incur as a result of such lien.
 
21.   DEFAULT .  The following occurrences shall each constitute a default by Tenant (an “Event of Default”):
 
 
a.   Failure To Pay .  Failure by Tenant to pay any sum, including Rent, due under this Lease following five (5) days’ notice from Landlord of the failure to pay.
 
 
b.   Vacation/Abandonment .  Vacation by Tenant of the Premises (defined as an absence for at least fifteen (15) consecutive days without prior notice to Landlord), or abandonment by Tenant of the Premises (defined as an absence of five (5) days or more while Tenant is in breach of some other term of this Lease).  Tenant’s vacation or abandonment of the Premises shall not be subject to any notice or right to cure.
 
 
c.   Insolvency .  Tenant’s insolvency or bankruptcy (whether voluntary or involuntary); or appointment of a receiver, assignee or other liquidating officer for Tenant’s business; provided, however, that in the event of any involuntary bankruptcy or other insolvency proceeding, the existence of such proceeding shall constitute an Event of Default only if such proceeding is not dismissed or vacated within sixty (60) days after its institution or commencement.
 
 
d.   Levy or Execution .  The taking of Tenant’s interest in this Lease or the Premises, or any part thereof, by execution or other process of law directed against Tenant, or attachment of Tenant’s interest in this Lease by any creditor of Tenant, if such attachment is not discharged within fifteen (15) days after being levied.
 
 
e.   Other Non-Monetary Defaults .  The breach by Tenant of any agreement, term or covenant of this Lease other than one requiring the payment of money and not otherwise enumerated in this Section or elsewhere in this Lease, which breach continues for a period of thirty (30) days after notice by Landlord to Tenant of the breach.
 
 
f.   Failure to Take Possession .  Failure by Tenant to take possession of the Premises on the Commencement Date or failure by Tenant to commence any Tenant Improvement in a timely fashion.
 

Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event less than thirty (30) days after notice by Tenant to Landlord.  If Landlord fails to cure any such default within the allotted time, Tenant’s sole remedy shall be to seek actual money damages (but not consequential or punitive damages) for loss arising from Landlord’s failure to discharge its obligations under this Lease.  Nothing herein contained shall relieve Landlord from its duty to perform of any of its obligations to the standard prescribed in this Lease.
 
Any notice periods granted herein shall be deemed to run concurrently with and not in addition to any default notice periods required by law.
 
22.   REMEDIES .  Landlord shall have the following remedies upon an Event of Default.  Landlord’s rights and remedies under this Lease shall be cumulative, and none shall exclude any other right or remedy allowed by law.
 
 
a.   Termination of Lease .  Landlord may terminate Tenant’s interest under the Lease, but no act by Landlord other than notice of termination from Landlord to Tenant shall terminate this Lease.  The Lease shall terminate on the date specified in the notice of termination.  Upon termination of this Lease, Tenant will remain liable to Landlord for damages in an amount equal to the Rent and other sums that would have been owing by Tenant under this Lease for the balance of the Lease term, less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to the termination, after deducting all of Landlord’s Reletting Expenses (as defined below).  Landlord shall be entitled to either collect damages from Tenant monthly on the days on which rent or other amounts would have been payable under the Lease, or alternatively, Landlord may accelerate Tenant’s obligations under the Lease and recover from Tenant: (i) unpaid rent which had been earned at the time of termination; (ii) the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of rent loss that Tenant proves could reasonably have been avoided; (iii) the amount by which the unpaid rent for the balance of the term of the Lease after the time of award exceeds the amount of rent loss that Tenant proves could reasonably be avoided (discounting such amount by the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus 1%); and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under the Lease, or which in the ordinary course would be likely to result from the Event of Default, including without limitation Reletting Expenses described below.
 
 
b.   Re-Entry and Reletting .  Landlord may continue this Lease in full force and effect, and without demand or notice, re-enter and take possession of the Premises or any part thereof, expel the Tenant from the Premises and anyone claiming through or under the Tenant, and remove the personal property of either.  Landlord may relet the Premises, or any part of them, in Landlord’s or Tenant’s name for the account of Tenant, for such period of time and at such other terms and conditions as Landlord, in its discretion, may determine.  Landlord may collect and receive the rents for the Premises.  To the fullest extent permitted by law, the proceeds of any reletting shall be applied:  first, to pay Landlord all Reletting Expenses (defined below); second, to pay any indebtedness of Tenant to Landlord other than rent; third, to the rent due and unpaid hereunder; and fourth, the residue, if any, shall be held by Landlord and applied in payment of other or future obligations of Tenant to Landlord as the same may become due and payable, and Tenant shall not be entitled to receive any portion of such revenue.  Re-entry or taking possession of the Premises by Landlord under this Section shall not be construed as an election on Landlord’s part to terminate this Lease, unless a notice of termination is given to Tenant.  Landlord reserves the right following any re-entry or reletting, or both, under this Section to exercise its right to terminate the Lease.  Tenant will pay Landlord the Rent and other sums which would be payable under this Lease if repossession had not occurred, less the net proceeds, if any, after reletting the Premises and after deducting Landlord’s Reletting Expenses.  “Reletting Expenses” is defined to include all expenses incurred by Landlord in connection with reletting the Premises, including without limitation, all repossession costs, brokerage commissions and costs for securing new tenants, attorneys’ fees, remodeling and repair costs, costs for removing persons or property, costs for storing Tenant’s property and equipment, and costs of tenant improvements and rent concessions granted by Landlord to any new Tenant, prorated over the life of the new lease.
 
 
c.   Waiver of Redemption Rights .  Tenant, for itself, and on behalf of any and all persons claiming through or under Tenant, including creditors of all kinds, hereby waives and surrenders all rights and privileges which they may have under any present or future law, to redeem the Premises or to have a continuance of this Lease for the Lease term, or  any extension thereof.
 
 
d.   Nonpayment of Additional Rent .   All costs which Tenant is obligated to pay to Landlord pursuant to this Lease shall in the event of nonpayment be treated as if they were payments of Rent, and Landlord shall have the same rights it has with respect to nonpayment of Rent.
 
 
e.   Failure to Remove Property .  If Tenant fails to remove any of its property from the Premises at Landlord’s request following an uncured Event of Default, Landlord may, at its option, remove and store the property at Tenant’s expense and risk.  If Tenant does not pay the storage cost within five (5) days of Landlord’s request, Landlord may, at its option, have any or all of such property sold at public or private sale (and Landlord may become a purchaser at such sale), in such manner as Landlord deems proper, without notice to Tenant.  Landlord shall apply the proceeds of such sale: (i) to the expense of such sale, including reasonable attorneys’ fees actually incurred; (ii) to the payment of the costs or charges for storing such property; (iii) to the payment of any other sums of money which may then be or thereafter become due Landlord from Tenant under any of the terms hereof; and (iv) the balance, if any, to Tenant.  Nothing in this Section shall limit Landlord’s right to sell Tenant’s personal property as permitted by law or to foreclose Landlord’s lien for unpaid rent.
 

23.   MORTGAGE SUBORDINATION AND ATTORNMENT .  This Lease shall automatically be subordinate to any mortgage or deed of trust created by Landlord which is now existing or hereafter placed upon the Premises including any advances, interest, modifications, renewals, replacements or extensions (“Landlord’s Mortgage”).  Tenant shall attorn to the holder of any Landlord’s Mortgage or any party acquiring the Premises at any sale or other proceeding under any Landlord’s Mortgage provided the acquiring party assumes the obligations of Landlord under this Lease.  Tenant shall promptly and in no event later than fifteen (15) days after request execute, acknowledge and deliver documents which the holder of any Landlord’s Mortgage may reasonably require as further evidence of this subordination and attornment.  Notwithstanding the foregoing, Tenant’s obligations under this Section to subordinate in the future are conditioned on the holder of each Landlord’s Mortgage and each party acquiring the Premises at any sale or other proceeding under any such Landlord’s Mortgage not disturbing Tenant’s occupancy and other rights under this Lease, so long as no uncured Event of Default by Tenant exists.
 
24.   NON-WAIVER .  Landlord’s waiver of any breach of any provision contained in this Lease shall not be deemed to be a waiver of the same provision for subsequent acts of Tenant.  The acceptance by Landlord of Rent or other amounts due by Tenant hereunder shall not be deemed to be a waiver of any previous breach by Tenant.
 
25.   HOLDOVER .  If Tenant shall, without the written consent of Landlord, remain in possession of the Premises and fail to return them to Landlord after the expiration or termination of this Lease, the tenancy shall be a holdover tenancy and shall be on a month-to-month basis, which may be terminated according to Washington law.  During such tenancy, Tenant agrees to pay to Landlord 150% of the rate of rental last payable under this Lease, unless a different rate is agreed upon by Landlord.  All other terms of the Lease shall remain in effect.  Tenant acknowledges and agrees that this Section does not grant any right to Tenant to holdover, and that Tenant may also be liable to Landlord for any and all damages or expenses which Landlord may have to incur as a result of Tenant’s holdover.
 
26.   NOTICES .  All notices under this Lease shall be in writing and effective (i) when delivered in person or via overnight courier to the other party, (ii) three (3) days after being sent by registered or certified mail to the other party at the address set forth in Section 1; or (iii) upon confirmed transmission by facsimile to the other party at the facsimile numbers set forth in Section 1.  The addresses for notices and payment of rent set forth in Section 1 may be modified by either party only by written notice delivered in conformance with this Section.
 
27.   COSTS AND ATTORNEYS’ FEES .  If Tenant or Landlord engage the services of an attorney to collect monies due or to bring any action for any relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Landlord for the recovery of Rent or other payments, or possession of the Premises, the losing party shall pay the prevailing party a reasonable sum for attorneys’ fees in such action, whether in mediation or arbitration, at trial, on appeal, or in any bankruptcy proceeding.
 
28.   ESTOPPEL CERTIFICATES .  Tenant shall, from time to time, upon written request of Landlord, execute, acknowledge and deliver to Landlord or its designee a written statement specifying the following, subject to any modifications necessary to make such statements true and complete: (i) the total rentable square footage of the Premises; (ii) the date the Lease term commenced and the date it expires; (iii) the amount of minimum monthly Rent and the date to which such Rent has been paid; (iv) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way; (v) that this Lease represents the entire agreement between the parties; (vi) that all obligations under this Lease to be performed by either party have been satisfied; (vii) that there are no existing claims, defenses or offsets which the Tenant has against the enforcement of this Lease by Landlord; (viii) the amount of Rent, if any, that Tenant paid in advance; (ix) the amount of security that Tenant deposited with Landlord; (x) if Tenant has sublet all or a portion of the Premises or assigned its interest in the Lease and to whom; (xi) if Tenant has any option to extend the Lease or option to purchase the Premises; and (xii) such other factual matters concerning the Lease or the Premises as Landlord may reasonably request.  Tenant acknowledges and agrees that any statement delivered pursuant to this Section may be relied upon by a prospective purchaser of Landlord’s interest or assignee of any mortgage or new mortgagee of Landlord’s interest in the Premises.  If Tenant shall fail to respond within ten (10) days to Landlord’s request for the statement required by this Section, Landlord may provide the statement and Tenant shall be deemed to have admitted the accuracy of the information provided by Landlord.
 
29.   TRANSFER OF LANDLORD’S INTEREST .  This Lease shall be assignable by Landlord without the consent of Tenant.  In the event of any transfer or transfers of Landlord’s interest in the Premises, other than a transfer for collateral purposes only, upon the assumption of this Lease by the transferee, Landlord shall be automatically relieved of obligations and liabilities accruing from and after the date of such transfer, including any liability for any retained security deposit or prepaid rent, for which the transferee shall be liable, and Tenant shall attorn to the transferee.
 
30.   LANDLORD’S LIABILITY.   Anything in this Lease to the contrary notwithstanding, covenants, undertakings and agreements herein made on the part of Landlord are made and intended not as personal covenants, undertakings and agreements for the purpose of binding Landlord personally or the assets of Landlord but are made and intended for the purpose of binding only the Landlord’s interest in the Premises, as the same may from time to time be encumbered.  In no event shall Landlord or its partners, shareholders, or members, as the case may be, ever be personally liable hereunder.
 
31.   RIGHT TO PERFORM .  If Tenant shall fail to timely pay any sum or perform any other act on its part to be performed hereunder, Landlord may make any such payment or perform any such other act on Tenant’s behalf.  Tenant shall, within ten (10) days of demand, reimburse Landlord for its expenses incurred in making such payment or performance.  Landlord shall (in addition to any other right or remedy of Landlord provided by law) have the same rights and remedies in the event of the nonpayment of sums due under this Section as in the case of default by Tenant in the payment of Rent.
 
32.   HAZARDOUS MATERIAL .  As used herein, the term “Hazardous Material” means any hazardous, dangerous, toxic or harmful substance, material or waste including biomedical waste which is or becomes regulated by any local governmental authority, the State of Washington or the United States Government, due to its potential harm to the health, safety or welfare of humans or the environment.  Landlord represents and warrants to Tenant that, to Landlord’s knowledge without duty of investigation, there is no Hazardous Material on, in, or under the Premises as of the Commencement Date except as may otherwise have been disclosed to Tenant in writing before the execution of this Lease.  If there is any Hazardous Material on, in, or under the Premises as of the Commencement Date which has been or thereafter becomes unlawfully released through no fault of Tenant, then Landlord shall indemnify, defend and hold Tenant harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses including without limitation sums paid in settlement of claims, attorneys’ fees, consultant fees and expert fees, incurred or suffered by Tenant either during or after the Lease term as the result of such contamination.
 
Tenant shall not cause or permit any Hazardous Material to be brought upon, kept, or used in or about, or disposed of on the Premises or the Property by Tenant, its employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees, except with Landlord’s prior consent and then only upon strict compliance with all applicable federal, state and local laws, regulations, codes and ordinances.  If Tenant breaches the obligations stated in the preceding sentence, then Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses including, without limitation, diminution in the value of the Premises or the Property; damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises or the Property, or elsewhere; damages arising from any adverse impact on marketing of space at the Premises or the Property; and sums paid in settlement of claims, attorneys’ fees, consultant fees and expert fees incurred or suffered by Landlord either during or after the Lease term.  These indemnifications by Landlord and Tenant include, without limitation, costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work, whether or not required by any federal, state or local governmental agency or political subdivision, because of Hazardous Material present in the Premises, or in soil or ground water on or under the Premises.  Tenant shall immediately notify Landlord of any inquiry, investigation or notice that Tenant may receive from any third party regarding the actual or suspected presence of Hazardous Material on the Premises.
 
Without limiting the foregoing, if the presence of any Hazardous Material brought upon, kept or used in or about the Premises or the Property by Tenant, its employees, officers, agents, servants, contractors, customers, clients, visitors, guests, or other licensees or invitees, results in any unlawful release of any Hazardous Materials on the Premises or the Property, Tenant shall promptly take all actions, at its sole expense, as are necessary to return the Premises or the Property to the condition existing prior to the release of any such Hazardous Material; provided that Landlord’s approval of such actions shall first be obtained, which approval may be withheld at Landlord’s sole discretion.  The provisions of this Section 32 shall survive expiration or termination of this Lease.

33.   QUIET ENJOYMENT .  So long as Tenant pays the Rent and performs all of its obligations in this Lease, Tenant’s possession of the Premises will not be disturbed by Landlord or anyone claiming by, through or under Landlord.
 
34.   MERGER.   The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies.
 
35.   GENERAL .
 
 
a.   Heirs and Assigns .  This Lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, successors and assigns.
 
 
b.   Brokers’ Fees .  Tenant represents and warrants to Landlord that except for Tenant’s Broker, if any, described and disclosed in Section 37 of this Lease, it has not engaged any broker, finder or other person who would be entitled to any commission or fees for the negotiation, execution or delivery of this Lease and shall indemnify and hold harmless Landlord against any loss, cost, liability or expense incurred by Landlord as a result of any claim asserted by any such broker, finder or other person on the basis of any arrangements or agreements made or alleged to have been made by or on behalf of Tenant.  Landlord represents and warrants to Tenant that except for Landlord’s Broker, if any, described and disclosed in Section 37 of this Lease, it has not engaged any broker, finder or other person who would be entitled to any commission or fees for the negotiation, execution or delivery of this Lease and shall indemnify and hold harmless Tenant against any loss, cost, liability or expense incurred by Tenant as a result of any claim asserted by any such broker, finder or other person on the basis of any arrangements or agreements made or alleged to have been made by or on behalf of Landlord.
 
 
c.   Entire Agreement .   This Lease contains all of the covenants and agreements between Landlord and Tenant relating to the Premises.  No prior or contemporaneous agreements or understandings pertaining to the Lease shall be valid or of any force or effect and the covenants and agreements of this Lease shall not be altered, modified or amended except in writing, signed by Landlord and Tenant.
 
 
d.   Severability .  Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision of this Lease.
 
 
e.   Force Majeure .  Time periods for either party’s performance under any provisions of this Lease (excluding payment of Rent) shall be extended for periods of time during which the party’s performance is prevented due to circumstances beyond such party’s control, including without limitation, fires, floods, earthquakes, lockouts, strikes, embargoes, governmental regulations, acts of God, public enemy, war or other strife.
 
 
f.   Governing Law .  This Lease shall be governed by and construed in accordance with the laws of the State of Washington.
 
 
g.   Memorandum of Lease .  Neither this Lease nor any memorandum or “short form” thereof shall be recorded without Landlord’s prior consent.
 
 
h.   Submission of Lease Form Not an Offer .  One party’s submission of this Lease to the other for review shall not constitute an offer to lease the Premises.  This Lease shall not become effective and binding upon Landlord and Tenant until it has been fully signed by both of them.
 
 
i.   No Light, Air or View Easement .   Tenant has not been granted an easement or other right for light, air or view to or from the Premises.  Any diminution or shutting off of light, air or view by any structure which may be erected on or adjacent to the Building shall in no way effect this Lease or the obligations of Tenant hereunder or impose any liability on Landlord.
 
 
j.   Authority of Parties .   Each party signing this Lease represents and warrants to the other that it has the authority to enter into this Lease, that the execution and delivery of this Lease has been duly authorized, and that upon such execution and delivery, this Lease shall be binding upon and enforceable against the party on signing.
 
 
k.   Time .  “Day” as used herein means a calendar day and “business day” means any day on which commercial banks are generally open for business in the state where the Premises are situated.  Any period of time which would otherwise end on a non-business day shall be extended to the next following business day.  Time is of the essence of this Lease.
 

36.   EXHIBITS AND RIDERS .  The following exhibits and riders are made a part of this Lease, and the terms thereof shall control over any inconsistent provision in the sections of this Lease:
 
Exhibit A:  Floor Plan Outline of the Premises
Exhibit B:  Legal Description of the Property
Exhibit C:  Tenant Improvement Schedule

CHECK THE BOX FOR ANY OF THE FOLLOWING THAT WILL APPLY.  CAPITALIZED TERMS USED IN THE RIDERS SHALL HAVE THE MEANING GIVEN TO THEM IN THE LEASE.
 
X           Rent Rider
Arbitration Rider
Letter of Credit Rider
Guaranty of Tenant’s Lease Obligations Rider
Parking Rider
Option to Extend Rider
Rules and Regulations




IN WITNESS WHEREOF this Lease has been executed the date and year first above written.


LANDLORD:                                                                         TENANT:


TW Associates, LLC                                                             Kim International Company                                                            
LANDLORD:                                                                         TENANT:


                                                                                                                                   
BY:                                                                      BY:


                                                                                                                                   
ITS:                                                                      ITS:

 
 
 

 
       
LEASE AGREEMENT
Multi Tenant Triple Net (NNN Lease)



STATE OF WASHINGTON
 
COUNTY OF ____________
 
ss.
 

I certify that I know or have satisfactory evidence that ________________________________________ is the person who appeared before me and said person acknowledged that _______ signed this instrument, on oath stated that ________ was authorized to execute the instrument and acknowledged it as the ____________________________________ of ________________________________________ to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Dated this _________________________ day of _________________________, 20___.


(Signature of Notary)


(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at                                                                                   
My appointment expires                                                                                   


STATE OF WASHINGTON
 
COUNTY OF ____________
 
ss.
 

I certify that I know or have satisfactory evidence that ________________________________________ is the person who appeared before me and said person acknowledged that _______ signed this instrument, on oath stated that ________ was authorized to execute the instrument and acknowledged it as the ____________________________________ of ________________________________________ to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Dated this _________________________ day of _________________________, 20___.


(Signature of Notary)


(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at                                                                                   
My appointment expires                                                                                   


 
 
 

 
       
LEASE AGREEMENT
Multi Tenant Triple Net (NNN Lease)



STATE OF WASHINGTON
 
COUNTY OF ____________
 
ss.
 

I certify that I know or have satisfactory evidence that ________________________________________ is the person who appeared before me and said person acknowledged that ________ signed this instrument, on oath stated that ________ was authorized to execute the instrument and acknowledged it as the ____________________________________ of ________________________________________ to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Dated this _________________________ day of _________________________, 20___.


(Signature of Notary)


(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at                                                                                   
My appointment expires                                                                                   



STATE OF WASHINGTON
 
COUNTY OF ____________
 
ss.
 

I certify that I know or have satisfactory evidence that ________________________________________ is the person who appeared before me and said person acknowledged that ________ signed this instrument, on oath stated that ________ was authorized to execute the instrument and acknowledged it as the __________________________________ of __________________________________________ to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Dated this _________________________ day of _________________________, 20___.


(Signature of Notary)


(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at                                                                                    
 My appointment expires

 
 
 

 
       
LEASE AGREEMENT
Multi Tenant Triple Net (NNN Lease)


EXHIBIT A

[Outline of the Premises]



Premises
p
[Missing Graphic Reference]
[Missing Graphic Reference]

 
 
 

 
       
LEASE AGREEMENT
Multi Tenant Triple Net (NNN Lease)


EXHIBIT B

[Legal Description of the Property]



Parcel #0121049005
LOT 1 LESS RD OF AUBURN SP-8-85 REC #8511260284 SD SP DAF W 1/2 OF FOLG - POR OF SW 1/4 OF NE 1/4 BAAP ON S LN MILL ST 545 FT W OF C/L OF NP RR R/W TH W ALG S LN SD MILL ST 371.25 FT TH S 352 FT TH E PLT S LN SD MILL ST 371.25 FT TH N 352 FT TO POB - AKA W 1/2 OF UNPL PCL A CHRISTOPHER GARDEN TRS

Parcel #0121049046
LOT 2 OF AUBURN SP-8-85 REC #8511260284 SD SP DAF W 1/2 OF FOLG - POR OF SW 1/4 OF NE 1/4 BAAP ON S LN MILL ST 545 FT W OF C/L OF NP RR R/W TH W ALG S LN SD MILL ST 371.25 FT TH S 352 FT TH E PLT S LN SD MILL ST 371.25 FT TH N 352 FT TO POB - AKA W 1/2 OF UNPL PCL A CHRISTOPHER GARDEN TRS



 
 
 

 
       
LEASE AGREEMENT
Multi Tenant Triple Net (NNN Lease)


EXHIBIT C

[Tenant Improvement Schedule]


1.   Tenant Improvements to be Completed by Landlord

     



2.  
Tenant Improvements to be Completed by Tenant

     

 
 
 

 


STOCK PURCHASE AGREEMENT
 
THIS STOCK PURCHASE AGREEMENT (this “ Agreement ”) is entered into as of March 4, 2014, by and among Dallas R. Imbimbo, Nicholas F. Kovacevich, Jeffrey Meng, and John J. Kovacevich (each, a “ Seller ” and collectively, “ Sellers ”) and Kush Bottles, Inc., a Nevada corporation (“ Purchaser ”) (each a “ Party ” and, collectively, the “ Parties ”).
 
RECITALS
 
WHEREAS , Sellers own 10,000 shares of common stock (the “ Shares ”) of KIM International Corporation, a California corporation (the “ Company ”) as set forth on Exhibit A , and are the sole shareholders of the Company; and
 
WHEREAS , Purchaser desires to purchase from Sellers, and Sellers desire to sell to Purchaser, the Shares.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the premises and the covenants herein contained and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:
 
SECTION 1.   PURCHASE AND SALE OF THE SHARES .
 
1.1   Upon execution of this Agreement by the Parties, each Seller hereby exchanges his portion of the Shares set forth on Exhibit A for the number of shares of Purchaser’s common stock set forth on Exhibit A (collectively, the “ Purchase Price ”).
 
1.2   Contemporaneously with the execution of this Agreement by the Parties, Sellers shall deliver to Purchaser original stock certificates evidencing the Shares along with duly executed transfer documentation reasonably satisfactory to Purchaser, and concurrently therewith Purchaser shall deliver to Sellers original stock certificates evidencing the shares of Purchaser’s common stock as set forth on Exhibit A .
 
SECTION 2.   COVENANTS, REPRESENTATIONS AND WARRANTIES OF SELLERS .  In order to induce Purchaser to enter into this Agreement, each Seller hereby covenants with, and represents and warrants to, Purchaser as follows:
 
2.1   Authorization .  Such Seller has the proper legal capacity for the execution, delivery and performance of this Agreement, and such Seller’s execution, delivery, and performance of this Agreement requires no action by or in respect of, or filing with, any governmental authority, and does not contravene, or constitute a default under, any provision of applicable law or of any material judgment, injunction, order, decree or material agreement binding upon such Seller.
 
2.2   Binding Obligations .  This Agreement constitutes the valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors rights generally, and (ii) may be limited by equitable principles of general applicability.
 
2.3   Right to Sell Shares .  Such Seller has the absolute and unrestricted right, power and capacity to sell his portion of the Shares to Purchaser free and clear of any claims, rights or other encumbrances.  Upon the delivery of his Shares and the payment by Purchaser of the applicable portion of the Purchase Price, such Seller’s potion of the Shares will be duly authorized, validly issued, fully paid and nonassessable.
 
2.4   No Conflicts .  The execution, delivery and performance of this Agreement by such Seller and the consummation by such Seller of the transactions contemplated hereby (a) will not conflict with or result in a breach or violation of any term or provision of, or constitute a default under (with or without notice or passage of time or both), or otherwise give any person a basis for accelerated rights under any agreement to which such Seller is a party or by which such Seller is bound or affected, (b) result in the creation or imposition of any lien on such Seller’s potion of the Shares, or (c) require the consent or approval of any person.
 
SECTION 3.   COVENANTS, REPRESENTATIONS AND WARRANTIES OF PURCHASER .  Purchaser hereby covenants with, and represents and warrants to Sellers, which representations and warranties are true and correct as of the date hereof, as follows:
 
3.1   Due Execution and Delivery and Binding Agreement.   This Agreement constitutes valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with its terms, subject to laws of general application affecting creditors’ rights generally and to equitable principles relating to enforceability.
 
3.2   No Conflicts.   The execution and delivery by Purchaser of this Agreement or the performance by Purchaser of its obligations hereunder, does not (i) violate any laws of the United States or laws of any state or other jurisdiction applicable to Purchaser or require Purchaser to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that has not been obtained or made; or (ii) result in a breach of, or constitute a default under, any agreement, indenture note, mortgage, deed of trust, trust (constructive and other), bond, license, permit or instrument to which Purchaser is a party or by which Purchaser is bound.
 
3.3   Investment Representations.   The Shares will be acquired by Purchaser for investment purposes, for an indefinite period of time, for Purchaser’s own account and not as a nominee or agent for any other person, firm or entity, and not with a view to the sale or distribution of all or any part thereof within the meaning of the Securities Act of 1933, as amended (the “ Securities Act ”).  Purchaser acknowledges and agrees that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available.  Purchaser is an “accredited investor” as defined in Section 501(a) of Regulation D of the Securities Act.  Purchaser has had the opportunity to obtain information to evaluate the merits and risks of the purchase of the Shares and has received all information it has requested concerning the Shares and the Company.  In connection with the purchase of the Shares, Purchaser has relied solely upon independent investigations made by it, and has consulted its own investment advisors, counsel and accountants, to the extent it felt it necessary to do so.
 
3.4   Tax Matters.   Purchaser has consulted with such tax advisor(s) as Purchaser deems advisable in connection with the purchase of the Shares.  Purchaser hereby assumes all the responsibility for it own tax consequences.
 
SECTION 4.   GENERAL PROVISIONS .
 
4.1   Notices .   All notices and other communications under or in connection with this Agreement shall be in writing and shall be deemed given (a) if delivered personally (including by overnight express or messenger), upon delivery, (b) if delivered by registered or certified mail (return receipt requested), upon the earlier of actual delivery or three days after being mailed, or (c) if given by telecopy, upon confirmation of transmission by telecopy.  Any notice or other communication given hereunder shall be addressed to each party at its address indicated on the signature page hereto.
 
4.2   Counterparts.   This Agreement may be executed in two or more counterparts (including by facsimile or similar means of electronic transmission), each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
 
4.3   Headings.   All headings are inserted for convenience of reference only and shall not affect the meaning or interpretation of any such provisions or of this Agreement, taken as an entirety.
 
4.4   Severability .   If and to the extent that any court of competent jurisdiction holds any provision (or any part thereof) of this Agreement to be invalid or unenforceable, such holding shall in no way affect the validity of the remainder of this Agreement.
 
4.5   Amendments, Waivers, Etc.   Neither this Agreement nor any provision hereof may be amended, waived, discharged or terminated orally, but rather may only be changed by a statement in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought.  It is agreed that a waiver by either party of a breach of any provision of this Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party.
 
4.6   Governing Law.   This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to conflicts of law principles.
 
4.7   Binding Effect.   This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors, legal representatives and permitted assigns.
 
4.8   Entire Agreement .   This Agreement sets forth the entire agreement and understanding between the Parties as to the subject mater thereof and incorporates and supersedes all prior discussions, agreements and understandings of any and every nature among them.
 
4.9   Further Assurances.   The Parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement.
 
 

IN WITNESS WHEREOF , the Parties have executed this Agreement as of the day and year first above written.

SELLERS:

/s/ Dallas R. Imbimbo
________________________________
Dallas R. Imbimbo
Shareholder
17595 Harvard Ave Suite C552
Irvine, CA 92614
 
/s/ Nicholas F. Kovacevich
________________________________
Nicholas F. Kovacevich
Shareholder
17595 Harvard Ave Suite C552
Irvine, CA 92614
 
/s/ Jeffrey Meng
________________________________
Jeffrey Meng
Shareholder
17595 Harvard Ave Suite C552
Irvine, CA 92614
 
/s/ John J. Kovacevich
________________________________
John J. Kovacevich
Shareholder
[redacted]
 

ACKNOWLEDGED AND AGREED TO:

COMPANY:

KIM INTERNATIONAL CORPORATION

/s/ Dallas Imbimbo

Dallas Imbimbo
Chairman
1800 Newport Circle
Santa Ana, CA 92705

 
 

 

EXHIBIT A

COMMON STOCK EXCHANGE RATIO

Seller
Shares
Purchase Price (in shares of Purchaser’s common stock)
Dallas R. Imbimbo
3,230
12,000,000
Nicholas F. Kovacevich
3,230
12,000,000
Jeffrey Meng
3,230
4,700,000
John J. Kovacevich
310
3,700,000


 
 

 



PROMISSORY NOTE

$75,000 December 3, 2014

FOR VALUE RECEIVED, DANK Bottles LLC., a Colorado limited liability corporation, (the “ Borrower ”), promises to pay to the order of KIM International Corporation dba Kush Bottles, a California corporation (“ Kush ”), or its successors or assigns (Kush or any such assigns, the “ Holder ”), on March 2, 2015 (the “ Maturity Date ”), the principal amount of SEVENTY FIVE THOUSAND DOLLARS ($75,000), to the extent not paid on or prior to the Maturity Date (such unpaid principal amount at any time being the “ Principal Amount ”), together with Service Fees in accordance with the provisions of this Promissory Note.
 
1.   SERVICE FEES . Service Fees to be paid to Kush by the Maturity Date shall total ELEVEN THOUSAND TWO HUNDRED AND FIFTY DOLLARS ($11,250).
 
2.   PAYMENT . The Borrower shall repay the entire Principal Amount and Service Fees in six equal payments of FOURTEEN THOUSAND THREE HUNDRED AND SEVENTY FIVE DOLLARS ($14,375).  The payments shall be made on January 1, 2015, February 1, 2015, March 1, 2015, April 1, 2015, May 1, 2015, and June 1, 2015.
 
3.   AMENDMENT AND WAIVER .   The provisions of this Promissory Note may be modified, amended or waived, and the Borrower may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only with the prior written consent of the Holder.
 
4.   REMEDIES .   The Holder will have all rights and remedies set forth in this Promissory Note and all rights and remedies which the Holder has under any law.  Any Person having any rights under any provision of this Promissory Note will be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any such provision and to exercise all other rights granted by law.  All such rights and remedies will be cumulative and non exclusive, and may be exercised singularly or concurrently.  One or more successive actions may be brought against the Borrower, either in the same action or in separate actions, as often as the Holder(s) deem advisable, until the Total Amount of this Promissory Note has been paid in full.
 
5.   SUCCESSORS AND ASSIGNS .   All covenants and agreements contained in this Promissory Note by or on behalf of the Borrower or the Holder will bind and inure to the benefit of their respective successors and assigns whether so expressed or not.  Borrower shall not assign Borrower’s interest in this Promissory Note without the prior written consent of Holder.  In addition, and whether or not any express assignment has been made, the provisions of this Promissory Note which are for the benefit of the Holder are also for the benefit of, and enforceable by, any subsequent Holder.
 
6.   SEVERABILITY .   Whenever possible, each provision of this Promissory Note will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Promissory Note is held to be prohibited by or invalid under applicable law, then such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Promissory Note.
 
7.   JURISDICTION AND VENUE .   ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO THIS PROMISSORY NOTE OR ANY OTHER AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN LOS ANGELES, CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS PROMISSORY NOTE THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.  THE BORROWER HEREBY WAIVES ANY CLAIM THAT LOS ANGELES, CALIFORNIA, IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.  NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE HOLDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.  TO THE EXTENT PROVIDED BY LAW, SHOULD THE BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS DULY SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, THE BORROWER WILL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE COURT AGAINST THE BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS.  THE CHOICE OF FORUM FOR THE BORROWER SET FORTH IN THIS SECTION 13 WILL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY THE HOLDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING BY THE HOLDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND THE BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
 
8.   WAIVER OF RIGHT TO JURY TRIAL .   THE HOLDER AND THE BORROWER HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Promissory Note or any other agreement contemplated hereby or the validity, protection, interpretation, collection or enforcement thereof; AND THE BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE ANY SETOFF OR COUNTERCLAIM OR CROSS-CLAIM in connection with any such litigation, irrespective of the nature of such setoff, counterclaim or cross-claim except to the extent that the failure so to assert any such setoff, counterclaim or cross-claim would permanently preclude the prosecution of or recovery upon the same.  Notwithstanding anything contained in this Promissory Note to the contrary, no claim may be made by the Borrower against the Holder for any lost profits or any special, indirect or consequential damages in respect of any breach or wrongful conduct (other than willful misconduct constituting actual fraud) in connection with, arising out of or in any way related to the transactions contemplated by or consummated in connection with the Loan or the issuance of this Promissory Note or any act, omission or event occurring in connection therewith; and the Borrower hereby waives, releases and agrees not to sue upon any such claim for any such damages.  THE BORROWER AND THE HOLDER AGREE THAT THIS SECTION 8 IS A SPECIFIC AND MATERIAL ASPECT OF THIS PROMISSORY NOTE AND ACKNOWLEDGE THAT KIM INTERNATIONAL CORPORATION DBA KUSH BOTTLES WOULD NOT HAVE MADE THE LOAN IF THIS SECTION 8 WERE NOT PART OF THIS PROMISSORY NOTE.
 
9.   TIME OF ESSENCE .   Time is of the essence for the performance by the Borrower of the obligations set forth in this Promissory Note.
 
10.   CANCELLATION .   After the entire Total Amount of this Promissory Note has been paid in full, this Promissory Note will be surrendered to the Borrower for cancellation and will not be reissued; provided that such cancellation will not adversely affect any provisions of this Promissory Note which by its terms may apply after such payment in full.
 
11.   GOVERNING LAW .  This Promissory Note will be governed by and construed in accordance with the domestic laws of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California.
 

 
*                *                *                *
 

 
 
 

 

The Borrower has executed and delivered this Promissory Note as of the date first above written.
 
DANK Bottles LLC


By:           ________________________
Name:           
Title:           




 
 

 


EQUITY PURCHASE AGREEMENT
 
This Equity Purchase Agreement (this “ Agreement ”) is entered into as of April 10, 2015 by and among each of the individuals set forth in Exhibit A attached hereto (each, a “ Seller ” and, collectively, the “ Sellers ”) and represented by Greg Gamet (“ Representative ”), Dank Bottles, a Colorado LLC (the “ Company ”), and Kush Bottles, a Nevada corporation (the “ Buyer ”) (collectively the “Parties).
 
Introduction
 
The Sellers own all of the issued and outstanding membership interests of the Company (the “ Purchased Interests ”).  The Sellers wish to sell, and the Buyer wishes to buy, all of the Purchased Interests on the terms and conditions set forth herein.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
 
ARTICLE 1
 
PURCHASE AND SALE; CLOSING
 
1.1   Purchase and Sale.   Subject to the terms and conditions hereof, at the Closing, the Sellers shall sell, transfer, assign and deliver to the Buyer, and the Buyer shall purchase from the Sellers, all of the Purchased Interests.
 
1.2   Purchase Price
 
(a)   Except where the context clearly requires to the contrary:  (i) each reference in this Agreement to a designated “Section,” “Article,” “Schedule,” or “Exhibit,” is to the corresponding Section, Article, Schedule, or Exhibit of or to this Agreement; (ii) instances of gender or entity-specific usage (e.g., “his” “her” “its” “person” or “individual”) shall not be interpreted to preclude the application of any provision of this Agreement to any individual or entity; (iii) the word “or” shall not be applied in its exclusive sense; (iv) “including” shall mean “including, without limitation”; (v) references to laws, regulations and other governmental rules, as well as to contracts, agreements and other instruments, shall mean such rules and instruments as in effect as of the date of this Agreement; (vi) references to “$” or “dollars” shall mean the lawful currency of the United States; (vii) references to “Federal” or “federal” shall be to laws, agencies or other attributes of the United States (and not to any State or locality thereof) and references to specific portions or sections of any statute or regulation shall also be deemed a reference to any successor provisions; (viii) the meaning of the terms “domestic” and “foreign” shall be determined by reference to the United States; (ix) references to “days” shall mean calendar days; references to “business days” shall mean any day other than Saturday, Sunday or any day on which commercial banks in Los Angeles, California are authorized to close; (x) references to months or years shall be to the actual calendar months or years at issue (taking into account the actual number of days in any such month or year); (xi) days, business days and times of day shall be determined by reference to local time in Los Angeles, California; and (xii) the English language version of this Agreement shall govern all questions of interpretation relating to this Agreement, notwithstanding that this Agreement may have been translated into, and executed in, other languages.
 
(b)    After complete execution of this Agreement by the Parties and no later than April 10, 2015 (“ Closing ”), the Buyer shall make the following payments by wire transfer as specified by Representative in writing to Buyer of immediately available funds to the following individual Sellers, Greg Gamet, Justin Jones, and Bryan Sullivan, in accordance with each these Seller’s specified pro rata share as set forth in Exhibit A (“Pro Rata Share”);
 
(i)   $100,000; and
 
(ii)   The amount of cash as specified in Exhibit B attached hereto;
 
(iii)  
3,500,000 common shares of Buyer’s stock; After complete execution of this Agreement by the Parties and no later than the Closing, Buyer shall authorize the issuance of 3,500,000 common shares of Buyer's stock to the following individual Sellers, Greg Gamet, Justin Jones, Bryan Sullivan, and Frank Falconer, in accordance with each of these Seller's specified Pro Rata Share.
 
(c)           Subsequent to the Closing, the Buyer shall pay $100,000 pursuant to the schedule and in the amounts set forth in Exhibit A (“Post Closing Payments”) attached hereto, to the following individual Sellers, Greg Gamet, Justin Jones, and Bryan Sullivan, payable in accordance with each of the Seller’s specified Pro Rata Share.
 
(d)           Each of the Sellers fully understands and acknowledges that the cash payments will be split among only the three of them specified above in section 1.2(b) and 1.2(c) and only the common shares will be split among each of them as specified above section 1.2(b)(iii).
 
1.3   Transaction Expenses.   The fees and expenses incurred by the Buyer, Sellers and or, the Company shall be split equally between the Parties.
 
1.4   Cash Withdrawal . Subject to the terms and conditions of this Agreement between the date hereof, through and including the Closing, the Company shall have the right to distribute any portion of its cash and cash equivalents from time to time to the Sellers provided that, through the Closing, the Sellers shall cause the Company to retain an amount in cash sufficient to cover any issued, but uncleared checks and checks in transit and sufficient to ensure adequate working capital to maintain the business operations of the Company. Any distributions shall be included in Exhibit B.
 
1.5   Revisions to Exhibit B
 
(a)   Within 90 days after Closing , the Buyer may, at its option, deliver to the Representative its written objections (“ Buyer’s Objections ”) to any items in Exhibit B, specifying in reasonable detail the basis for such objection(s) and setting forth the Buyer’s proposed revisions
 
(b)   If the Representative delivers written notice (the “ Disputed Items Notice ”) to the Buyer within ten (10) after receipt by the Representative of the Buyer’s Objections, stating that the Representative disputes any items in the Buyer’s Objections (“ Disputed Items ”), specifying in reasonable detail the basis for such dispute and setting forth the Representative’s proposed modification to the Buyer’s Objections, the Buyer and the Representative shall use their commercially reasonable efforts to resolve and finally determine and agree upon any revisions to Exhibit B within five (5) business days of receipt of the Disputed Items Notice.  The Disputed Items Notice shall specify those items or amounts as to which the Representative disagrees, and the Representative shall be deemed to have agreed with (and the Independent Accountant, if any, shall be deemed to be bound by) all other items and amounts contained Exhibit B.
 
(c)   If the Representative and the Buyer are unable to agree upon Exhibit B within the five (5) business days specified above, the Representative and the Buyer will select an accounting firm of nationally recognized standing, which shall in all cases be independent from the Parties hereto (the “ Independent Accountant ”), to resolve the Disputed Items. The Independent Accountant will (i) resolve the Disputed Items and (ii) make a determination of any revisions to Exhibit B  In making a determination on the Disputed Items, the Independent Accountant shall consider only those items or amounts in Exhibit B to which the Representative has disagreed in the Disputed Items Notice and the Independent Accountant’s determination with respect to each Disputed Item shall not be in excess of, nor less than, the greatest or lowest value, respectively, claimed for that particular Disputed Item in Exhibit B or in the Buyer’s Objections. If the Buyer and the Representative are unable to agree upon the selection of the Independent Accountant, each party shall select their respective Independent Accountant and the determination of each accountant on each item shall be added together and then divided by two for the final and binding figure as to that item. In the event of two accountants, each accountant shall comply with all other terms specified in this clause. The determination of the Independent Accountant(s) will be made within forty five (45) days after being selected.  Such determination shall be final and binding upon the Buyer and the Sellers, shall be deemed a final arbitration award that is binding on the Buyer and the Sellers, and none of the Buyer or the Sellers may seek further recourse to courts or other tribunals with respect thereto, other than to enforce such determination.  The fees and expenses of the Independent Accountant(s) shall be allocated to the Buyer, on the one hand, and the Sellers, on the other, based upon the percentage that the portion of the contested amount not awarded to each party bears to the amount actually contested by such party, as determined by the Independent Accountant(s).
 
(d)   If the Representative does not deliver the Disputed Item Notice to the Buyer within five (5) days after receipt by the Representative of the Buyer’s Objections, the items objected to in the  Buyer’s Objections will be conclusively presumed to be true and correct in all respects and will be final and binding upon the Parties.
 
(e)   If the revised figures in Exhibit B are less than the cash paid the Sellers by Buyer for the original sum in Exhibit B, the Sellers shall pay to the Buyer an aggregate amount equal to such excess.  Any payment pursuant to this Section 1.5(e) shall be deducted from the schedule of payments to Seller set forth in Exhibit A in an apportioned amount determined according to the number of payments remaining to be made pursuant thereto.  In the event that the revised figure(s) for Exhibit B is equal to or less than the original sum paid by Buyer for Exhibit B, no payment shall be made pursuant to this Section 1.5 .  Except as set forth in this Section 1.5 , the Buyer shall have no right to make any claim against any Seller in respect of Exhibit B and, without limiting the generality of the foregoing, no adjustment to Exhibit B pursuant to this Section 1.5 shall be considered a breach of any representation, warranty or other provision of this Agreement.
 
(f)   The Parties and their accountants, lawyers and other representatives will be given full access at all reasonable times to (and shall be allowed to make copies of) the relevant books and records of the Company and to any personnel of the Company reasonably requested by such persons, in each case in connection with the final determination of Exhibit B or any dispute relating thereto.
 
1.5.2   w ithholding .  The Buyer shall be entitled to deduct and withhold from the cash payments otherwise deliverable to the Sellers under this Agreement, and from any other payments to the Sellers otherwise required pursuant to this Agreement, any amounts the Buyer is required to deduct and withhold with respect to any such deliveries and payments under the Internal Revenue Code of 1986, as amended (the " Code ") or any provision of state, local, provincial or foreign tax law.  To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to the Sellers in respect of which such deduction and withholding was made.
 
1.5.3   Allocation of Purchase Price.   The Parties intend that the purchase of the membership interests, shall, with respect to Buyer, be treated as a part sale part contribution of all of the assets of the Company for Tax purposes in accordance with Rev. Rul. 99-6 and Section 721 of the Code;  As promptly as practicable but no more than  sixty (60) days after Closing, Buyer shall prepare a schedule allocating the Purchase Price among the assets of the Company in accordance with Section 1060 of the Code and the Treasury Regulations thereunder (and any similar provisions of state, local or foreign law, as appropriate) and deliver such schedule to Representative.  Representative shall then have not more than 30 days to notify Buyer in writing of Representative’s acceptance and adoption of the allocation schedule for its Tax Returns or specify the nature of any reasonable objections Representative may have.  Buyer and Representative shall attempt in good faith to resolve any such Representative objections to Buyer’s allocation schedule.  Any issues with respect to the allocation that have not been finally resolved within 120 days following the Closing shall be referred to a nationally recognized firm of independent public accountants to which Representative and Buyer mutually agree, whose determination shall be final and binding upon the Parties.  Any modification or adjustment to the Purchase Price shall be allocated among the assets of the Company in accordance with Section 1060 of the Code. Any costs incurred for the services of such firm shall be split equally between Buyer and Sellers. No party shall be responsible for the other party’s tax liability incurred as a result of the allocation of the purchase price.
 
ARTICLE 2
 
REPRESENTATIONS AND WARRANTIES
 
CONCERNING THE SELLERS
 
Each Seller hereby, severally and not jointly, represents and warrants to the Buyer that each of the statements contained in this Article 2 , with respect to himself or herself, when read together with and qualified by the Disclosure Schedule delivered by the Sellers to the Buyer in connection with and prior to the execution of this Agreement (the “ Disclosure Schedule ”) is true and correct as of the date hereof.
 
2.1   Title.   Each Seller owns, and has good title to, the Purchased Interests and his Pro Rata Share of the purchase price that such Seller is entitled to.  At the Closing, such Seller will transfer his or her Purchased Interests to the Buyer free and clear of all Liens, other than restrictions under applicable securities laws.  Upon the consummation of the transactions contemplated by this Agreement, the Buyer will own such Purchased Interests, free and clear of all Liens, other than restrictions imposed under applicable securities law.
 
2.2   Power and Authority.   Such Seller has the requisite capacity and/or power and authority to execute and deliver and to carry out the terms of this Agreement and the other agreements, instruments and documents to be executed and delivered by such Seller as contemplated hereby.
 
2.3   No-Conflict.   Such Seller’s execution, delivery and performance of this Agreement and the other agreements, instruments and documents to be executed and delivered by such Seller as contemplated hereby will not result in any violation of, be in conflict with or constitute a default under any law, statute, regulation, rule, ordinance, contract, agreement or instrument, judgment, decree or order to which such Seller is a party or by which such Seller or his or her assets is bound.
 
2.4   Consents and Approvals.   No consent, order, approval, authorization, declaration or filing from or with any governmental authority or third party is required on the part of such Seller to permit such Seller to fulfill all of such Seller’s obligations under this Agreement and the other agreements, instruments and documents of such Seller contemplated hereby.
 
2.5   Validity and Enforceability.   Assuming the valid execution and delivery by the other Parties hereto and thereto, this Agreement is, and each of the other agreements, instruments and documents to be executed and delivered by such Seller as contemplated hereby will be when executed and delivered by such Seller, the valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, subject, however, to applicable bankruptcy, insolvency and other laws affecting the rights and remedies of creditors and to general equitable principles.
 
ARTICLE 3
 
REPRESENTATIONS AND WARRANTIES
 
CONCERNING THE COMPANY
 
The Sellers and the Company represent and warrant to the Buyer that each of the statements contained in this Article 3 when read together with and qualified by the Disclosure Schedule is true and correct as of the date hereof.
 
3.1   Organization, Power and Standing.   The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Colorado.  The Company has all necessary power and authority to own, lease and operate its properties and to carry on its business as such business is conducted on the date hereof.  The copies of the organizational documents of the Company, each as amended through the date hereof (the “ Company Charter Documents ”), that have been made available to the Buyer by the Company are complete and correct copies thereof.
 
3.2   Power and Authority.   The Company has all necessary power and authority and has taken all required action on its part necessary to permit it to execute and deliver and to carry out the terms of this Agreement and the other agreements, instruments and documents to be executed and delivered by the Company as contemplated hereby.
 
3.3   Company Assets. The Company owns the assets listed in Exhibit B attached hereto   free and clear of all liens and encumbrances or other rights or interest thereto of third Parties and any breaches of contract or agreements
 
3.4   Validity and Enforceability.   Assuming the valid execution and delivery by the other Parties hereto and thereto, this Agreement is, and each of the other agreements, instruments and documents to be executed and delivered by the Company as contemplated hereby will be when executed and delivered by the Company, the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject, however, to applicable bankruptcy, insolvency and other laws affecting the rights and remedies of creditors and to general equitable principles.
 
3.5   Subsidiaries.   The Company has no subsidiaries and does not own or have the right to acquire any equity interest in any corporation, limited liability company, partnership, joint venture, trust or other business organization.
 
3.6   Foreign Qualifications.   There are no other jurisdictions in which the Company is required to qualify to do business as a foreign entity.
 
3.7   Capitalization. The Company's outstanding equity interests are duly authorized, validly issued, fully paid and non-assessable.  There are no outstanding options, warrants, convertible or exchangeable securities or other rights that would obligate the Company to issue any equity securities.  There are no agreements, written or oral, to which the Company or any of its members is a party relating to the acquisition, disposition, voting or registration under applicable securities laws of any equity security of the Company.  There are no outstanding or authorized equity appreciation, phantom equity or other similar rights with respect to the Company.
 
3.8   Financial Statements.    (a)  The Sellers have delivered to the Buyer (i) an unaudited balance sheet of the Company as of each of December 31, 2014, and unaudited statements of income, members’ equity and cash flows for the year then ended, and (ii) an unaudited balance sheet of the Company (the “ Balance Sheet ”) as of March 31, 2015 (the “ Balance Sheet Date ”) and an unaudited statement of income for the period then ended.  Such financial statements and the notes thereto, if any, fairly present, in all material respects, the financial condition of the Company for the periods then ended, and were prepared in accordance with the books and records of the Company in conformity with GAAP (or in the case of unaudited financial statements for the omission of footnotes and subject to year-end adjustments).
 
(b)   Each accrual reflected on the Balance Sheet is adequate to meet the liability underlying such accrual.  All accounts receivable of the Company reflected on the Balance Sheet or existing at the time of Closing represent amounts or will represent amounts due for services performed or goods sold in the ordinary course of business and properly reflect the amounts due.  All accounts payable of the Company reflected in the Balance Sheet or existing at the time of the Closing represent or will represent amounts owed for services or goods received by the Company in the ordinary course of business and properly reflect the amounts due.  The reserve provided for doubtful accounts reflected on the Balance Sheet is adequate given the Company's history and current knowledge of the account debtors.
 
(c)          The Company has no liabilities, contingent or otherwise that are not reflected on the Balance Sheet, other than liabilities arising in the ordinary course of business, which are not material to the Company.  The Company has no outstanding indebtedness.  The Company is not a guarantor or otherwise liable for any liability or obligation or any other person for any matter which relates to or affects the Company or its assets or business.
 
(d)          All accounts receivable of the Company reflected in the Balance Sheet or existing as of Closing, have been collected or are collectable within 90 days after the date incurred in the amounts at which they were carried on the books of the business.
 
(e)          All inventories of finished products meet the Company's current specifications and consist of items of a quality and quantity that are saleable in the ordinary course of business as previously and currently conducted by the Company, and all inventories of raw materials, intermediates, work in process, supplies, parts and packaging and labeling materials consist of items of a quality and quantity that are useable in the ordinary course of business as heretofore and currently conducted by the Company and appropriate for their intended use.  The Company is not aware of any adverse condition affecting the quality or supply of raw materials, intermediates, supplies, parts and other materials available to the Company that are necessary to manufacture, package or label its products or are otherwise used in the Company's business.
 
3.9   Absence of Certain Changes.   Since the Balance Sheet Date: (a) the Company has conducted its business in all material respects in the ordinary course, (b) no lien, encumbrances or other rights or interest thereto of third Parties and any breaches of contract or agreements has been placed upon any of the Company’s assets, other than Permitted Liens, (c)  no breaches of contracts or agreements exist, (d) the Company has not acquired or disposed of any material assets, except in the ordinary course of business, (e) there has been no damage, destruction or casualty loss (other than those covered by insurance the proceeds of which will be used to replace or repair the subject assets prior to Closing) with respect to any of the assets or properties of the Company, (f) the Company has not cancelled, compromised or waived any material right or claim, (g) the Company has not accelerated, terminated, modified or cancelled any material agreement, contract, lease or license related to the Company's business, and (h) there has been no event or circumstance relating specifically to the Company that has caused or could reasonably be expected to cause a Company Material Adverse Effect.
 
As used herein, the term “ Company Material Adverse Effect ” shall mean any event, circumstance, change or condition which has had or reasonably could be expected to have, individually or in the aggregate a material adverse effect on the assets, liabilities, properties, results of operations, financial condition or prospects of the Company, taken as a whole; provided, however, that in no event shall any of the following be taken into account in the determination of whether a Company Material Adverse Effect has occurred:  (a) any change in any Legal Requirement or GAAP; (b) any change resulting from conditions affecting any of the industries in which the Company operates or from changes in general business, financial, political, capital market or economic conditions (including any change resulting from any hostilities, war or military or terrorist attack), so long as the Company is not disproportionately affected thereby; (c) any change resulting from the announcement or pendency of the transactions contemplated by this Agreement or attributable to the fact that the Buyer or any of its Affiliates are the prospective owners of the Company; or (d) any change resulting from the compliance by the Company with the terms of, or the taking of any action by the Company contemplated or permitted by, this Agreement.
 
3.10   Taxes.
 
(a)   The representations and warranties set forth in this Section 3.8 are subject in all respects to the qualifications and disclosures set forth on Schedule 3.8   of the Disclosure Schedule.
 
(b)   For purposes of this Agreement, the following definitions shall apply:
 
(i)   Pre-Closing Tax Period ” means all taxable periods ending on or before the Closing Date and the portion of a Straddle Period ending on and including the Closing Date.
 
(ii)   Pre-Closing Taxes ” means any and all Taxes of the Company that are attributable to a Pre-Closing Tax Period, relate to an event or transaction occurring on or before the Closing, or arise out of or result from the transactions contemplated by this Agreement (including any transfer, documentary, sales, use, stamp, registration and other such Taxes and fees, and any interest, fines, assessments, penalties or additions to tax imposed in connection therewith or with respect thereto).
 
(iii)   Straddle Period ” means a tax period that includes, but does not end on, the Closing date.
 
(iv)   Tax ” or “ Taxes ” means (a) any and all federal, state, provincial, local, foreign and other taxes, levies, fees, imposts, duties and similar governmental charges (including any interest, fines, assessments, penalties or additions to tax imposed in connection therewith or with respect thereto), whether computed on a separate or consolidated, unitary or combined basis or in any other manner, including, without limitation, (A) taxes imposed on, or measured by, income, franchise, profits or gross receipts, and (B) ad valorem, value added, capital gains, sales, goods and services, use, real or personal property, capital equity, license, branch, payroll, estimated, withholding, employment, social security (or similar), unemployment, compensation, utility, severance, production, excise, stamp, occupation, premium, windfall profits, transfer and gains taxes, and customs duties; (b) liability for the payment of any amounts of the type described in clause (a) arising as a result of being (or ceasing to be) a member of any affiliated, consolidated, unitary or similar group; or (c) liability for the payment of any amounts of the type described in clause (a) or (b) as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the liability of any other Person.
 
(v)   Tax Returns ” means all reports, estimates, declarations of estimated Tax, information statements and returns relating to Taxes and any schedules attached to or amendments of any of the foregoing.
 
(c)   The Company is, and has been since its formation, treated as a partnership for applicable federal state and local income tax purposes within the meaning of Treasury Regulation Section 301.7701-3(b)(1)(i) and will continue to be so treated for all periods prior to effectuation of the transactions contemplated hereby.
 
(d)   The Company has made available to the Buyer true and correct copies of the Tax Returns of the Company for the 2014 taxable year to the extent that any such returns have been filed.
 
(e)   The Company has duly and timely filed all Tax Returns that were required to be filed by it and all such Tax Returns are true, correct and complete in all material respects.  The Company has paid when due all Taxes required to be paid by it (whether or not shown or required to be shown to be due on any Tax Return).  The Company does not have any currently effective agreement or waiver that would have the effect of extending any applicable statute of limitations in respect of any of its Tax liabilities.  No power of attorney has been granted by the Company with respect to any Tax matter which is currently in force.  There are no unpaid assessments against the Company of any Taxes for any fiscal period or pending or, to the knowledge of the Company, threatened tax examinations or audits by any foreign, federal, state or local taxing authority.  No governmental authority has given notice to the Company of any intention to assert any deficiency or claim for additional Taxes against the Company.  All Taxes that the Company is required by law to withhold or to collect for payment have been duly withheld and collected and, to the extent required, paid to the proper governmental entity.  There are no Tax Liens pending or, to the knowledge of the Company, threatened against the Company or its assets or property, other than Permitted Liens.
 
(f)   The Company has never been a member of an affiliated group filing a consolidated, combined, unitary or similar Tax Return.  The Company has no liability for Taxes of any Person (other than itself) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise.
 
(g)   No claim has ever been made by a taxing authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction.
 
(h)   No withholding is required under Section 1445 of the Code in connection with the consummation of the transactions contemplated by this Agreement.
 
(i)   The Company has never been a party to a “reportable transaction” within the meaning of Section 1.6011-4(b) of the Treasury Regulations.
 
(j)   The Company is not a party to any agreement, whether written or unwritten, providing for the payment of Taxes, payment for Tax losses, entitlements to refunds or similar Tax matters (other than written agreements with lessors, vendors, and the like entered into in the ordinary course of business);
 
(k)    No ruling with respect to Taxes has been requested by or on behalf of the Company;
 
(l)    There are no joint ventures, partnerships, limited liability companies, or other arrangements or contracts to which the Company is a party and that could be treated as a partnership for federal income tax purposes.
 
(m)   The Company has never had a “permanent establishment” in any foreign country, as such term is defined in any applicable Tax treaty or convention between the United States and such foreign country, nor has it otherwise taken steps that have exposed, or will expose, it to the taxing jurisdiction of a foreign country
 
(n)   Each "nonqualified deferred compensation plan" (as such term is defined in Section 409A(d)(1) of the Code) sponsored or maintained by the Company since January 1, 2005 has been operated since that date in good faith compliance with Section 409A of the Code, the final or proposed regulations thereunder, and any other Internal Revenue Service guidance issued with respect thereto, to the extent applicable to such plan.  No deferred compensation plan existing prior to January 1, 2005, which would otherwise not be subject to Section 409A of the Code, has been “materially modified” at any time after October 3, 2004.
 
(o)   Each "nonqualified deferred compensation plan" (as such term is defined in Section 409A(d)(1) of the Code) sponsored or maintained by the Company since January 1, 2010 has been operated since that date in good faith compliance with Section 409A of the Code, the final or proposed regulations thereunder, and any other Internal Revenue Service guidance issued with respect thereto, to the extent applicable to such plan.  No deferred compensation plan existing prior to January 1, 2010, which would otherwise not be subject to Section 409A of the Code, has been “materially modified” at any time.
 
3.11   Personal Property.   The Company has valid title to or a valid leasehold, license or other similar interest in all tangible personal property, free and clear of all Liens, except for Permitted Liens, used by the Company in its business.  The equipment and other tangible operating assets of the Company, taken as a whole, are in adequate condition to conduct the business of the Company as the same is conducted on the date hereof, normal wear and tear excepted.
 
As used herein, “ Permitted Liens ” means (a)  materialmen’s, mechanics’, carriers’, workmen’s, warehousemen’s, repairmen’s, landlords’, and other like Liens arising in the ordinary course of business, or deposits to obtain the release of such Liens for amounts which are not yet due and payable, (b) Liens for Taxes not yet due and payable, or being contested in good faith, (c) purchase money Liens incurred in the ordinary course of business, or (d) Liens created as a result of any action taken by or through the Buyer or any of its Affiliates.
 
3.12   Real Property.
 
(a)   The Company does not own any real property.
 
(b)   Schedule 3.9 of the Disclosure Schedule describes each interest in real property leased by the Company, including the lessor of such leased property, and identifies each lease or any other arrangement under which such property is leased.  The Company enjoys peaceful and quiet possession of its leased premises, is not in breach of its lease and has not received any written notice from any landlord asserting the existence of a default under any such lease or been informed in writing that the lessor under any such lease has taken action or, to the knowledge of the Company, threatened to terminate the lease before the expiration date specified in the lease.  Each lease of real property is legal, valid, binding, enforceable and in full force and effect, and has not been amended from the version provided to the Buyer.  No security deposit or portion thereof deposited with respect to any real property lease has been applied with respect of a breach or default under such lease which has not been redeposited in full.  The Company has not subleased, licensed or otherwise granted to any person or entity the right to use or occupy any of the leased real property or any portion thereof.  Except as shown on Schedule 3.9 of the Disclosure Schedule, the transactions contemplated by this Agreement will not be the basis for any lessor to terminate its lease prior to the expiration date of the lease.
 
3.13   Intellectual Property.
 
(a)   As used herein “ Intellectual Property ” means all (i) patents, provisional patents, patent applications, continuations, continuations in part, extensions and patent disclosures, (ii) trademarks and service marks (registered and unregistered), (iii) trade dress, trade names and corporate names (in each case, whether registered or unregistered) and registrations and applications for registration thereof together, to the extent applicable, with all of the goodwill associated therewith, (iv) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof, (v) computer software, data, data bases and documentation thereof, (vi) trade secrets and other confidential information (including, without limitation, ideas, formulae, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans and customer and supplier lists and information), and (vii) Uniform Resource Locators (a.k.a. “URLs” or “domain names”).  As used herein “ Company Intellectual Property ” means Intellectual Property owned by the Company.
 
(b)   Schedule 3.10 of the Disclosure Schedule contains a list of all Company Intellectual Property included in clauses (i), (ii), (iv) and (vii) of the definition of Intellectual Property.  The Company has paid all necessary registration, maintenance and renewal fees for the purpose of maintaining such Company Intellectual Property.
 
(c)   Schedule 3.10 of the Disclosure Schedule contains a list of all Intellectual Property licensed to the Company by any third party that is used in the Company's business, excluding "off-the-shelf" or "shrink wrap" products licensed to the Company which are licensed in the ordinary course of business and as to which the Company has adequate site, user or other applicable licenses (collectively " the IP Licenses ").
 
(d)   Schedule 3.10 of the Disclosure Schedule also contains a description of all material licenses granted by the Company to any third party with respect to any Company Intellectual Property.
 
(e)   (i) The Company is not infringing or otherwise violating any Intellectual Property of any other Person and it is in material compliance with the terms of any license related to Intellectual Property licensed to the Company and (ii) to the Company's Knowledge, no third party is infringing on any Company Intellectual Property.
 
(f)   The Company has taken reasonable steps to protect its rights in, and (to the extent confidential) the confidentiality of, the material Company Intellectual Property or provided by any other Person to the Company.
 
3.14   Material Contracts.   Set forth on Schedule 3.11 of the Disclosure Schedule is a list of all Material Contracts of the Company, showing the Parties thereto.  Each Material Contract is in full force and effect and the Company, and, to the knowledge of the Company, each other party thereto has performed all material obligations required to be performed by them thereunder.  The Company is not in default under any material provision of any Material Contract.  To the knowledge of the Company, no third party is in default under any material provision of any Material Contract.
 
As used herein, the term “ Material Contract ” shall mean each written contract or agreement to which the Company is a party involving (i) aggregate consideration payable to or by the Company of $20,000 or more other than those contracts or agreements which will be terminated at or prior to the Closing or are terminable by notice of not more than thirty (30) days without material liability to the Company), (ii) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise relating directly or indirectly to the Company, its current or historic business which contain any obligation of the Company which will continue after the Closing, (iii) any mortgages, indentures, loans, security agreements or other instruments relating to the borrowing of money by the Company or under which any party has imposed or may, with notice or the lapse of time impose, a lien on any of the Company's assets, (iv) any distribution, joint marketing, development, partnership or joint venture agreement of the business of the Company, (v) any employment agreement, noncompetition, non-solicitation or other agreement with any employee of the Company (vi) any agreement, contract or commitment containing any covenant limiting in any respect the right of the Company or any of its Affiliates to engage in any line of business or to compete with any person, (vii) any agreement that provides for the payment or receipt by the Company of an ongoing license fee or royalty payment, (viii) any agreement or lease under which the Company is a lessee of or holds or operates any personal property owned by any other party that is used in the Company's business, (ix) any agreement involving a commitment to make capital expenditures, (x) any agreement related to hazardous waste disposal, solid waste disposal, waste water management, investigation of environmental matters, environmental remediation or any other material environmental obligation, liability or agreement, or (xi) any other agreement material to the business of the Company, whether or not entered into in the ordinary course of business.
 
3.15   Litigation.   There is no action, arbitration, litigation, proceeding or governmental investigation pending or, to the knowledge of the Company, threatened against the Company.
 
3.16   No-Conflict; Required Consents and Approvals.   The Company’s execution, delivery and performance of this Agreement and the other agreements, instruments and documents of the Company contemplated hereby will not result in any violation of, be in conflict with or constitute a default under the Company Charter Documents, any Material Contract, any Authorization or any Legal Requirement. No consent, order, approval, authorization, declaration or filing with or from any governmental authority or any party to a Material Contract is required on the part of the Company for or in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby by the Company.
 
3.17   Licenses and Permits.    Schedule 3.12 of the Disclosure Schedule sets forth a list of all licenses, permits and authorizations of governmental authorities held by the Company (except for licenses, permits and authorizations relating to Environmental Laws, as to which Section 3.22 only applies) (collectively, the “ Authorizations ”).  The Authorizations are in full force and effect, and the transaction contemplated by this Agreement will not affect the existence of such authorizations.  The Company is in material compliance with the Authorizations.  To the knowledge of the Company, no governmental authority has threatened the amendment, suspension or cancellation of any Authorization, except where such threatened suspension or cancellation relates to such items of noncompliance that the Company had previously remedied or will remedy within the applicable cure periods.
 
3.18   Compliance with Laws.   The Company is in material compliance with all Legal Requirements.  As used herein, the term “ Legal Requirements ” means, with respect to any person, all foreign, federal, state, and local statutes, laws, ordinances, judgments, decrees, and orders and all governmental rules and regulations applicable to such person.
 
3.19   Employees and Compensation.   Schedule 3.13 of the Disclosure Schedule sets forth (i) a true and correct list of the name and current annual salary of each officer or employee of the Company and (ii) any other form of compensation (other than salary, bonuses or customary benefits) paid or payable by the Company to each such officer or employee for the most recent fiscal year.  To the Company's knowledge no employee identified on Schedule 3.13 has any present intention to terminate his or her employment with the Company or is bound by any confidentiality agreement, non-competition agreement or other contract that may reasonably be expected to have an adverse effect on such employee's participation in the Company's business.  The Company has complied in all material respects with all provisions of all Legal Requirements relating to employment and employment practices, terms and conditions of employment, wage and hours and similar matters.
 
3.20   Benefit Plans.
 
(a)   Schedule 3.14 of the Disclosure Schedule sets forth all employee benefit plans, programs, policies, practices, agreements and arrangements (including, but not limited to, all plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) maintained or contributed to by the Company for the benefit of any of its current or former officers, employees, directors or independent contractors, or with respect to which the Company has (or could have) any obligation or liability (including, but not limited to, liabilities arising from affiliation under Section 414(b), (c), (m) or (o) of the Code, or Section 4001 of ERISA) (each, a “ Benefit Plan ” and collectively, the “ Benefit Plans ”).  There has been no amendment or announcement (written or oral) by the Company relating to a change in participation or coverage under, any Benefit Plan that could reasonably be expected to materially increase the expense of maintaining such Benefit Plan above the level of expense incurred with respect thereto for the most recent fiscal year included in the financial statements provided pursuant to Section 3.7 .  Each Benefit Plan can be terminated by the Company at any time without liability or expense (other than for any benefits accrued thereunder at the time of such termination).  None of the rights of the Company under any Benefit Plan will be impaired in any way by the consummation of the transactions contemplated by this Agreement.
 
(b)   With respect to each Benefit Plan, the Company has made available to the Buyer (to the extent applicable to such Benefit Plan) true and complete copies of:  (i) all documents embodying such Benefit Plan (including all amendments thereto) or, if such Benefit Plan is not in writing, a written description of such Benefit Plan; (ii) the last three annual reports (Form 5500 series and all schedules and financial statements attached thereto) filed with respect to such Benefit Plan; (iii) the most recent summary plan description, and all summaries of material modifications related thereto, distributed with respect to such Benefit Plan; (iv) all contracts and agreements (and any amendments thereto) relating to such Benefit Plan, including, without limitation, all trust agreements, investment management agreements, annuity contracts, insurance contracts, bonds, indemnification agreements and service provider agreements; (v) the most recent determination letter issued by the Internal Revenue Service (the “ IRS ”) with respect to such Benefit Plan; (vii) all written communications to employees, or to any other Persons (A) in which the provisions of such Benefit Plan, as set forth or described therein, differ materially from such provisions as set forth or described in the other information or materials furnished under this subsection (b), or (B) relating to the amendment, creation or termination of such Benefit Plan, or to an increase or decrease in benefits, acceleration of payments or vesting or any other event with respect to such Benefit Plan that could result in liability to the Company; (viii) all correspondence to or from any governmental entity or agency relating to such Benefit Plan; and (ix) all coverage, nondiscrimination, top heavy and Code Section 415 tests performed with respect to such Benefit Plan for the three most recently completed plan years.
 
(c)   Except as set forth on Schedule 3.17   of the Disclosure Schedule, with respect to each Benefit Plan:  (i) such Benefit Plan is, and at all times since inception has been, maintained, operated, administered and funded in accordance with its terms and all Legal Requirements in all material respects; (ii)  the Company and each other person (including, without limitation, all fiduciaries) have, at all times and in all material respects, properly performed all of their duties and obligations under or with respect to such Benefit Plan; (iii) all returns, reports, notices, statements and other disclosures relating to such Benefit Plan required to be filed with any governmental authority or distributed to any participant therein have been properly prepared and duly filed or distributed in a timely manner; (iv) all contributions, premiums and other payments due or required to be paid to (or with respect to) such Benefit Plan have been timely paid, or, if not yet due, have been accrued as a liability on the Balance Sheet; (v) no breach of fiduciary duty has occurred with respect to any Benefit Plan(vi) no “prohibited transaction” (within the meaning of either Section 4975(c) of the Code or Section 406 or 407 of ERISA) has occurred with respect to such Benefit Plan; and (vii) the Company has not incurred, and there exists no condition or set of circumstances in connection with which the Company or Buyer could incur, directly or indirectly, any material liability or expense (except for routine contributions and benefit payments) under ERISA, the Code or any other applicable Legal Requirement or pursuant to any indemnification or similar agreement, with respect to such Benefit Plan.
 
(d)   Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and each trust and group annuity contract related thereto is exempt from taxation under Section 501(a) of the Code.  Each such Benefit Plan (i) is the subject of an unrevoked favorable determination letter from the IRS with respect to such Benefit Plan's qualified status under the Code, as amended by that legislation commonly referred to as “GUST” and “EGTRRA” and all subsequent legislation, (ii) has remaining a period of time under the Code or applicable Treasury regulations or IRS pronouncements in which to request, and make any amendments necessary to obtain, such a letter from the IRS, or (iii) is a prototype plan or volume submitter plan entitled, under applicable IRS guidance, to rely on the favorable opinion or advisory letter issued by the IRS to the sponsor of such prototype or volume submitter plan.  Nothing has occurred, or is reasonably expected by the Company or any Seller to occur, that could adversely affect the qualification or exemption of any such Benefit Plan or any trust or group annuity contract related thereto.  No such Benefit Plan is a "top-heavy plan," as defined in Section 416 of the Code.
 
(e)   The Company is not, and has never been, a member of (i) a controlled group of corporations, within the meaning of Section 414(b) of the Code, (ii) a group of trades or businesses under common control, within the meaning of Section  414(c) of the Code, (iii) an affiliated service group, within the meaning of Section 414(m) of the Code, or (iv) any other group of Persons treated as a single employer under Section 414(o) of the Code.
 
(f)   The Company does not sponsor, maintain or contribute to, and has never sponsored, maintained or contributed to (or been obligated to sponsor, maintain or contribute to), (a) a “multiemployer plan,” as defined in Section 3(37) or 4001(a)(3) of ERISA or 414(f) of the Code, (b) a multiple employer plan within the meaning of Section 4063 or 4064 of ERISA or Section 413(c) of the Code, (c) an employee benefit plan that is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code, or (d) a "multiple employer welfare arrangement," as defined in Section 3(40) of ERISA.
 
(g)   Neither the Company nor any Benefit Plan provides or has any obligation to provide (or contribute toward the cost of) life insurance, medical benefits or any other welfare benefits (within the meaning of Section 3(1) of ERISA) with respect to any current or former officer, employee, director, agent or independent contractor of the Company after his or her retirement or other termination of service for any reason, except to the extent required by Part 6 of Subtitle B of Title I of ERISA and Section 4980B(f) of the Code.
 
(h)   There are no actions, suits or claims (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened with respect to (or against the assets of) any Benefit Plan, nor is there a basis for any such action, suit or claim.  No Benefit Plan is currently under investigation, audit or review, directly or indirectly, by the IRS, the Department of Labor or any other government authority.
 
(i)   Schedule 3.18 of the Disclosure Schedule sets forth a complete and accurate list of all "nonqualified deferred compensation plans" (within the meaning of Section 409A of the Code) sponsored or maintained by the Company (or to which the Company is (or was) a party or in which any of their current or former officers, employees, agents, directors or independent contractors participated) at any time.  Each such plan has been operated and administered in good faith compliance with Section 409A of the Code and any guidance issued by the United States Treasury Department or the IRS thereunder, to the extent applicable to such plan.  No such plan has been "materially modified" (within the meaning of IRS Notice 2005-1 or Proposed Treasury Regulation Section 1.409A-6(a)(4)) at any time after October 3, 2004.
 
(j)   Neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will (i) result in any benefit or right becoming established or increased, or accelerate the time of payment or vesting, under any Benefit Plan, (ii) increase the amount of compensation due to any individual or forgive any indebtedness owed by any individual, or (iii) entitle any individual to severance pay, unemployment compensation, retention or transaction bonuses, or any other payment from the Company, Seller or any Benefit Plan.
 
3.21   Insurance.   The Company is insured under the insurance policies listed on Schedule 3.19 of the Disclosure Schedule.  The Company is in compliance in all material respects with the terms and provisions of such insurance policies.  There are no pending claims under any such insurance policy and no insurer of the Company has ever denied coverage, or provided the Company notice that a defense will be afforded with reservation of rights with respect to any prior claims.  The insurance policies maintained by the Company are of the type and in amounts customarily carried by persons conducting businesses similar to those of the Company in the jurisdiction in which the Company operates and are sufficient for compliance with all Legal Requirements and Material Contracts.
 
3.22   Brokers.   Except as set forth on Schedule 3.20   of the Disclosure Schedule, neither the Sellers nor the Company has engaged any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement, and none of them are under any obligation to pay any broker’s fee, finder’s fee or commission in connection with the consummation of the transactions contemplated by this Agreement as a result of any agreement of the Company.
 

 
3.23   Compliance with Environmental Laws.
 
(a)   For purposes of this Agreement, the following definitions shall apply:
 
(i)   Environment ” shall mean soil, surface waters, sediments, groundwaters, land, surface, subsurface strata, ambient air, fish, plant, wildlife, habitat and any other environmental medium or natural resources.
 
(ii)   Environmental Claim ” shall mean any litigation, proceeding, order, claim, demand, directive, summons, notice, cause of action, complaint or citation, relating to Environmental Laws or Hazardous Substances.
 
(iii)   Environmental Laws ” shall mean all foreign, federal, state and local statutes, regulations, rules and ordinances relating to pollution or the protection of the Environment, Hazardous Substances or the discharge of materials into the Environment.
 
(iv)   Hazardous Substances ” shall mean any substance which is a “hazardous substance,” “hazardous waste,” “toxic substance,” “toxic waste,” “pollutant,” “contaminant” or words of similar import under any Environmental Law including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. §6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. §1251 et seq.), and the Clean Air Act (42 U.S.C. §7401 et seq.), and including, without limitation, which contains polychlorinated biphenyl, asbestos, or gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds.
 
(b)   The operations of the Company have at all times been and are in material compliance with all applicable Environmental Laws.
 
(c)   The Company has at all times possessed and currently possesses all material permits, licenses and authorizations required under applicable Environmental Laws, and the operations of the Company have at all times been and are in compliance with the terms and conditions of such required permits, licenses and authorizations
 
(d)   There are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company.
 
(e)   The Company's operations have not resulted in the spill or release of Hazardous Substances into the Environment.  There have been no spills or releases of Hazardous Substances at, from, onto or under any real property leased or operated by the Company.
 
(f)   None of the following exists at any property or facility owned or operated by the Company: (i) underground storage tanks; (ii) friable asbestos-containing materials; (iii) materials or equipment containing polychlorinated biphenyls; or (iv) landfills, surface impoundments or hazardous waste disposal areas.
 
(g)   The Company has not either expressly or by operation of law, assumed or undertaken any liability, including without limitation any obligation for corrective or remedial action, of any other Person related to any Environmental Laws.
 
(h)   The Company has provided Buyer with complete and accurate copies of all environmental assessments and reports that relate to the operations of the Company or any real property leased by the Company.
 
3.24   Affiliate Transactions.   Except for employment relationships and the payment of compensation and benefits in the ordinary course of business, the Company is not a party to any Material Contract or other arrangement with any member, officer, director or Affiliate of the Company.  As used herein, the term “ Affiliate ” shall have the meaning given to it under Rule 405 promulgated under the Securities Act of 1933, as amended.
 
3.25   Customers and Suppliers .  To the knowledge of the Company (a) there is no indication and any customer or supplier of the Company intends to terminate or modify its relationship with the Company and (b) the consummation of the transactions contemplated by this Agreement will not adversely affect the post-Closing relationship of the Buyer with any customer or supplier of the Company.  No customer or supplier of the Company has during the last twelve months decreased or limited materially, or threatened to decrease or limit materially, its purchase of the Company's products, or its supply of materials or services to the Company, as the case may be.   Schedule 3.21 of the Disclosure Schedule lists each customer of the Company who accounted for five percent or more of the revenues of the Company at any time during the period from January 1, 2014 through the date hereof, and the dollar and volume amount of each product sold to each such customer during such period.   Schedule 3.21 of the Disclosure Schedule also lists each supplier of the Company who accounted for five percent or more of the expenses of the Company for materials or services purchased during such period and the dollar and volume amount of the materials and services purchased from each such supplier during such period.
 
3.26   Absence of Questionable Payments.   None of the Sellers, the Company, or any Affiliate, director, officer, agent, employee or other person acting on behalf of the Company or any Seller has used, any of the Company's funds for improper or unlawful contributions, payments, gifts or entertainment, or made any improper or unlawful expenditures relating to political activity to any government official or other person.  The Company has adequate financial controls to prevent such improper or unlawful contributions, payments, gifts, entertainment or expenditures.  None of the Sellers, the Company, or any Affiliate, officer, director, agent, employee other person acting on behalf of the Company has accepted or received any improper or unlawful contributions, payments, gifts, or expenditures in connection with the operation of the Company's business.
 
3.27   Product Warranties; Defects; Liabilities .  Each product manufactured, sold, licensed, leased or delivered by the Company has been in material conformity with all applicable contractual commitments and all expressed and implied warranties.  The Company does not have any liability (and to the knowledge of the Seller, there is no current reasonable basis for any present or future action, suit, preceding, hearing, investigation, charge, complaint or claim against the Company relating to any product giving rise to any liability) for replacement or repair thereof or any damages in connection therewith.  No product manufactured, sold, licensed, leased or delivered by the Company is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or beyond that implied or imposed by applicable law or to any recall whether initiated due to the action of any governmental authority, private party or otherwise.
 
3.28   Full Disclosure .  No information furnished by the Sellers or the Company to the Buyer in connection with this Agreement (including, but not limited to, the financial statements and all information in the Disclosure Schedule and the exhibits hereto) or to be furnished prior to the Closing by or on behalf of the Company to the Buyer, is false or misleading in any material respect.  The Company has not made any untrue statement of a material fact or omitted to state and material fact any necessary in order make the statements made or information delivered in or pursuant to this Agreement, including but not limited to the financial statements, the Disclosure Schedule and exhibits hereto not misleading.
 
ARTICLE 4
 
REPRESENTATIONS AND WARRANTIES OF THE BUYER
 
The Buyer hereby represents and warrants to the Sellers that each of the statements contained in this Article 4 is true and correct as of the date hereof.
 
4.1   Organization, Power and Standing.   The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, with all requisite power and authority to own, lease and operate its properties and to carry on its business as such business is conducted on the date hereof.
 
4.2   Power and Authority; No-Conflict.   The Buyer has full power and authority and has taken all required action necessary to permit it to execute and deliver and to carry out the terms of this Agreement and all other agreements, instruments and documents to be executed and delivered by the Buyer as contemplated hereby and none of such actions will result in any violation of, be in conflict with or constitute a default under any charter, by-law, organizational document, Legal Requirement, contract, agreement or instrument to which the Buyer is a party or by which the Buyer or its assets are bound.
 
4.3   Consents and Approvals.   No consent, order, approval, authorization, declaration or filing from or with any governmental authority or third party is required on the part of the Buyer for or in connection with the execution, delivery and performance of this Agreement or any other agreement, instrument or document contemplated hereby by the Buyer and the consummation by the Buyer of any of the transactions contemplated herein or therein.
 
4.4   Validity and Enforceability. Assuming the valid execution and delivery by the other Parties hereto and thereto, this Agreement constitutes, and each other agreement, instrument and document of the Buyer contemplated hereby will be when executed and delivered by the Buyer, the valid and legally binding obligation of the Buyer, enforceable against it in accordance with their respective terms, subject, however, to applicable bankruptcy, insolvency and other laws affecting the rights and remedies of creditors and to general equitable principles.
 
4.5   Brokers.   The Buyer has not engaged any broker, finder or similar agent with respect to the transactions contemplated by this Agreement, and the Buyer is not under any obligation to pay any broker’s fee, finder’s fee, commission or similar amount in connection with the consummation of the transactions contemplated by this Agreement.
 
ARTICLE 5
 
COVENANTS
 
5.1   Access to Information; Confidentiality.
 
(a)   The Sellers and the Company shall permit the Buyer and its counsel, accountants and other representatives access, upon reasonable notice and during normal business hours throughout the period prior to the Closing, to the properties, books and records of the Company.  Any such access shall be managed by and conducted through those representatives of the Company identified by the Company, and shall be subject to such additional limitations as the Company may reasonably require to prevent the disruption of the business of the Company and/or the disclosure of any confidential or legally privileged information.
 
5.2   Conduct of Business.   Between the date of this Agreement and the Closing or earlier termination of this Agreement, unless the Buyer shall otherwise consent in writing (such consent not to be unreasonably withheld, delayed or conditioned) or except as otherwise expressly contemplated by this Agreement or as required by any Legal Requirement:
 
(a)   Required Actions.   The Company shall:
 
(i)   maintain its legal existence;
 
(ii)   conduct its business only in the ordinary course; and
 
(iii)   use reasonable efforts to operate in such a manner as to assure that the representations and warranties of the Company set forth in this Agreement will be true and correct in all material respects as of the Closing date with the same force and effect as if such representations and warranties had been made on and as of the Closing.
 
(b)   Prohibited Actions.   The Company shall not do any of the following:
 
(i)   effect any material change to the Company Charter Documents;
 
(ii)   acquire or dispose of any material properties or assets, except in the ordinary course of business;
 
(iii)   incur any indebtedness for borrowed money, other than in the ordinary course of business;
 
(iv)   subject any of its properties or assets to any Lien, other than Permitted Liens;
 
(v)   make any non-cash dividend or distribution on its equity interests or otherwise issue any equity securities in the Company;
 
(vi)   modify or amend in any material respect or cancel or terminate any Material Contract, other than in the ordinary course of business;
 
(vii)   make any material change in its Tax or accounting practices, other than any change required by applicable law or GAAP;
 
(viii)   make any material change to any Tax election or Tax Return, other than any change required by law;
 
(ix)   acquire any business, whether by merger or consolidation, purchase of substantial assets or equity interests or any other manner;
 
(x)   make any material increase in the cash compensation of any employee, other than salary increases and other changes in compensation in the ordinary course of business;
 
(xi)   make any material change to any of the Benefit Plans; or
 
(xii)   commit to do any of the foregoing.
 
5.3   Exclusivity.   From the date of this Agreement until the Closing or the earlier termination of this Agreement, neither the Company nor any of the Sellers will, directly or indirectly, solicit or negotiate any competing offers for the acquisition of the Company, or the sale of all or substantially all of the assets or business of the Company, or negotiate with respect to any unsolicited offer or indication of interest with respect to any such acquisition or sale.
 
5.4   Consents and Approvals.   From the date of this Agreement until the Closing or the earlier termination of this Agreement, the Parties shall cooperate and use all reasonable efforts to obtain all third party, governmental and regulatory consents, approvals and actions necessary to consummate the transactions contemplated hereby which are required to be obtained by any Legal Requirement or Material Contract.
 
5.5   Reasonable Efforts. From the date of this Agreement until the Closing or the earlier termination of this Agreement, the Parties agree to act in good faith and use reasonable efforts to satisfy the conditions specified in this Agreement necessary to consummate the transactions contemplated hereby.
 
5.6   Tax Matters.
 
(a)   Tax Indemnification.   Each Seller, severally and not jointly, agrees to indemnify the Buyer and hold it harmless against and in respect of (i) any and all Pre-Closing Taxes and related Losses; (ii) any transfer Taxes described in Section 5.7(f) , and (iii) any and all Taxes and related Losses incurred by the Buyer or the Company that arise or result from the failure of the Company or the Sellers to perform any of their covenants or agreements contained in this Section 5.6 , in each case, except to the extent such Taxes and related Losses were reflected on Exhibit B and taken into account in the calculation of the purchase price.  Notwithstanding anything to the contrary in this Agreement, Seller’s indemnification obligations under this Section 5.6(a) shall not be subject to the limitations and conditions set forth in Section 7.2(b) .
 
(b)   Tax Returns .
 
(i)   The Representative shall prepare or cause to be prepared, and timely file, all Tax Returns required to be filed by the Company, the due date of which (taking account extensions) occurs on or before the Closing Date, and the Sellers shall pay all Taxes due with respect to any such Tax Returns.  Prior to the due date for filing such Tax Returns, the Company shall make available to the Buyer a draft of such Tax Returns as the Company proposes to file.  The Representative shall prepare of cause to be prepared all federal, state, local and foreign income and franchise Tax Returns of the Company for the Pre-Closing Tax Period required to be filed by the Company, the due date of which (taking account extensions) occurs after the Closing Date, and will make available to the Buyer drafts of such returns for its review and approval prior to filing (such approval not to be unreasonably withheld, delayed or conditioned).  The Buyer shall prepare or cause to be prepared, and timely file, all other Tax Returns of the Company for the Pre-Closing Tax Period.  All Tax Returns of the Company for any Pre-Closing Tax Period shall be prepared in a manner consistent with the past practice of the Company, except as required by law.
 
(ii)   For purposes of this Agreement, in the case of any Taxes that are payable for a Straddle Period, the portion of such Tax attributable to the Pre-Closing Tax Period shall (A) in the case of any Taxes other than Taxes based upon or related to income, sales, gross receipts, wages, capital expenditures or expenses, be deemed to be the amount of such Tax for the Straddle Period multiplied by a fraction the numerator of which is the days in the Pre-Closing Tax Period and the denominator of which is the number of days in the Straddle Period, and (B) in the case of any Tax based upon or related to income, sales, gross receipts, wages, capital expenditures or expenses, be deemed to equal to the amount which would be payable if the Pre-Closing Tax Period ended on the Closing date.
 
(c)   Tax Audits .  The Buyer shall promptly notify the Representative in writing with respect of any matter which may give rise to a claim for indemnification against the Sellers pursuant to Section 5.6(a) (each, a " Tax Matter ") upon learning of such claim or the facts constituting such claim, describing the claim in reasonable detail, the amount thereof, and the basis therefor; provided , however , that failure of the Buyer to give Sellers notice as provided herein will not relieve Sellers of their indemnification obligations hereunder, except to the extent that Sellers are prejudiced by the Buyer’s failure to give such prompt notice.  The Representative shall have the right, as to any Tax Matter, if the Representative notifies the Buyer that he or she will defend such Tax Matter within ten (10) days after receipt of such notice and commences the defense of such Tax Matter and the Sellers agree that the Sellers are obligated to indemnify the Buyer with respect to the full amount in dispute in such Tax Matter, (i) to control, in whole or in part, any Tax audit, examination, contest or proceedings, (ii) to resolve and defend against any assessment, notice of deficiency, or other adjustment or proposed adjustment, (iii) to consent to any extension or waiver of the limitations period applicable to any Tax Matter, (iv) to initiate any claim for refund of Taxes related to a Pre-Closing Tax Period, and (v) to amend any Tax Return related to a Pre-Closing Tax Period only upon a final settlement or a Tax Matter, in each case solely to the extent relating to Taxes attributable to a Pre-Closing Tax Period or Taxes otherwise attributable to a Tax Matter; provided , however , Representative shall not enter into any settlement of or otherwise compromise any such Tax Matter to the extent that it can reasonably be expected to adversely affect the Tax liability of the Buyer or any affiliate thereof for any taxable period ending after the Closing without the prior written consent of the Buyer (such consent not to be unreasonably withheld, delayed or conditioned), and provided further , the Buyer may participate in any such audit, examination, contest or proceedings with counsel of its choice at its own expense.  In the event of a conflict between the provisions of this Section 5.6(d) and Section 7.4 , the provisions of this Section 5.6(d) shall control.
 
(d)   Cooperation in Tax Matters .  Each party to this Agreement (a "Party," or collectively, the " Parties ") shall provide the other Parties with such assistance as may be reasonably requested by such party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administration contest or proceedings relating to liability for Taxes, and shall provide the other Parties with any available records or information that may be relevant to such Tax Return, audit, examination, contest, proceedings or determination.  Such assistance shall include making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder and shall include providing copies of any relevant Tax Return and supporting work schedules.  The party requesting assistance hereunder shall reimburse the other Parties for reasonable out-of-pocket expenses incurred in providing such assistance.
 
(e)   C Election .  The Company and the Sellers shall not make any elections inconsistent with the treatment of the Company as a partnership for federal state or local income tax purposes for periods prior to the effectuation of the transactions contemplated hereby.
 
(f)   Certain Taxes and Fees.   All transfer, documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with the consummation of the transactions contemplated by this Agreement shall be paid by the Sellers when due, and the Sellers (or Representative) will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges, and, if required by applicable Law, the Buyer will join in any such Tax Returns and other documentation. ]
 
5.7   Books and Records.   From and after the Closing, the Buyer will cause the Company to maintain a reasonable records retention policy.  After the Closing, the Sellers and their accountants, lawyers and other representatives shall be entitled at all reasonable times to have access to and to make copies of the books and records and other information of the Company for the period prior to the Closing for the preparation of Tax Returns and the defense of litigation related to the Sellers' ownership of the Company.  In the event of any litigation or threatened litigation between the Parties relating to this Agreement or the transactions contemplated hereby, the covenants contained in this Section 5.7 shall not be considered a waiver by any party of any right to assert the attorney-client privilege.
 
5.8   Additional Covenants .
 
(a)   During the period beginning with the Closing date through the fifth anniversary of Closing (the “ Restricted Period ”), except for employment by, or a consulting relationship with, the Company or one of more of its Affiliates, each Seller agrees not to be employed by, consult with or otherwise perform services for, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or otherwise be connected with or related to, in any manner, directly or indirectly (including through one or more of such Seller’s Affiliates), any Competitor within the Territory.  Without limiting the foregoing, such Seller shall be deemed to be related to or connected with a Competitor if, among other things, such Competitor is (i) a partnership in which such Seller is a general or limited partner, employee, consultant, advisor or contractor, (ii) a corporation or association of which such Seller is an equity holder, officer, employee, consultant, advisor, contractor or director, (iii) a limited liability company in which such Seller is a manager, member, employee, consultant, advisor or contractor or (iv) a partnership, corporation, limited liability company or association of which such Seller is a member, employee, consultant, contractor, advisor or agent; provided, however, that nothing herein shall prevent the purchase or ownership by such Seller of equity securities of a Competitor that constitute less than one percent (1%) of the outstanding equity securities of such Competitor traded on any national securities exchange if the Seller has no other relationship with such Competitor.
 
(b)   During the Restricted Period, each Seller agrees not to (and shall cause its Affiliates not to) (i) employ or engage, or directly or indirectly solicit, influence or entice, any director, officer, employee, consultant or third party contractor of the Buyer, the Company, or any of their respective direct or indirect subsidiaries to cease his or her relationship with the Buyer, the Company, or any of their respective direct or indirect subsidiaries (other than as a result of such person’s affirmative response to a general recruitment effort carried out through a public solicitation), or (ii) solicit, influence, entice or in any way divert any customer, distributor, partner, joint venturer or supplier of the Buyer, the Company, or any of their respective direct or indirect subsidiaries from continuing to do business with the Buyer, the Company, or any of their respective direct or indirect subsidiaries at historic or previously planned or intended levels.
 
(c)   Each Seller acknowledges and agrees that the restrictions contained in this Section 5.8 are reasonable and necessary to protect the legitimate interests of the Buyer and constitute a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated by this Agreement.  In the event a determination is made by a governmental authority or arbitrator that any provision of this Section 5.8 constitutes an unreasonable or otherwise unenforceable restriction against any Person subject to such restrictions, the provisions of this Section 5.8 shall be rendered void only to the extent that such determination by a governmental authority or arbitrator finds such provisions to be unreasonable or otherwise unenforceable with respect to such Person and the Parties shall negotiate in good faith to substitute such unreasonable or unenforceable provision with one that would not be deemed unreasonable or otherwise unenforceable.  In this regard, any governmental authority or arbitrator construing this Agreement shall be empowered and is requested to sever any portion of the Territory, any prohibited business activity or any time period from the coverage of this Section 5.8 and to apply the provisions of this Section 5.8 to the remaining portion of the Territory, the remaining business activities and the remaining time period not so severed by such governmental authority or arbitrator.  Moreover, notwithstanding the fact that any provision of this Section 5.8 is determined not to be specifically enforceable, the Buyer shall nevertheless be entitled to recover monetary damages as a result of the breach of such provision by the Person subject to these restrictions.  The time period during which the prohibitions set forth in this Section 5.8 shall apply shall be tolled and suspended for a period equal to the aggregate time during which a Seller violates such prohibitions in any respect.
 
(d)   Each Seller shall cause such Seller’s Affiliates, officers, directors, managers, employees and agents, as applicable, to comply with the terms and conditions of this Section 5.8 as if they were a party hereto and shall be liable for any breach by any of the foregoing hereof.
 
5.9   Confidential Information.  As an inducement for the Buyer to enter into this Agreement, each Seller agrees that for the five (5) year period following the Closing date, except in connection with the employment by or a consulting arrangement with, the Company or one of its Affiliates, such Seller shall maintain all Confidential Information in confidence and shall not, directly or indirectly, disclose any Confidential Information to any individual or entity, and such Seller shall not use, directly or indirectly, any Confidential Information for its own benefit or the benefit of any other individual or entity.  Nothing in this Agreement, however, shall prohibit any Seller from disclosing Confidential Information to the extent required by Legal Requirement provided that such Seller shall provide as much advance written notice to the Buyer as possible, shall limit its disclosure to the minimum necessary to comply with its requirements and use reasonable best efforts to cooperate with the Buyer to obtain confidential treatment of disclosed Confidential Information.  “Confidential Information” means any and all information regarding the Company or its business, or any information relating to the Buyer or its Affiliates, to the extent it is not generally available to the public, including the following: (a) information regarding the Company’s operations, assets, liabilities or financial condition; (b) information regarding the Company’s pricing, sales, merchandising, marketing, capital expenditures, costs, joint ventures, business alliances or purchasing; (c) information regarding the Company’s employees or sales representatives, including their identities, responsibilities, competence and compensation; (d) the Company’s customer lists, customer files or other information regarding their current or prospective customers, including information regarding their identities, contact persons and purchasing patterns; (e) information regarding the Company’s current or prospective vendors, suppliers, distributors or other business partners; (f) the Company’s forecasts, projections, budgets and business plans; (g) information regarding the Company’s planned or pending acquisitions, divestitures or other business combinations; (h)  the Company Intellectual Property and other proprietary information related to the business of the Company; (i) technical information, patent disclosures and applications, copyright, applications, sketches, drawings, blueprints, models, know-how, discoveries, inventions, improvements, techniques, processes, business methods, equipment, software programs, software source documents and formulae, in each case regarding the Company’s current, future or proposed products or services; and (j)  the Company’s website designs, website content, proposed domain names, and data bases.  Information shall not be considered to be generally available to the public if it is made public in violation of this Agreement.  Each Seller shall cause its Affiliates, officers, directors, managers, employees and agents to comply with the terms and conditions of this Section 5.9 as if they were a party hereto and shall be liable for any breach by any of the foregoing hereof.
 
ARTICLE 6
 
CONDITIONS TO CLOSING
 
6.1   Conditions Precedent to the Buyer’s Obligations.   The obligation of the Buyer to purchase the Purchased Interests and to consummate the other transactions contemplated by this Agreement is expressly subject to the fulfillment or express written waiver of the following conditions on or prior to Closing:
 
(a)   Representations and Warranties True.   Each of the representations and warranties contained in Articles 2 and 3 shall be true and correct in all material respects (other than representations and warranties which are qualified by materiality which shall be true and correct in all respects) at and as of the Closing (except as a result of any event or circumstance contemplated by this Agreement or otherwise approved in writing by the Buyer, and except for any representation or warranty that expressly relates to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date).  For the purposes of determining the accuracy of any representation or warranty for the purposes of this Section 6.1 , all materiality qualifications contained in such representations or warranties shall be disregarded.
 
(b)   Covenants Performed.   Each Seller and the Company shall each have performed in all material respects, on or before the Closing date, all obligations contained in this Agreement which by the terms hereof are required to be performed by them on or before the Closing.
 
(c)   No Injunction, Etc.   There shall not be any order of any court of competent jurisdiction or governmental agency restraining or invalidating the material transactions which are the subject of this Agreement.
 
(d)   Resignations .  All officers and directors of the Company shall have delivered resignations in a form satisfactory to the Buyer.
 
(e)   Satisfactory Completion of Due Diligence .  The Buyer's remaining confirmatory due diligence investigation shall have been completed to the reasonable satisfaction of the Buyer.
 
(f)   Related Party Indebtedness; Pay-off Letters.   The Buyer shall have received evidence acceptable to it that all loans, advances and other indebtedness owed to or payable by the Company with any employee or any of the Sellers, or any Affiliate, member, employee or director of the foregoing has been satisfied in full.
 

 
6.2   Conditions Precedent to each Seller’s Obligations.   The obligation of each Seller to consummate the transactions contemplated by this Agreement is expressly subject to the fulfillment or express written waiver of the following conditions on or prior to Closing:
 
(a)   Representations and Warranties True.   Each of the representations and warranties of the Buyer contained in Article 4 shall be true and correct in all material respects at and as of the Closing.
 
(b)   Obligations Performed.   The Buyer shall have performed in all material respects, on or before the Closing date, all obligations contained in this Agreement which by the terms hereof are required to be performed by the Buyer on or before Closing.
 
(c)   No Injunction, Etc.   There shall not be any order of any court of competent jurisdiction or governmental agency restraining or invalidating the material transactions which are the subject of this Agreement.
 
(d)   Closing Payments.   The Buyer shall have made the payments contemplated by Section 1.2 .
 
ARTICLE 7
 
SURVIVAL; INDEMNIFICATION
 
7.1   Survival.   The representations and warranties contained in this Agreement shall survive the Closing until the twenty-four (24) month anniversary of the Closing (the “ Cut-Off Date ”); provided however that representations and warranties in Sections 2.1 (Title), 3.1 (Organization, Power and Standing), 3.2  (Power and Authority), 3.3  (Validity and Enforceability), 3.4 (Subsidiaries), 3.6  (Capitalization) and 3.10  (Personal Property) shall survive forever and representations and warranties in Sections  3.9 (Taxes), 3.12 (Intellectual Property), 3.18 (Employees and Compensation), 3.19  (Benefit Plans) and 3.22  (Compliance with Environmental Laws) shall survive until the end of the applicable statute of limitations plus thirty days (or in the event of an audit, investigation, litigation or other action that has been commenced with respect to such matters, until the conclusion of such action).  All representations or warranties that survive for a period beyond the Cut-Off Date are referred to as “ Fundamental Representations .”  Except with respect to the Fundamental Representations, no claim for breach of any representation, warranty, pre-Closing covenant or pre-Closing agreement may be brought after the Cut-Off Date, except for claims (a) of which the Representative has been notified in writing with reasonable specificity by the Buyer prior to the Cut-Off Date or (b) of which the Buyer has been notified in writing with reasonable specificity by a Seller or the Representative prior to the Cut-Off Date.  The post-Closing covenants and post-Closing agreements contained in this Agreement shall survive in accordance with their respective terms.
 
7.2   Indemnification of the Buyer.
 
(a) Subject to the other terms of this Article 7 , from and after the Closing, each Seller agrees to defend and indemnify the Buyer and hold it harmless against and in respect of any and all damages, losses, expenses, costs, obligations and liabilities, including without limitation reasonable attorney’s fees (collectively, “ Losses ”), (i) jointly and severally for all Losses, incurred by the Buyer that arise or result from (1) any breach of or inaccuracy in any of the representations or warranties contained in this Agreement other than in Article 2 (as modified by the Disclosure Schedule), or (2) the failure of the Company or the Sellers to perform any of their covenants or agreements contained herein, and (ii) severally and not jointly for all Losses incurred by the Buyer that arise or result from any breach of, or inaccuracies in, any of the representations or warranties contained in Article 2 (as modified by the Disclosure Schedule) by such Seller, it being understood, that, for the avoidance of doubt, the indemnification obligations set forth in this Section 7.2(a)(ii) for a breach of any of the representations or warranties contained in Article 2 shall only apply to the Seller who committed such breach.
 
(b) Notwithstanding anything in this Agreement to the contrary, the Buyer shall be entitled to offset any claims it may have with respect to Section 1.7 , Section 5.6 or this Article 7 against any amounts that it is required to pay to the Sellers hereunder (including the Post-Closing Payments).
 
7.3   Indemnification of Seller.   Subject to the other terms of this Article 7 , from and after the Closing, the Buyer agrees to indemnify each Seller and hold each Seller harmless from all Losses incurred by any Seller that arise or result from (a) any breach of any of the Buyer’s representations and warranties or (b) the failure of the Buyer to perform any of its covenants or agreements set forth herein.
 
7.4   Procedure for Indemnification.
 
(a)   Any party entitled to make a claim for indemnification hereunder shall promptly notify the indemnifying party of the claim in writing upon learning of such claim or the facts constituting such claim, describing the claim in reasonable detail, the amount thereof, and the basis therefor.  The indemnifying party will be relieved of its indemnification obligations hereunder only to the extent that it is prejudiced by the indemnified party’s failure to give such prompt notice.  The party from whom indemnification is sought shall respond to each such claim within ten (10) days of receipt of such notice either rejecting responsibility for such defense or electing to assume the defense of such third-party claim and acknowledging that any Losses incurred by the indemnified party that may arise from such third-party claim shall constitute Losses for which the indemnifying party shall be obligated to indemnify the indemnified party hereunder (subject to the limitations described in Section 7.2(b) .  No action shall be taken pursuant to the provisions of this Agreement or otherwise by the party seeking indemnification (unless reasonably necessary to protect the rights of the party seeking indemnification) until the later of (i) the expiration of the 10-day response period, or (ii) thirty (30) days following the expiration of the 10-day response period if a response, received within such 10-day period by the party seeking indemnification, requests an opportunity to cure the matter giving rise to indemnification (and, in such event, the amount of such claim for indemnification shall be reduced to the extent so cured).
 
(b)   If a claim for indemnification hereunder is based on a claim by a third party, the indemnifying party shall have the right to assume the entire control of the defense thereof, including at its own expense, employment of counsel reasonably satisfactory to the indemnified party, and, in connection therewith, the party claiming indemnification shall reasonably cooperate with the indemnifying party and make available to the indemnifying party all pertinent requested information under its control; provided , that the indemnified party may participate in any proceeding with counsel of its choice at its own expense.  In such event, the indemnifying party shall have the right to settle or resolve any such claim by a third party; provided , that any such settlement or resolution contemplated by the Sellers or the Representative, as the indemnifying party, that involves any action by the Buyer other than the payment of money which is fully satisfied by the Seller’s obligations hereunder shall not be concluded without the prior written approval of the Buyer, unless such approval is unreasonably withheld, delayed or conditioned; and, provided further, that any such settlement or resolution contemplated by the Buyer, as the indemnifying party, that involves any action by the Sellers other than the payment of money shall not be concluded without the prior written approval of each of the indemnified Sellers, which approval shall not be unreasonably withheld, delayed or conditioned.  Without limiting the generality of the foregoing, the Buyer will, and the Buyer will cause the employees of the Buyer and the Company to, cooperate at Sellers' expense with the Representative and each Seller in connection with any matter for which any Seller is the indemnifying party.  Such cooperation shall include, without limitation, (i) assisting in the collection and preparation of discovery materials, (ii) meeting with (and making employees available to meet with) the indemnifying Sellers and/or their counsel to prepare for and/or appear as witnesses at depositions, court proceedings and/or trial, and (iii) providing to the indemnifying Sellers and/or their counsel all information under the control of the Buyer or the Company that is deemed necessary by the indemnifying Sellers and/or their counsel for the defense or prosecution of such matter.
 
(c)            (i) Notwithstanding the foregoing, if (A) the indemnifying party does not give written notice to the indemnified party within the period specified in Section 7.4(a) stating that the indemnifying party has elected to assume defense of such third-party claim and the indemnifying party acknowledges that any Losses incurred by the indemnified party that may arise from such third-party claim shall constitute Losses for which the indemnifying party shall be obligated to indemnify the indemnified party hereunder, (B) at any time the indemnifying party shall fail to carry out such defense or handling diligently and in such manner as is reasonable under the circumstances, (C) the third-party claim involves such matters as in the good faith judgment of the Buyer may result in a material adverse impact on the business, obligations, assets, liabilities (absolute, accrued, contingent or otherwise), condition (financial or otherwise), material customer or supplier relationships or prospects of the Buyer or its Affiliates or (d) the indemnified party has reasonably determined, upon advice of counsel, that having common counsel with the indemnifying party would present such counsel with a conflict of interest or that, upon advice of counsel, there may be legal defenses available to such indemnified party which are different from or in addition to those available to the indemnifying party, then the provisions of Section 7.4(c)(ii) below shall govern.
 
(ii)           The indemnified party may, at the indemnifying party’s expense, select counsel reasonably satisfactory to the indemnifying party to defend or handle such third-party claim in a manner that is reasonable under the circumstances; provided, however, that the indemnified party shall keep the indemnifying party timely apprised of the status of such third-party claim.  The indemnified party shall not settle such third-party claim without the prior written consent under the indemnifying party (which consent shall not be unreasonably withheld, conditioned or delayed).  If the indemnified party defends or handles such third-party claim, the indemnifying party shall cooperate with the indemnified party and shall be entitled to participate in the defense of handling of such third-party claim with its own counsel and at the indemnifying party’s expense.  In addition, in the event that the indemnifying party is not permitted to assume the defense of the third-party claim solely by virtue of clause (D) of subparagraph (c)(i) above, then the indemnifying party shall be permitted to pursue, at its own expense, settlement discussions directly with any other Parties involved in such third-party claim.  Notwithstanding the preceding sentence, the indemnifying party shall not, without the prior written consent of the indemnified party agree to a settlement of any third-party claim, unless (A) the settlement is for monetary damages only for amounts which the Sellers agree to pay, and with respect to claims by any indemnified party provides an unconditional release and discharge of the indemnified Parties, and the indemnified party has no reasonable good faith objection to the form or substance of such discharge and release and (B) the indemnified party shall not have reasonably objected to any such settlement on the grounds that the circumstances surrounding the settlement could adversely impact the business, operations, assets, liabilities (absolute, accrued, contingent or otherwise), condition, financial or otherwise, material, customer or supplier relationships or prospects of the Buyer or its Affiliates or could establish or contribute to a precedential customer practice which could have a material adverse effect on the continuing business interest of the Buyer or its Affiliates.
 
7.5   Tax Treatment of Indemnity Payments.   To the maximum extent permitted by law, it is the intention of the Parties to treat any indemnity payment made under this Agreement as an adjustment to the Total Purchase Price for all federal, state, local and foreign Tax purposes, and the Parties agree to file their Tax Returns accordingly.
 
ARTICLE 8
 
TERMINATION
 
8.1   Termination.   Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated at any time prior to the Closing:
 
(a)   by mutual written consent of the Representative and the Buyer;
 
(b)   by the Buyer, if (i) any of the representations and warranties of the Sellers or the Company set forth in this Agreement shall not be true and correct to the extent set forth in Section 6.1(a) , or any Seller shall have breached or failed to perform any of its obligations, covenants or agreements under this Agreement to the extent set forth in Section 6.1(b) , and (ii) such breach, failure or misrepresentation is not cured within fifteen (15) days after the Buyer gives the Representative and the Company written notice identifying in reasonably detail such breach, failure or misrepresentation;
 
(c)   by the Representative, if (i) any of the representations and warranties of the Buyer set forth in this Agreement shall not be true and correct to the extent set forth in Section 6.2(a) , or if the Buyer shall have breached or failed to perform any of its obligations, covenants or agreements under this Agreement to the extent set forth in Section 6.2(b) , and (ii) such breach, failure or misrepresentation is not cured within fifteen (15) days after the Representative gives the Buyer written notice identifying in reasonable detail such breach, failure or misrepresentation;
 
(d)   by either the Representative or the Buyer, if any court or governmental authority has issued a final and non-appealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting the consummation of the sale and purchase of the Purchased Interests contemplated by this Agreement; or
 
(e)   by either the Representative or the Buyer, if the Closing has not occurred by April 10, 2015 or such other date, if any, as the Representative and the Buyer may agree in writing; provided , that the right to terminate this Agreement under this Section 8.1(e)  shall not be available to the party whose willful and knowing failure to fulfill any obligation under this Agreement has contributed materially to the failure of the Closing to occur on or before such date.
 
8.2   Effect of Termination.
 
(a)   If this Agreement is terminated as provided above, the Parties shall have no further obligations hereunder (including, without limitation, for costs and expenses incurred by other Parties in connection with this Agreement and the transactions contemplated hereby), except as provided below and except that each party shall be liable for its breach of this Agreement and the other Parties hereto shall be entitled to all rights and remedies provided by law in respect of such breach.
 
ARTICLE 9
 
MISCELLANEOUS
 
9.1   Notices.   Any notices, demands and communications to a party hereunder shall be in writing and shall be deemed to have been duly given and received (a) if delivered personally or actually received, as of the date received, (b) if delivered by certified mail, return receipt requested, two (2) business days after being mailed, (c) if delivered by a nationally recognized overnight delivery service, one (1) business day after being sent to such delivery service, or (d) if sent via facsimile, electronic mail or similar electronic transmission, as of the date received, to such party at its address set forth below (or such other address as it may from time to time designate in writing to the other Parties hereto):
 
If to the Sellers or, prior to the Closing, the Company, to:
 
Dank Bottles, LLC
3831 Eudora Way
Denver, CO 80207
Attn: Greg Gamet

If to the Buyer or, after the Closing, the Company, to:
 
Kush Bottles, Inc.
1800 Newport Circle
Santa Ana, CA 92705
Attn:  Nicholas Kovacevich


9.2   No Waiver.   No failure of any party to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder.
 
9.3   Amendments and Waivers.   This Agreement may be modified, amended or waived only by a writing signed by the party against whom enforcement thereof is sought.
 
9.4   Choice of Law and MEDIATION/ARBITRATION .  Notwithstanding every other provision of this Agreement, if a dispute arises from or relates to this Agreement or the breach thereof, and if the dispute cannot be settled through direct discussions, the Parties agree to endeavor first to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Procedures before resorting to arbitration. Any unresolved controversy or claim arising from or relating to this Agreement or breach thereof shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules and the Expedited Procedures contained therein if applicable, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. If all Parties to the dispute agree, a mediator involved in the Parties mediation may be asked to serve as the arbitrator. The requirements of filing a notice of claim with respect to the dispute submitted to mediation shall be suspended until the conclusion of the mediation process. The arbitrator shall have exclusive authority to resolve any dispute relating to this Agreement including, but not limited to, the interpretation, applicability, enforceability, validity or formation of the Agreement, any claim that all or any part of the Agreement is void or voidable, and any claim arising out of the terms of this Agreement or involving the rights and obligations of the parties hereto or its breach.

a)  
If not heard by telephonic means according to the Parties mutual consent, the arbitration hearing shall be held in the City of Irvine, State of California, United States of America. This agreement shall be governed and interpreted in accordance with the laws of the State of California unless otherwise preempted by the Federal Arbitration Act.

b)  
At the hearing, any relevant evidence may be presented by either party, and the form rules of evidence applicable to judicial proceedings shall not govern.  Evidence may be admitted or excluded in the sole discretion of the arbitrator.

 
c)  
The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the applicable law and the agreement of the parties, including injunctive relief.

d)  
The administrative costs and attorneys’ fees arising out of  the arbitration and any ancillary judicial proceedings necessarily required in the enforcement of this Agreement shall be borne by the losing party or shall be borne in such proportions as the arbitrator may determine.

 
9.5   Any proceeding arising out of or relating to this Agreement that cannot be otherwise arbitrated shall be brought in the courts of the State of California, or, if it has or can acquire jurisdiction, in the United States District Court for the Central District of California.  This provision may be filed with any court as written evidence of the knowing and voluntary irrevocable agreement between the Parties to waive any objections to jurisdiction, venue or convenience of forum.   EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
 


 

9.6   This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to the choice of law provisions thereof.  Any proceeding arising out of or relating to this Agreement shall be brought in the courts of the State of California, County of Los Angeles, or, if it has or can acquire jurisdiction, in the United States District Court for the Central District of California.  This provision may be filed with any court as written evidence of the knowing and voluntary irrevocable agreement between the Parties to waive any objections to jurisdiction, venue or convenience of forum.  EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
 
9.7   Binding Effect and Benefits.   This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective heirs, successors and assigns, but may not be assigned by any party without the prior written consent of the Representative in the case of a purported assignment by the Buyer, or by the Buyer in the case of a purported assignment by any Seller.
 
9.8   Integration; Schedules.   This writing, the exhibits and schedules attached hereto and the Disclosure Schedule, embody the entire agreement and understanding among the Parties with respect to this transaction and supersede all prior discussions, understandings and agreements concerning the matters covered hereby.  Information set forth on the Disclosure Schedule shall be deemed to qualify each section of this Agreement to which such information is applicable (regardless of whether or not such other section is qualified by reference to the Disclosure Schedule), so long as application to such section is reasonably discernible from the reading of such disclosure.  No information set forth on any schedule to the Disclosure Schedule shall be deemed to broaden in any way the scope of any Seller’s or the Company’s representations and warranties.  The inclusion of an item on any schedule to the Disclosure Schedule is not evidence of the materiality of such item for purposes of this Agreement or otherwise, or that such item is a disclosure required under the Agreement.  No disclosure in any schedule to the Disclosure Schedule relating to any possible breach or violation of any agreement, Authorization or Legal Requirement shall be construed as an admission or indication that any such breach or violation exists or has actually occurred, or shall constitute an admission of liability to any third party.
 
9.9   Counterparts.   This Agreement may be executed in two or more counterparts, and with counterpart signature pages, each of which shall be an original, but all of which together shall constitute one and the same Agreement, binding on all of the Parties hereto notwithstanding that all such Parties have not signed the same counterpart.  Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in “portable document format” (“.pdf”) form, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
 
9.10   Limitation on Scope of Agreement.   If any provision of this Agreement is unenforceable or illegal, such provision shall be enforced to the fullest extent permitted by law and the remainder of the Agreement shall remain in full force and effect.
 

 
9.11   Sellers’ Representative.
 
9.11.1.1   Each Seller hereby appoints Greg Gamet as its, his, or her Representative (the “ Representative ”), to be its, his, or her true and lawful attorney-in-fact for all matters in connection with this Agreement, including without limitation, the compromise of any disputes between the Buyer and any Seller relating to the transactions contemplated by this Agreement and to take any other action contemplated to be taken by the Representative hereof.  The power of attorney granted to the Representative appointed hereunder is coupled with an interest and will continue in full force and effect notwithstanding the subsequent death or incapacity of a Seller.  The Representative appointed hereunder will have the power to act on behalf of the Sellers with respect to all matters requiring action by the Sellers or a Seller under this Agreement, including, without limitation, the execution and delivery of any documents contemplated hereby. Greg Gamet hereby accepts such appointment.  In the event of the death, or the incapacity to serve or resignation as the Representative by Greg Gamet, a successor Representative will promptly be appointed by the Sellers and the Sellers will jointly notify the Buyer of such appointment.  The Buyer will be entitled to rely on any communication received from the Representative or his successor without investigation.
 
9.11.1.2   The Representative shall not be liable to the Sellers for any act taken or omitted by him as permitted under this Agreement and the transactions contemplated hereby, except if such act is taken or omitted in bad faith or by willful misconduct.  The Representative shall also be fully protected against the Sellers in relying upon any written notice, demand or document that he in good faith believes to be genuine.
 
9.11.1.3   The Sellers agree, severally but not jointly, to indemnify the Representative for, and to hold the Representative harmless against Losses, in an amount equal to his or her Pro Rata Share of the Losses, incurred without willful misconduct or bad faith on the part of the Representative, arising out of or in connection with the Representative’s carrying out its duties under this Agreement and the transactions contemplated hereby, including costs and expenses of successfully defending the Representative against any claim of liability with respect thereto.  The Representative may consult with counsel of its own choice and will have full and complete authorization and protection for any action taken and suffered by it in good faith and in accordance with the opinion of such counsel.
 
9.12  
Headings.   The headings of Articles and Sections herein are inserted for convenience of reference only and shall be ignored in the construction or interpretation hereof.
 
9.13  
No Third Party Beneficiaries.   Except as otherwise expressly set forth in this Agreement, nothing in this Agreement will be construed as giving any third party, any right, remedy or claim under or in respect of this Agreement or any provision hereof.  No employee of the Company shall be a third-party beneficiary or entitled to rely on Section 5.8 .
 
9.14  
Further Assurances.   Following the Closing, the Parties shall execute and deliver to each other such documents and take such other actions as may reasonably be requested in order to consummate more effectively the transactions contemplated hereby.
 
9.15  
“Knowledge” Defined.   As used herein, “to the knowledge of the Company,” “to the Company’s knowledge” or any other similar phrase shall mean the actual knowledge of the Sellers, after a reasonable and due inquiry.
 
9.16  
Publicity.   Pending the Closing, none of the Sellers nor the Company shall issue a press release or make any other public announcement concerning the transactions contemplated by this Agreement without the prior written consent of the Buyer, except to the extent required by law, in which case the Buyer shall have the opportunity to review and comment prior to disclosure.
 
9.17  
No Strict Construction.   The Parties hereto have participated jointly in the negotiation and drafting of this Agreement and the other agreements and documents contemplated herein.  In the event an ambiguity or question of intent or interpretation arises under any provision of this Agreement or any other agreement or documents contemplated herein, this Agreement and such other agreements or documents shall be construed as if drafted jointly by the Parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authoring any of the provisions of this Agreement or any other agreements or documents contemplated herein.
 





LA-569522 v8
 
 
 

 

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first above written.
 
KUSH BOTTLES, INC.
 
By:                                                                
 
Name:                                                                
 
Title:                                                                
 
SELLERS:
 

Justin Jones
 

Greg Gamet
 

Frank Falconer
 

Bryan Sullivan
 
Dank Bottles, LLC
 
By:                                                                
Name:                                                                
Title:                                                                



 
 

 

EXHIBIT A
MEMBERS AND SCHEDULE OF PAYMENTS

Cash payment

Seller
 
Interests
Pro Rata Share (Cash)
Justin Jones
 
40%
$109,489.83
Bryan Sullivan
 
20%
$54,744.92
Greg Gamet
 
40%
$109,489.83

3,500,000 shares of common stock issued upon close

Seller
 
Interests
Pro Rata Share (Stock)
Justin Jones
 
37.5%
1,312,500
Bryan Sullivan
 
20%
700,000
Greg Gamet
 
37.5%
1,312,500
Frank Falconer
 
5%
175,000


POST CLOSING PAYMENTS

Period
Justin Jones
(40%)
Bryan Sullivan
(20%)
Greg Gamet
(40%)
July 31, 2015
$10,000
$5,000
$10,000
August 31, 2015
$3,333
$1,667
$3,333
September 30, 2015
$3,333
$1,667
$3,333
October 31, 2015
$3,333
$1,667
$3,333
November 30, 2015
$3,333
$1,667
$3,333
December 31, 2015
$3,333
$1,667
$3,333
January 31, 2016
$3,333
$1,667
$3,333
February 29, 2016
$3,333
$1,667
$3,333
March 31, 2016
$3,333
$1,667
$3,333
April 30, 2016
$3,333
$1,664
$3,333






EXHIBIT B

CASH PAYMENT FOR NET ASSETS


[Missing Graphic Reference]


























SCHEDULE 3.8 – DISCLOSURE SCHEDULE

·  
Schedule 3.9 – Leases
·  
Schedule 3.10 – Intellectual Property
·  
Schedule 3.11 – Material Contracts
·  
Schedule 3.12 – Licenses and Permits
·  
Schedule 3.13 – List of Employees
·  
Schedule 3.14 – Employee Benefit Plans
·  
Schedule 3.15 to 3.17 – Not Used
·  
Schedule 3.18 – Non Qualified Deferred Compensation Plans
·  
Schedule 3.19 – Insurance Policies
·  
Schedule 3.20 – Brokers
·  
Schedule 3.21 – Customers and Suppliers

































SCHEDULE 3.9 – LEASES

Commercial Sub-Lease Agreement between Dank Bottles, LLC and Elm Properties LLC for property located at: 3831 Eudora Way, Denver, CO 80207

SCHEDULE 3.10 – INTELLECTUAL PROPERTY

The Company has no intellectual property.

SCHEDULE 3.11 – MATERIAL CONTRACTS

The Company has no active material contracts with parties other than Kush Bottles, Inc.

SCHEDULE 3.12 – LICENSES and PERMITS

·  
City of Durango Sales Tax License

SCHEDULE 3.13 – EMPLOYEE LIST

[Missing Graphic Reference]

SCHEDULE 3.14 – Employee Benefit Plans

Employer sponsored medical benefit plan through Kaiser.

SCHEDULE 3.18 – NON-QUALIFIED DEFERRED COMPENSATION PLANS

The Company has no non-qualified deferred compensation plans.

SCHEDULE 3.19 – INSURANCE POLICIES

General Liability, Property, Auto, and Worker's Compensation
SCHEDULE 3.20 – BROKERS

·  
Venbrook Insurance
·  
Barrett Bartels

SCHEDULE 3.21 – CUSTOMERS and SUPPLIERS

·  
Two customers (the Green Solution and Strainwise) each represent over 5% of gross revenues for the period from January 1, 2014 to April 10, 2015

·  
Kush Bottles, Inc, supplier, represnted over 5% of inventory purchases for the period from January 1, 2014 to April 10, 2015.



 
 



 
 

 


Effective/Contract Date
 
Loan Number 04/06/2015
 
50900648 Originating State
 
SBB Loan Package Input Sheet California Business Applicant's Name (exact legal name) Exhibit A Contact Name
 
 
 
Guarantor Name Exhibit A Spelled Out Number Exhibit A No.
 
 
Business Location (cannot be a P.O. Box: Street) City State Zip
 
 
Client's Line of Business
 
 
State of Organization:
 
 
Title of Authorized Signer:
 
 
Limited Liability Company
 
Limited Partnership
 
General Partnership
 
 
Revolving Line of Credit
 
Above $250,000
 
Below $250,000
Loan Amount $:
Spelled Out Dollar Amount:
 
Limited Liability Company
 
Limited Partnership
 
General Partnership
 
 
Revolving Line of Credit
 
Above $250,000
 
Below $250,000
Loan Amount $:
Spelled Out Dollar Amount:
 

[Missing Graphic Reference]
 
First Payment Date: Collateral RLOC Interest Rate %:
 
RLOC Rate Margin %:
Maturity Date:
 
[Missing Graphic Reference]
 
RLOC Min. Adv. Amnt.
 
[Missing Graphic Reference]
 
[Missing Graphic Reference]

 
 

 

[Missing Graphic Reference]
 
 
Loan No.: 50900648
 
CERTIFIED COPY OF CORPORATE RESOLUTION TO BORROW MONEY
 
The undersigned, as the CEO, President and Secretary of KIM International Corporation , a California corporation ("Corporation"), hereby certifies that at a meeting of the Board of Directors of said Corporation, duly called and held on this day of 04/06/2015, at which meeting a quorum of said Board was present and acting throughout, the following resolution was duly adopted by the majority vote of all the Directors present, and the same has not since been rescinded or modified, and is presently in full force and effect:
 
WHEREAS , the complete and correct name of the Corporation is KIM International Corporation , and the Corporation is duly organized, validly existing, and in good standing under and by virtue of the laws of the State of California .
 
WHEREAS , the Corporation wants to obtain a loan from OPUS BANK, a California commercial bank ("Lender"), in the principal amount of ( $240,000.00 ) ("Loan"); and
 
WHEREAS , the Corporation will benefit by any credit now or hereafter extended by Lender to this Corporation.
 
NOW, THEREFORE, BE IT RESOLVED , that the CEO, President and Secretary of this Corporation, acting together or any one acting alone, be, and they hereby are, authorized on behalf of, and in the name of this Corporation, to borrow from Lender, the above-specified sum, plus the additional amounts of such expenses, costs and other expenditures as such officers or officer may deem necessary to the making of the Loan, for such time and upon such terms as such officers, or any one of them acting alone, may agree upon in their or his/her discretion.
 
RESOLVED FURTHER , that the CEO, President and Secretary of this Corporation, acting together or any one acting alone, be and they hereby are, authorized to execute the promissory note of this Corporation for such Loan, a security agreement and other security documents securing the same, a business loan agreement, and such other instruments or documents as such officer or officers, in their discretion, may deem necessary or desirable to meet the requirements of Lender in connection with such Loan.
 
RESOLVED FURTHER , that the Corporation hereby agrees to notify the Lender in writing at the Lender's address prior to any (i) change in the Corporation's name, (ii) change in the Corporation's assumed business name(s), (iii) change in the Corporation's principal office address, (iv) conversion of the Corporation to a new or different form of business entity, or (v) change in any other aspect of the Corporation that directly or indirectly relates to any agreements between the Corporation and the Lender.
 
RESOLVED FURTHER , that this Corporation ratifies the actions previously taken by the officers of this Corporation or any one of them acting alone, in connection with the obtaining of the Loan, actions taken to comply with such requirements, and all other actions taken incidental thereto.
 
RESOLVED FURTHER, that the authority conferred upon the aforesaid officers by this resolution shall remain in full force and effect until written notice of revocation by further resolution of this Board of Directors shall have been received by Lender, and that a copy of this resolution certified by the Secretary or purported Secretary of this Corpordation be delivered to Lender.
 
The undersigned further certifies that the officers of this Corporation, hereunder set forth, have been duly elected and hold the offices specified with this Corporation, and that the signature set forth beside each person's name is the true signature of such person:
 
 
CEO and President
Dallas R. Imbimbo
X
Title
Typed Name
 
Signature
Secretary
Nicholas Kovacevich
X
 
Title
Typed Name
 
Signature
CEO and President
Dallas R. Imbimbo
X
Title
Typed Name
 
Signature
Secretary
Nicholas Kovacevich
X
 
Title
Typed Name
 
Signature

X
Title Typed Name Signature
 
X
Title Typed Name Signature
 
X
Title Typed Name Signature
 
IN WITNESS WHEREOF , this certification has been signed on behalf of this Corporation by its secretary, thereunto duly authorized, as of this day of    , 20 . By Name Nicholas Kovacevich
 
SECRETARY

 
 

 

[Missing Graphic Reference]
 

BUSINESS LOAN AGREEMENT (Revolving Line of Credit)
 
THIS BUSINESS LOAN AGREEMENT (“Agreement”) is dated for reference purposes and entered into as of 04/06/2015 (“Effective Date”), between OPUS BANK, a California commercial bank ("Lender"), with a place of business located at 19900 MacArthur Blvd., 12th Floor, Irvine, California 92612, and KIM International Corporation , a California Corporation ("Borrower"), with a chief executive office located at 1800 Newport Circle , Santa Ana , CA 92705, and with reference to the following recitals
 

ARTICLE I: RECITALS
1.1 Borrower is in the business of plastic bottle manufacturing .
 
1.2 Borrower has requested that Lender extend credit to Borrower for the purpose of financing .
 
1.3 Lender has agreed to extend credit to Borrower subject to and in accordance with the terms and conditions of this Agreement.
 
NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL BENEFITS ACCRUING TO THE PARTIES HERETO AND OTHER VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, AND IN ORDER TO INDUCE LENDER TO MAKE THE LOANS REFERRED TO ABOVE, THE PARTIES HERETO DECLARE, UNDERSTAND AND AGREE TO THE FOLLOWING TERMS:
 
ARTICLE II: DEFINITIONS AND CONSTRUCTION
 
2.1 Definitions . Capitalized terms in this Agreement that are not defined when first used shall have the meanings set forth below:
 
(a) Advances . The term "Advances" shall mean all funds advanced to the Borrower under the terms of this Agreement, including without limitation all funds advanced as Lender Expenses.
 
(b) Agreement . The term "Agreement" shall mean this Business Loan Agreement, any concurrent or subsequent amendments, modifications, supplements, extensions, or schedules hereto.
 
(c) Authorized Officer . The term "Authorized Officer" shall mean any officer, partner or manager of Borrower set forth on Exhibit A attached hereto, as the same may be amended from time to time upon written notice to Lender.
 
(d) Lender Expenses . The term "Lender Expenses" shall mean each and all of the following: (a) all costs or expenses (including taxes and insurance premiums) required to be paid by Borrower under any of the Loan Documents which are paid or advanced by Lender, including without limitation, filing, recording, publication, and search fees paid or incurred by Lender in connection with Lender's transactions with Borrower; (b) all costs and expenses incurred by Lender to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the "Collateral," or any portion thereof irrespective of whether a sale is consummated; (c) all costs and expenses of suit incurred by Lender in enforcing or defending the Loan Documents; and (d) all Lender's reasonable attorneys' fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing, defending, or concerning the Loan Documents, irrespective of whether suit is brought.
 
(e) Borrower's Books . The term "Borrower's Books" shall mean: (a) all of Borrower's books and records including ledgers, records indicating, summarizing, or evidencing Borrower's assets or liabilities, or the Collateral; (b) all information relating to Borrower's business operations or financial condition; and (c) all computer programs, disk or tape files, printouts, runs, or other computer prepared information, and the equipment containing such information.
 
(f) Business Day . The term "Business Day" shall mean any day which is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
 
(g) Collateral . The term "Collateral" shall mean certain assets of Borrower in which Borrower has granted to Bank a security interest, which assets are more particularly described in the "Security Agreement."
 
(h) Event of Default . The term "Event of Default" shall mean the occurrence of an event described in Section 7.1 below.
 
(i) Financial Statement(s) . The term "Financial Statement(s)" shall mean all income statements, balance sheets, agings of collection accounts, statements of retained earnings or other related statements which reflect the financial worth of Borrower.
 
(j) Guarantor(s) . The term "Guarantor(s)" shall mean Dallas R. Imbimbo and Nicholas Kovacevich .
 
(k) Loan . The term "Loan" shall mean the aggregate of all Advances made by Lender to Borrower hereunder.
 
(l) Loan Documents . The term "Loan Documents" shall mean, collectively, this Agreement, the Note, the Security Agreement, any other note or notes executed by Borrower to the order of Lender, and any other document, instrument and agreement executed by Borrower in connection with this Agreement.
 
(m) Note . The term "Note" shall mean that certain promissory note of even date herewith in the original principal amount of Two Hundred Forty Thousand Dollars & 00/100 ( $240,000.00 ), executed by Borrower to the order of Lender, which will evidence Advances made to Borrower hereunder.
 
(n) Obligations . The term "Obligations" shall mean all Advances together with interest thereon, Lender Expenses, and all other amounts payable by Borrower under the Loan Documents, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including any debt, liability, or obligation owing from Borrower to others which Lender may have obtained by assignment or otherwise, and further including all interest not paid when due and all Lender Expenses which Borrower is required to pay or reimburse by the Loan Documents, by law or otherwise.
 
(o) Security Agreement . The term "Security Agreement" shall mean that certain security agreement dated 04/06/2015 , executed by Borrower in favor of Lender, pursuant to which Borrower has granted to Lender a security interest in the Collateral.
 
(p) UCC . The term "UCC" shall mean the California Uniform Commercial Code.


 
 

 

2.2 Construction . Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, to the singular include the plural, to the part include the whole, and "including" is not limiting, and "or" has the inclusive meaning represented by the phrase "and/or."  The words "hereof," "herein," "hereby," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, and exhibit references are to this Agreement unless otherwise specified.
 
2.3 Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles ("GAAP") as in effect from time to time. When used herein, the term "financial statements" shall include the notes and schedules thereto.
 
2.4 UCC Terms . Any terms used in this Agreement which are defined in the UCC shall be construed and defined as set forth in the UCC unless otherwise defined herein.
 
ARTICLE III: ADVANCES AND TERMS OF PAYMENT.
 
3.1 Extension of Credit . Subject to the full satisfaction of each and all of the conditions set forth in Section 3.7 below, and subject to the all other terms and conditions of this Agreement, Lender shall, upon the request of Borrower, made from time to time during the term hereof, and so long as no Event of Default has occurred and is continuing, or so long as this Agreement has not been terminated, and subject to the full satisfaction of each and all of the conditions set forth in Section 3.7, make Advances to Borrower in an aggregate amount not to exceed, at any one time, the sum of Two Hundred Forty Thousand Dollars & 00/100 ( $240,000.00 ).
 
3.2 Request for Advance . The Loan extended hereunder is a revolving line of credit, which means Borrower may borrow, repay and re-borrow amounts hereunder. Advances, as well as directions for payment from Borrower's deposit accounts maintained with Lender, may be requested orally or in writing on behalf of Borrower by any Authorized Officer. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with Borrower's or Borrower's authorized representative's instructions, and/or (B) credited to any of Borrower's accounts with Lender. The unpaid Advances owing hereunder, at any time, will be evidenced by Lender's internal records, including computer printouts. All requests for Advances shall be received 1 days prior to the funding of the Advance.  Requests received after 1:00 P.M. Pacific Time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day.
 
3.3 Authorization to Make Advances . Lender is hereby authorized to make Advances based on an oral or written request to Lender made by anyone purporting to be an Authorized Officer. Borrower hereby holds Lender harmless against any loss, claim, liability, cause of action, and damages arising out of Lender's reliance on such request in making an Advance hereunder.
 
3.4 Facility Fee . In consideration of Lender's agreement to extend financial accommodations to Borrower hereunder, Borrower agrees to pay Lender a recurring annual fee (the "Facility Fee") at Lender's then prevailing fee, the first payment of which shall be fully earned, due, and payable upon the execution and delivery of this Agreement.
 
3.5 Annual Review and Margin Revision . Lender may, no more frequently than every twelve months, perform a review of Borrower and, based upon the results of that review, unilaterally modify the Margin (as defined in the Note) in Lender's sole and absolute discretion. Lender shall give Borrower not less than 30 days' notice of the new Margin prior to using the new Margin in the calculation of interest due under the Note.
 
3.6 Thirty Day Resting (Zero Balance) Period . Borrower shall reduce the amount advanced to zero for a period of not less than 30 days, including at least 15 consecutive days, during any 12 month period.
 
3.7 Conditions to Each Advance . Lender shall not be obligated to disburse all or any portion of the first Advance and each subsequent Advance, unless and until Borrower has fully satisfied each and all of the following conditions:
 
(a) Borrower shall have executed and delivered to Lender an original counterpart of this Agreement;
 
(b) Borrower shall have executed and delivered to Lender an original Note;
 
(c) If repayment of the Loan is secured by a security interest in personal property collateral, then Borrower shall have executed and delivered to Lender an original Security Agreement;
 
(d) If repayment of the Loan is secured by a security interest in personal property collateral, then Lender shall have received a certificate of (or, if no such certificate is available, the best evidence normally provided by) the Secretary of State or other applicable central filing office of each state where a financing statement has been or is to be filed pursuant to this section showing all outstanding UCC filings against Borrower, together with copies of all filings referred to in any such certificate. If Lender so requests, Borrower shall have obtained and delivered to Lender any subordination agreements, termination statements and/or releases of interest from each secured party identified in any such filing who, in Lender's opinion, may have a security interest in any Collateral which does or potentially could conflict with the security interest granted to Lender hereunder;
(e) If Borrower is a corporation, Lender shall have received the following:
(1) A duly executed corporate resolution to borrow authorizing the loan transactions contemplated hereby and the grant of the security interest provided for herein, and authorizing specific officers to act on behalf of the corporation in connection with this Agreement,
 
(2) A certificate of good standing showing that Borrower is in good standing under the laws of the state of its incorporation and certificates indicating that Borrower is qualified to transact business and is in good standing in any other state in which the conduct of its business or its ownership of property requires that it be so qualified, and
 
(3) A copy of Borrower's articles or certificates of incorporation and its bylaws;
(f) If Borrower is a partnership or joint venture, Lender shall have received the following:
(1) A duly executed copy of Borrower's partnership agreement and any modifications, amendments and supplements thereto, and
 
(2) A duly executed partnership authorization to borrow relating to the transactions contemplated and covered by this Agreement;
(g) If Borrower is a limited liability company organized under the laws of the State of California, Lender shall have received a copy of Borrower's articles of organization, together with a copy of the filed form LLC 1 and a copy of Borrower's executed operating agreement;
 
(h) If Borrower is a limited liability company organized under the laws of a state other than California, Lender shall have received a copy of Borrower's articles of organization, or such other document or instrument pursuant to which Borrower is formed, together with a copy of a Limited Liability Company Application for Registration filed with the California Secretary of State;
 
(i) Borrower shall have delivered to Lender any guaranties of the Obligations required by Lender, duly executed by the Guarantors;
 
(j) If repayment of the Loan is secured by a security interest in Collateral, then Borrower shall have provided Lender with evidence satisfactory to Lender that Borrower has obtained insurance policies or binders, with such insurers and in such amounts as may be acceptable to Lender, respecting the tangible personal property comprising the Collateral and naming Lender as a loss payee on a lender's loss payable endorsement or co-insured on all applicable general liability and casualty policies;
 
(k) Lender shall have received the Facility Fee;
 
(l) Lender shall have received any and all additional documents, instruments and certificates required pursuant to this Agreement, or otherwise deemed necessary and requested by Lender; and
 
(m) If required by Lender, Borrower shall have paid or reimbursed Lender for all attorneys' fees, filing fees, recording fees, insurance premiums and other costs associated with the preparation of the final Loan Documents, closing of the Loan and perfecting any liens granted to Lender to secure the Loan.


 
 

 

3.8 Repayment of Advances . Borrower shall repay all Advances together with interest thereon in accordance with the terms of the Note.
 
ARTICLE IV: CONTINUING REPRESENTATIONS AND WARRANTIES.
 
Borrower represents and warrants to Lender as follows, each such representation and warranty to continue so long as any Obligations remain unpaid:
 
4.1 Entity Warranties.
 
Borrower is a duly organized, validly existing corporation and in good standing under the laws of the State of California ;
 
Borrower is duly qualified and in good standing as a foreign corporation in each state where any of the Collateral is located, or the failure to so qualify will not have a material adverse effect upon the business or financial condition of Borrower, its rights or duties hereunder, or its ability to comply with or enforce any lease or finance contract; and
 
Borrower has the corporate power and authority to execute and deliver this Agreement to Lender and to perform its Obligations in connection with this Agreement and such of the Loan Documents under which Borrower has Obligations.

 
 

 

4.2 General Warranties.
 

 
 

 


(a) Authority to Borrower . The execution, delivery and performance of this Agreement by Borrower does not violate any agreement to which Borrower is a party or by which Borrower or Borrower's property is or may be bound, and no consent of, notice to, approval of or withholding of objection by any person or organization, including any governmental agency, is required in connection with such execution, delivery and performance.
 
(b) Enforceability . This Agreement constitutes a legally valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as limited by applicable bankruptcy, insolvency, or reorganization or similar laws affecting the enforcement of creditors' rights generally.
 
(c) Relocation of Chief Executive Office . The chief executive office of Borrower is at the address indicated in the first paragraph of this Agreement and Borrower covenants and agrees that it will not, without thirty (30) days prior written notification to Lender, relocate such chief executive office.
 
(d) Due Authorization . Borrower has the right and power and is duly authorized to enter into each of the Loan Documents to which it is a party.
 
(e) Compliance with Articles; Bylaws . The execution by Borrower of each of the Loan Documents to which it is a party shall not constitute a breach of any provision contained in Borrower's certificate or articles of incorporation or its bylaws, nor does it constitute an event of default under any material agreement to which Borrower is now or may hereafter become a party.
 
(f) Litigation . There are no actions or proceedings pending by or against Borrower or any Guarantor before any court or administrative agency and Borrower has no knowledge or belief of any pending, threatened, or imminent litigation, governmental investigations, or claims, complaints, actions, or prosecutions involving Borrower, except for ongoing collection matters in which Borrower is the plaintiff. If any of the foregoing arise during the term of this Agreement, Borrower shall promptly notify Lender in writing.
 
(g) No Material Adverse Change in Financial Statements . All Financial Statements which have been or may hereafter be delivered by Borrower to Lender are, in all material respects, accurate and correct, and have been prepared in accordance with GAAP and fairly present Borrower's financial condition as of the date thereof. There has been no material adverse change in the financial condition of Borrower since the date of the most recent Financial Statements submitted to Lender. No liabilities of Borrower, contingent or otherwise, exist which are not shown on the Financial Statements.
 
(h) Solvency . Borrower is now and shall be at all times hereafter solvent and able to pay its debts (including trade debts) as they mature.
 
(i) Environmental Condition . None of Borrower's properties or assets have ever been used by Borrower or, to the best of Borrower's knowledge, by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport any hazardous waste or hazardous substance or toxic substance as defined and regulated by federal and state laws. None of Borrower's properties or assets have ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower. Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower resulting in the releasing, or otherwise disposing of, hazardous waste or hazardous substances into the environment.
 
(j) Compliance with Business Laws . If Borrower conducts business under a fictitious name or trade style, Borrower has complied with all applicable laws regulating the conduct of business affairs under a fictitious name or trade style, including, without limitation, any law requiring the filing of fictitious name statements.
 
(k) Taxes . Borrower is not delinquent in the payment of any federal, state, or local taxes, including, without limitation, any sales, use or personal property taxes.
 
(l) Securities . None of the proceeds of any Advance will be used directly or indirectly for the purpose of purchasing or carrying, within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time, any "Margin Stock" as defined in said Regulation.

4.3 Reliance by Lender; Cumulative . Each warranty, representation, and agreement contained in this Agreement shall be automatically deemed repeated with each Advance and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The warranties, representations, and agreements set forth in this Agreement shall be cumulative and in addition to any and all other warranties, representations, and agreements which Borrower shall now or hereafter give, or cause to be given, to Lender.
 
ARTICLE V: AFFIRMATIVE COVENANTS.
 
Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, and unless Lender shall otherwise consent in writing, Borrower shall do all of the following:
 
5.1 Preservation of Existence and Assets . Borrower shall maintain and preserve its existence and assets and all rights, franchises and other authority necessary for the conduct of its business. Borrower shall not change its name, identity or business organization without prior written notice to Lender. Borrower shall maintain and preserve its properties, equipment and facilities in good order, condition and repair. Lender may, at reasonable times, visit and inspect any of the properties of Borrower.

 
 

 

5.2 Taxes, Assessments and Other Charges . Borrower shall duly and promptly pay and discharge, as the same become due and payable, all taxes, assessments, and governmental and other charges, levies or claims levied or imposed, or which if unpaid might become a lien or charge, upon the properties, assets, earnings or business of Borrower, except such as are being diligently contested in good faith and by appropriate provisions approved by Lender have been established by Borrower to pay and discharge same upon resolution of any dispute. If Borrower fails to pay any such tax, assessment, charge, levy or claim, Lender may, in its sole and absolute discretion and without notice to Borrower, make payment of the same or any part thereof as Lender deems necessary to satisfy the liability therefor. Lender may conclusively rely on the usual statements of the amount owing or other official statements issued by the appropriate governmental agency.
 
5.3 Payment of Obligations . Borrower shall pay all of its liabilities and obligations when due and prior to the date on which penalties attach thereto and will keep all existing debts current.
 
5.4 Compliance With Laws . Borrower shall comply with all federal and state laws, statutes and regulations affecting the ownership of its property and the conduct of its business.
 
5.5 Accounting System . Borrower at all times hereafter shall maintain a standard and modern system of accounting, with ledger and account cards or computer tapes, disks, printouts, and records pertaining to the Collateral which contain information as may from time to time be requested by Lender.
 
5.6 Records . Borrower shall keep full and accurate accounts and records of its operations.
 
5.7 Audit . Borrower shall permit Lender, its employees or agents upon request to inspect and test Borrower's books and records for the purpose of verifying the accuracy of all information required under the terms of this Agreement or submitted pursuant to this Agreement. Pursuant to this Section, Borrower shall grant Lender complete access (including computer access) to all records in whatever form, including accounts, bank statements, agings, delinquency reports, collection reports and litigation reports, whether in hard form or on software.
 
5.8 Insurance . Borrower shall keep all its insurable property, including all Collateral, real, personal or mixed, insured against fire and such other risks as are customarily insured against with respect to like properties by companies conducting similar businesses, and Borrower shall maintain adequate workers' compensation insurance and adequate insurance against liability for damage to persons or property that shall not be materially modified or canceled without at least five days prior notice to Lender from the insurance carrier. All such insurance policies shall be in amounts and with carriers acceptable to Lender, and shall (except those of workers' compensation, public liability and property damage) name Lender as loss payee and additional insured, as appropriate. Borrower shall provide Lender with copies of all insurance policies obtained by Borrower.
 
5.9 Notice of Certain Events . Borrower shall give prompt written notice to Lender of all events of default under any of the terms or provisions of this or any other agreement entered into by Borrower, material changes in management, material litigation, and any other matter which has resulted in, or might reasonably be expected to result in, a material adverse change in Borrower's condition or operations.
 
5.10 Execution of Other Documents . Borrower shall promptly execute and deliver all supplements and amendments hereto, and all financing statements, fixture filings, continuation statements and such additional agreements, instruments and assurances in connection with this Agreement as Lender reasonably requests to effectuate the provisions hereof.
 
5.11 Borrowings and Prepayments . Borrower shall obtain Lender's prior written consent, which consent shall not be unreasonably withheld, to sell or discount any chattel paper, receivable or evidence of indebtedness, or to incur, whether directly or indirectly, any liability for borrowed money, or to prepay any indebtedness owed to any third party, including its executives, directors or officers. Nothing herein shall prohibit Borrower from being obligated to its vendors and suppliers under ordinary credit terms. If, at any time, Lender determines that it is necessary or advisable to obtain an intercreditor agreement from one or more third party creditors of Borrower, Borrower shall cooperate with Lender and use commercially reasonable efforts to assist Lender in procuring such intercreditor agreement.
 
5.12 Asset Forfeiture . Borrower covenants and agrees that it has not committed and shall not commit any act or engage in any conduct which shall cause the Collateral or any assets of Borrower to be subject to any claim by the federal, state or local government, now or in the future, under the asset forfeiture laws or regulations promulgated thereunder and as may be amended from time to time.
 
5.13 Environmental Due Diligence . Borrower shall maintain all of its assets, including, without limitation, the Collateral in good operable condition free of any form of contamination by hazardous substances as defined by 42 USC 9601 et seq., the California Health and Safety Code, and other federal, state and municipal laws and regulations. Borrower shall maintain all real and personal property in its possession in compliance with federal and state law and the rules and regulations promulgated thereunder by federal, state and municipal regulatory agencies, and shall obtain all the required permits and audits required by any government agency which governs Borrower or Borrower's assets or business activities.
 
5.14 Environmental Audit . In the event that Borrower pledges personal property collateral or Borrower's business is engaged in the manufacture, transportation or storage of a hazardous substance as defined in federal, state or municipal regulation, Borrower shall, upon Lender's resonable request, provide Lender, at Borrower's expense, with a complete environmental audit by an environmental consulting company acceptable to Lender, based on criteria acceptable to Lender, which audit provides an unqualified opinion that the personal property or business which is subject to the audit is in compliance with all pertinent federal, state and municipal regulations.
 
5.15 Account Aging . Borrower shall, upon Lender's request, execute and deliver to Lender, a detailed aging, by total, of the Accounts, a reconciliation statement, and a summary aging, by vendor, of all accounts payable and any book overdraft.
 
5.16 Financial Statements, Reports, Certificates .
 
(a) Borrower shall deliver to Lender other reports reasonably requested by Lender relating to the Collateral and the financial condition of Borrower.
 
(b) Borrower shall deliver to Lender a certificate signed by the Authorized Officer of Borrower to the effect that all reports, statements, or computer-prepared information of any kind or nature delivered or caused to be delivered to Lender under this Section fairly present the financial condition of Borrower and that there exists, on the date of delivery of such certificate to Lender, no condition or event which constitutes an Event of Default.


 
 

 

5.17 Guarantor Reports . Borrower agrees to cause any Guarantor of any of Borrower's obligations hereunder to deliver its annual financial statements and copies of all federal income tax returns upon Lender's request.
 
5.18 Taxes . All assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower or any of its property, shall be paid in full before delinquency or before the expiration of any extension period.
 
5.19 Lender Expense . Borrower shall immediately and without demand reimburse Lender for all sums expended by Lender which constitute Lender Expenses, and Borrower hereby authorizes and approves all Advances and payments by Lender for items constituting Lender Expenses.
 

 ARTICLE VI: NEGATIVE COVENANTS.
 
Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, Borrower will not do any of the following without Lender's prior consent:
 
6.1 Encumbrances and Liens . Sell, lease, transfer, exchange or otherwise dispose of any of the Collateral, nor create, assume or suffer to exist any mortgage, pledge, security interest, charge, encumbrance or lien (other than for taxes not delinquent and for taxes and other items being contested in good faith) on any of the Collateral other than the sale of inventory in the ordinary and usual course of Borrower's business as presently conducted.
 
6.2 Liquidation and Reorganization . Liquidate, dissolve or enter into any consolidation, merger or other combination in which its separate identity shall cease, nor convey, sell, lease, transfer or assign to any party all or any part of its assets or business, including, without limitation, any of its operating rights, licenses or franchises, except in the ordinary course of its business.
 
6.3 Dispose of Assets . Sell, lease, or otherwise dispose of, move, relocate, or transfer, whether by sale or otherwise, any of Borrower's assets other than sales of inventory in the ordinary and usual course of Borrower's business as presently conducted.
 
6.4 Merge, Acquire . Acquire, merge, or consolidate with or into any other business organization or change Borrower's business structure name or identity.
 
6.5 Extraordinary Transactions . Make any guaranty or loans, borrow any money, transfer assets, incur any debts or enter into any transaction, except in the ordinary course of business.
 
6.6 Guaranty . Guaranty or otherwise become in any way liable with respect to the obligations of any third party, except by endorsement of instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to Lender.
 
6.7 Restructure . Make any change in Borrower's financial structure or in any of its business operations without Lender's consent.
 
6.8 Prepayments . Prepay any existing indebtedness owing to any third party.
 
6.9 Change of Ownership . Cause, permit, or suffer any change, direct or indirect, in Borrower's capital ownership in excess of ten percent (10%).
 
6.10 Suspension . Suspend or go out of business.
 
ARTICLE VII: DEFAULT AND REMEDIES
 
7.1 Events of Default . Any one or more of the following events shall constitute an “Event of Default” by Borrower under this Agreement:
 
(a) Borrower fails to pay when due and payable, or when declared due and payable, any amounts payable under the Note (whether of principal, interest, late payment charge, prepayment premium, or otherwise) or other Loan Documents and such amount is not paid within ten (10) days after such amount is due and payable;
 
(b) Borrower fails or neglects to perform, or observe when due, any term, provision, condition, covenant, warranty or representation contained in this Agreement or in any Loan Documents, or in any other present or future agreement or arrangement between Borrower and Lender, and such default shall not have been cured within fifteen (15) business days after notice thereof is given to Borrower by Lender;
 
(c) There is a material impairment of the prospective of repayment of any portion of the amounts owing to Lender under the Loan Documents or a material impairment of the value or priority of Lender's security interests in any Collateral;
 
(d) Any material portion of Borrower's assets are attached, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any judicial officer, or any lien is filed or recorded against the assets of the Borrower by a governmental agency, or any judgment against the Borrower becomes a lien against any of the Borrower's assets;
 
(e) A voluntary or involuntary petition in bankruptcy or for reorganization or for an arrangement or any composition, readjustment, liquidation, dissolution or similar relief pursuant to the federal bankruptcy law or under similar present or future federal or state bankruptcy or insolvency law, is filed by or against Borrower, and such petition is not dismissed within sixty (60) days thereafter;
 
(f) A receiver, trustee or liquidator (or other similar official) is appointed for Borrower or for all or any substantial part of its assets, or of the Collateral or any portion thereof, and is not discharged within sixty (60) days thereafter;
 
(g) Borrower makes an assignment of all or any portion of its assets for the benefit of creditors;
 
(h) Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs;
 
(i) There is a default in any material agreement to which Borrower is a party with third parties resulting in a right by such third parties to accelerate the maturity of Borrower's indebtedness;
 
(j) Any guarantor of Borrower's obligations under the Loan Documents dies, terminates its guaranty, or becomes the subject of any insolvency proceeding;
 
(k) Any government agency files a lien or commences an action or any third party files a claim or lawsuit against Borrower in connection with a violation of state or federal environmental statutes, which claim may result in a substantial fine or penalty or the payment of damages;
 
(l) Any agency of the federal, state or local government commences any proceedings against Borrower or any guarantor, or the assets of either, for the purpose of enforcing forfeiture rights as provided by federal or state law, or Borrower or any guarantor is the subject of any investigation or any complaint or bill of indictment has been brought against any Borrower or any guarantor in connection with conduct the penalty for which is forfeiture of all or any portion of Borrower's or guarantor's assets;
 
(m) Borrower suspends its business or ceases doing business as a going concern; and
 
(n) Any of the foregoing events occur with respect to any guarantor of Borrower's obligations under the Loan Documents.


 
 

 

7.2 Lender's Rights And Remedies . Upon the occurrence of an Event of Default, Lender may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
 
(a) Terminate Lender's obligation to make Advances to Borrower hereunder;
 
(b) Declare all of Borrower's obligations to Lender immediately due and payable, whether evidenced by the Note, by any of the other (collectively "Loan Documents") or otherwise; and
 
(c) Exercise all other rights and remedies available to Lender under the Loan Documents, at law or in equity.

7.3 Remedies Cumulative . Lender's rights and remedies under this Note, the Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default on Borrower's part shall be deemed a continuing waiver.  No delay by Lender shall constitute a waiver, election, or acquiescence by it.
 
ARTICLE VIII: GENERAL PROVISIONS
 
8.1 Time of the Essence . Time is hereby declared to be of the essence in the performance of this Agreement and of every part hereof.
 
8.2 Notices . Except as otherwise provided herein, any notice or other communication required to be given in writing shall be personally served by messenger, or sent by a commercial overnight delivery service (such as Federal Express), or by certified mail, return receipt requested, and shall be deemed given on the date actually received if served by messenger, or on the next business day after deposit with an overnight delivery service, or on the date of receipt as shown on the return receipt if sent by certified mail. The addresses of the parties to which notices and other communications shall be sent (until notice of a change thereof is served as provided herein) are set forth below. Any party to this Agreement may change its address for giving notices or demands hereunder by written notice of such change to the other party in accordance with the provisions hereof.  Borrower shall promptly notify Lender of any change of its principal place of business or mailing address in the manner prescribed by this paragraph.
 
8.3 Entire Agreement; Amendment . This Agreement and any agreements, instruments or documents referred to herein constitute the entire agreement among the parties hereto regarding the subject matter hereof, and all prior and/or contemporaneous communications, verbal or written, between or among the parties hereto regarding the subject matter hereof shall be of no further effect or evidentiary value. This Agreement can be amended only by a written agreement executed by duly authorized representatives of the parties hereto.
 
8.4 Construction of Agreement . Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.
 
8.5 Waivers .
 
(a) Demand; Protest, etc . Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension or renewal of any commercial paper, accounts, documents, instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any way be liable.
 
(b) Jury Trial . Borrower and Lender each waive any right to trial by jury in any action or proceeding relating to this Agreement or any of the Agreements entered into in connection herewith to the maximum extent permitted by law.

8.6 Choice of Law and Venue . The validity of this Agreement, its construction, interpretation, and enforcement, and the rights of the parties hereunder and concerning the Collateral, shall be determined under, governed by, and construed in accordance with the laws of the State of California. The parties agree that all actions or proceedings arising in connection with this Agreement shall be tried and litigated only in the state and federal courts located in the County of Orange, State of California. Borrower waives any right it may have to assert the doctrine of forum non conveniens or to object to such venue and hereby consents to any court ordered relief.

 
 

 

8.7 Destruction of Borrower's Documents . Any documents, schedules, invoices, aging, or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender four (4) months after they are delivered to or received by Lender, unless Borrower does request, in writing, the return of the said documents, schedules, invoices or other papers and makes arrangements, at Borrower's expense, for their return.
 
8.8 Rights and Remedies Cumulative . Lender's rights, powers and remedies under this Agreement, and all other related agreements and instruments, shall be cumulative and not alternative, and shall be in addition to all rights, powers and remedies given to Lender under the UCC, other applicable law and in equity.
 
8.9 No Third Party Beneficiaries . Neither this Agreement nor any agreement or instrument required in connection herewith is intended, or shall be deemed, to create or grant any rights in favor of any third party. Nor may such third party claim any benefit of or from any warranty, representation, covenant, agreement, right, power or remedy made or granted hereunder, which benefits are reserved solely for the parties hereto.
 
8.10 Non-Waiver . Any forbearance or failure or delay by Lender in exercising any right, power or remedy hereunder shall not be deemed a waiver thereof, and any single or partial exercise of any right, power or remedy shall not preclude the further exercise thereof. No exercise by Lender of one right, power or remedy shall be deemed an election, and no waiver by Lender of any default on Borrower's part shall be deemed a continuing waiver.
 
8.11 Exhibits . All of the exhibits attached to this Agreement shall be deemed incorporated herein by reference.
 
8.12 Severability . Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
 
8.13 Headings . All section headings and section numbers have been set forth herein for convenience of reference only, and shall not limit or affect the meaning or interpretation of any section hereof.
 
8.14 Successors and Assigns . This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties.
 
8.15 Counterpart Execution . This Agreement may be executed in several counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same Agreement.
 
8.16 Attorneys' Fees . In the event any party to this Agreement shall be required to commence any action or proceeding against any other party by reason of any breach or claimed breach of any provision of this Agreement, to commence any action in any way connected with this Agreement, or to seek a judicial declaration of rights under this Agreement, the party prevailing in such action or proceeding shall be entitled to recover from the other party, or parties, the prevailing party's reasonable attorneys' fees and costs including, without limitation, all witness fees and associated expenses, including matters on appeal whether or not the proceeding or action proceeds to judgment.
 
IN WITNESS WHEREOF, this Agreement is executed on behalf of each party by its duly authorized representative(s) on the date(s) indicated below and effective as of the date set forth above.
 
 
DATE:
DATE:
Name Dallas R. Imbimbo By Title CEO BORROWER: KIM International Corporation a California corporation
Name By Title LENDER: OPUS BANK a California commercial bank
DATE:
DATE:
Name Dallas R. Imbimbo By Title CEO BORROWER: KIM International Corporation a California corporation
Name By Title LENDER: OPUS BANK a California commercial bank



 
 

 

SIGNATURE AUTHORIZATION FORM
(EXHIBIT A TO BUSINESS LOAN AGREEMENT)

OPUS BANK
19900 MacArthur Boulevard 12th Floor Irvine, California 92612
 
Attn: Dallas R. Imbimbo and Nicholas Kovacevich
 
Re: Loan No. 50900648
 
Any one (1) of the following persons are hereby authorized by KIM International Corporation , a California Corporation ("Borrower") to execute requests for disbursements of funds and "Borrowing Base Certificates" under the above-described loan:
 

AUTHORIZED INDIVIDUAL: AUTHORIZED INDIVIDUAL:
 
Signature Signature Print Name Dallas R. Imbimbo Print Name Nicholas Kovacevich Title CEO Title Secretary
 

AUTHORIZED INDIVIDUAL: AUTHORIZED INDIVIDUAL:
 
Signature Signature Print Name Print Name Title Title
 

DATE: BORROWER: KIM International Corporation
a California corporation
 
By Name Dallas R. Imbimbo Title CEO

 
 

 

[Missing Graphic Reference]
Loan No.: 50900648

GENERAL CONTINUING GUARANTY
 
In order to induce OPUS BANK, a California commercial bank ("Lender") to extend and/or to continue to extend financial accommodations to KIM International Corporation , a California Corporation ("Borrower") pursuant to any present or future promissory note, loan agreement, or other agreement between Lender and Borrower including any modifications, extensions, revisions or substitutions thereof including all other agreements entered into in connection with and for the purpose of executing any of the loan documents referenced herein, ("Loan Documents"), and in consideration thereof, and in consideration of any loans, advances, or financial accommodations heretofore or hereafter granted by Lender to or for the account of Borrower, whether pursuant to the Loan Documents, or otherwise, the undersigned (hereinafter referred to as the "Guarantor") hereby jointly and severally guarantees, promises and undertakes as follows:
 
1. OBLIGATION
 
Guarantor unconditionally, absolutely and irrevocably guarantees and promises to pay to Lender, or order, on demand, in lawful money of the United States, any and all present or future indebtedness and/or obligations of Borrower owing to Lender (including, but not limited to, the repayment to Lender of all sums which may be presently due and owing and of all sums which shall in the future become due and owing from Borrower) arising under the Loan Documents or other agreements, except as limited herein. The terms "indebtedness" and "obligations" (hereinafter collectively referred to as the "Obligations") are used herein in their most comprehensive sense and include any and all advances, debts, obligations, and liabilities of Borrower, heretofore, now, or hereafter made, incurred or created, whether voluntarily or involuntarily, and however arising (including, without limitation, indebtedness owing by Borrower to third parties who have granted Lender a security interest in such accounts, chattel paper and/or general intangibles; and further including, without limitation, any and all attorneys' fees, costs, premiums, charges, and/or interest owed by Borrower to Lender, whether under the Loan Documents or otherwise), whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether Borrower may be liable individually or jointly with others, whether recovery upon such indebtedness may be or hereafter becomes barred by any statute of limitations or whether such indebtedness may be or hereafter becomes otherwise unenforceable, and includes Borrower's prompt, full and faithful performance, observance and discharge of each and every term, condition, agreement, representation, warranty, undertaking and provision to be performed by Borrower under the Loan Documents, except as limited herein.
 
2. CONSIDERATION
 
This Guaranty is taken for the purpose of guaranteeing the continued obligations of Borrower under the terms of the Loan Documents.  Lender has required the Guaranty as a condition to making a loan, extending credit or to continue funding under the Loan Documents. Guarantor has a material interest in having the Lender make such loan, extend such credit or continue funding advances to Borrower.
 
3. CONTINUING GUARANTY
 
This General Continuing Guaranty (this "Guaranty") is a continuing guaranty which shall remain effective during the term of the Loan Documents and relates to any Obligations, including those which arise under successive transactions which shall either cause Borrower to incur new Obligations, continue the Obligations from time to time, or renew them after they have been satisfied, until this Guaranty has been expressly terminated.  Any termination of this Guaranty and Guarantor's obligations hereunder shall be in writing and received by Lender at least five (5) days prior to the effective date of such termination and shall be applicable only to transactions having their inception after the effective date of such termination and shall not affect any rights or Obligations arising out of transactions having their inception prior to such date even if subsequent to such termination such Obligations are modified, renewed, compromised, extended, or otherwise amended (including, but not limited to, an increase in the interest rate applicable to such Obligations).
 
4. UNLIMITED LIABILITY
 
Guarantor's liability under this Guaranty shall be unlimited and shall include all present of future written Obligations between Borrower and Lender (whether executed for the same or different purposes), together with all interest and all of Lender's expenses and costs incurred in connection with the Obligations including any amendments, extensions, modifications, renewals, replacements or substitutions.
 
5. INDEPENDENT OBLIGATION
 
Guarantor agrees that it is directly and primarily liable to Lender, that the obligations hereunder are separate and independent of the Obligations of Borrower, or of any other Guarantor, and that Lender may file a separate action or actions at law against the Guarantor to enforce this Guaranty and to exercise any rights or remedies that Lender may have against collateral securing performance under the terms of this Guaranty. Guarantor waives all rights to require Lender to proceed first against the Borrower or the collateral pledged by the Borrower as a condition of proceeding against Guarantor.  Guarantor agrees that the Lender may proceed against the Guarantor and any collateral pledged by the Guarantor to secure this Guaranty at any time and in any order that it chooses without regard to any other guarantors, the Borrower or other available collateral and Guarantor waives all rights to require the Lender to marshall the collateral pledged by the Borrower or any other guarantor. Guarantor hereby waives all right to assert any defense to the enforcement of this Guaranty on the grounds that the Lender has released voluntarily or involuntarily the Borrower or any other guarantor, modified the Loan Documents or any other contract between Borrower and Lender, or released or substituted collateral pledged to secure all Obligations including any loan made to Borrower or any other guaranty without the consent of Guarantor and further agrees that any releases which may be given by Lender to Borrower or any other guarantor or endorser shall not release any obligation of performance by Guarantor under the terms of this Guaranty.

 
 

 

6. INSOLVENCY OF GUARANTOR/BORROWER
 
In the event that any bankruptcy, insolvency, receivership or similar proceeding is instituted by or against Guarantor and/or the Borrower or in the event that either the Guarantor or Borrower becomes insolvent, makes an assignment for the benefit of creditors, or attempts to effect a composition with creditors, at Lender's election, without notice or demand, the obligations of Guarantor created hereunder shall become due, payable and enforceable against Guarantor whether or not the Obligations are then due and payable.
 
7. WAIVERS
 
7.1 Guarantor hereby waives any right to require Lender, or any defense resulting from Lender's failure, to prosecute or seek to enforce any remedies against Borrower or any other party liable to Lender on account of the Obligations and/or to seek to enforce or resort to any remedies with respect to any security interests, liens or encumbrances granted to Lender by Borrower or any other party on account of the Obligations.
 
7.2 Guarantor hereby waives any right to assert against Lender any defense (legal or equitable) based on the impairment of this Guaranty or any of Guarantor's rights in connection herewith as a result of the modification, amendment or change in the Loan Documents or the Obligations. Without limiting the generality of the foregoing, Guarantor also agrees that this Guaranty shall not be impaired by any modification, supplement, extension, accord and satisfaction, amendment or termination of any contract or agreement to which Lender and Borrower may hereafter agree, nor by any modification, release, or other alteration of any of the Obligations hereby guaranteed or of any security therefor, nor by any agreements or arrangements whatsoever with Borrower or anyone else.
 
7.3 Guarantor hereby waives any rights to assert against Lender any defense (legal or equitable), set-off, counterclaim, and/or claim which Guarantor may now or at any time hereafter have against Borrower and/or any other party liable to Lender in any way or manner.
 
7.4 Guarantor hereby waives all defenses, counterclaims and offsets of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity and/or enforceability of the Loan Documents or this Guaranty including acts or omissions which may discharge Borrower due to the unenforceability of the Loan Documents or other guarantees.
 
7.5 Borrower hereby waives Section 1111(b)(2) of the U. S. Bankruptcy Code; any extension of credit or grant of lien under Section 364 of the Code; any use of cash collateral under Section 363 of the Code; any agreement or stipulation as to the provision of adequate protection in any bankruptcy proceeding; the avoidance of any lien in favor of Lender for any reason; any bankruptcy, insolvency, reorganization, arrangement or readjustment of debt, liquidation or dissolution proceeding commenced by or against Borrower, the undersigned or any other guarantor, maker or endorser, including without limitation, any discharge of, or bar or stay against collecting, all or any of the indebtedness (or any interest thereon), in or as a result of any such proceeding; any indebtedness exceeding the Guarantor's liability hereunder.
 
7.6 Guarantor hereby waives any rights to assert against Lender any defense (legal or equitable) arising out of or in connection with any election by Lender under Section 9501(4) of the California Uniform Commercial Code as to any collateral security of the indebtedness or any guarantee of an indebtedness; or any action taken by Lender that is authorized by this continuing guaranty.
 
7.7 Guarantor waives all rights and defenses that guarantor may have because the debtor's debt is secured by real property. This means, among other things: (i) the creditor may collect from the guarantor without first foreclosing on any real or personal property collateral pledged by the debtor; (ii) if the creditor forecloses on any real property collateral pledged by the debtor: (a) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, (b) the creditor may collect from the guarantor even if the creditor, by foreclosing on the real property collateral, has destroyed any right the guarantor may have to collect from the debtor. This is an unconditional and irrevocable waiver of any rights and defenses the guarantor may have because the debtor's debt is secured by real property. These rights and defenses include, but are not limited to, any rights and defenses based on Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure. As an illustration, without limiting the foregoing, Guarantor waives and relinquishes all rights, remedies and defenses that Guarantor may have: (1) under any law which may limit the amount of a deficiency judgment based on any obligation secured hereby; (2) under any bar to deficiency judgments; (3) any requirement of law that Lender exhaust any security for the Obligations guaranteed hereby before proceeding against Guarantor; (4) under any law which may prohibit Lender from enforcing its rights and remedies against Guarantor by both a private trustee's sale and an action in court; (5) under any law which requires that a court action to enforce Lender's rights by an action to foreclose any deed of trust; and (6) by reason of an election of remedies by Lender, including but not limited to the exercise of nonjudicial or judicial remedies against Borrower or any guarantor, Borrower's or any guarantor's real and/or personal property, or any other security for the Obligation guaranteed hereby in whatever order of manner Lender may determine, which may, in any manner, impair, affect, reduce, release, destroy, and/or extinguish Guarantor's subrogation rights, rights to proceed against Borrower for reimbursement, and/or other rights of Guarantor to proceed against Borrower, any guarantor, or against any other person or security including, without limitation, any loss of rights that Guarantor may suffer in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging indebtedness of or remedies against Borrower or any other person. Guarantor agrees that if all, or a portion, of the Obligation guaranteed hereby are at any time secured by any deed of trust or other interest in real property, Lender, in its sole discretion and without notice or demand and without affecting the security of any deed of trust, may exercise all its rights and remedies against Borrower or any guarantor, Borrower's or any guarantor's real and personal property, and any other security for the Obligation guaranteed hereby in whatever order or manner Lender may determine, including without limitation, nonjudicial foreclosure of any real property security.
 
7.8 Without limiting the generality of any of the foregoing or any other provision hereof, Guarantor hereby expressly waives any and all benefits that might otherwise by available to Guarantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849, 2850, 2899 and 3433 (as such sections may be amended or recodified from time to time), and California Code of Civil Procedure Sections 580a, 580b, 580d and 726 (as such sections may be amended or recodified from time to time). Guarantor hereby acknowledges and understands that Lender may obtain a judgment against Guarantor for the entire Obligation or any deficiency balance thereof upon foreclosure of real or person property without regard to the fair market value of the property, the method of foreclosure or that fact that the Obligation arises from a purchase money transaction.
 
7.9 Guarantor hereby waives all presentments, demands for performance, notices of non-performance, protests, notices of protest, notices of dishonor, notices of default, notice of acceptance of this Guaranty, and notices of the existence, creation, or incurring of new or additional indebtedness, and all other notices or formalities to which Guarantor may be entitled.
 
7.10 Guarantor also waives any rights to a jury trial in any action hereunder or arising out of Lender's transactions with Borrower.
 
 
8. NO ALTER EGO


 
 

 

In the event Guarantor or Borrower is a corporation, Guarantor hereby represents and warrants to Lender as to such corporation (hereinafter referred to as the "Corporation") as follows:
 
8.1 The Corporation is duly organized, validly existing and in good standing under the laws of the State of Corporation;
 
8.2 The Corporation observes corporate formalities, including holding regularly scheduled meetings of the board of directors and regularly scheduled stockholder meetings;
 
8.3 The Corporation maintains adequate corporate records, including minutes of the board of directors and of stockholders, separate and distinct from any entity or person related to the Corporation;
 
8.4 The Corporation's funds and other assets are held and maintained separately from the funds or other assets of any related entity or person;
 
8.5 The Corporation is adequately capitalized to achieve its business purpose;
 
8.6 The Corporation observes legal formalities and maintains an arm's length relationship in any dealings or transactions between the Corporation and any related entity or person;
 
8.7 The Corporation is not an instrumentality or conduit for a single venture or the business of an individual or another corporation; and
 
8.8 The Corporation does not or will not procure labor, services or merchandise for another person or entity and not for the benefit of the Corporation.
 
9. INDEMNITY
 
Guarantor agrees to indemnify Lender and hold Lender harmless against all obligations, demands, claims and liabilities claimed or asserted by any other party and against all losses in any way suffered, incurred, or paid by Lender as a result of or in any way arising out of, following, or consequential to transactions with Borrower whether under the Loan Documents, or otherwise.
 
10. SCOPE OF LENDER'S AUTHORITY
 
Guarantor hereby authorizes Lender, without notice or demand and without affecting its liability hereunder, from time to time to:
 
10.1 Renew, compromise, extend, accelerate, or otherwise change the time for payment or the terms of any of the Obligations, or any part thereof, including, without limitation, increasing or decreasing the rate of interest thereof;
 
10.2 Take and hold security for the payment of the Obligations guaranteed hereby, and exchange, enforce, waive, and release any such security without obtaining consent of Guarantors;
 
10.3 Apply such security and direct the order or manner of sale thereof as Lender in its discretion may determine;
 
10.4 Release or substitute any one or more endorser(s) or guarantor(s); and
 
10.5 Assign, without notice, this Guaranty in whole or in part and/or Lender's rights hereunder to anyone at any time.
 
Guarantor agrees that Lender may do any or all of the foregoing in such manner, upon such terms, and at such times as Lender, in its discretion, deems advisable, without, in any way or respect, impairing, affecting, reducing or releasing Guarantor. Guarantor hereby consents to each and all of the foregoing acts, events and/or occurrences.

 
 

 

11. SUBORDINATION OF OTHER DEBTS
 
Any and all present and future debts and obligations of Borrower to Guarantor are hereby postponed in favor of and subordinated to the full payment and performance of all present and future debts and obligations of Borrower to Lender. All monies or other property of Guarantor at any time in Lender's possession may be held by Lender as security for any and all obligations of Guarantor to Lender no matter how or when arising, whether absolute or contingent, whether due or to become due, and whether under this Guaranty or otherwise. Guarantor also agrees that Lender's books and records showing the account between Lender and Borrower shall be admissible in any action or proceeding and shall be binding upon Guarantor for the purpose of establishing the terms set forth therein and shall constitute prima facie proof thereof. At the request of Lender, Borrower shall pay to Lender all or any part of such subordinated indebtedness and any amount so paid to Lender at its request shall be applied to payment of the indebtedness.  Each payment on the indebtedness of Borrower to Guarantor received in violation of any of the provisions hereof shall be deemed to have been received by the Guarantor as trustee for Lender and shall be paid over to Lender immediately on account of the indebtedness, but without otherwise affecting in any manner Guarantor's liability under any of the provisions of this Guaranty. Guarantor agrees to file all claims against Borrower in any bankruptcy or other proceeding in which the filing of claims is required by law in respect of any indebtedness of Borrower to Guarantor, and Lender shall be entitled to all of Guarantor's rights thereunder. If, for any reason, Guarantor fails to file such claim at least 30 days prior to the last date on which such claim should be filed, Lender, as Guarantor's attorney-in-fact, is hereby authorized to do so in Guarantor's name or, in Lender's discretion, to assign such claim to and cause proof of claim to be filed in the name of Lender's nominee. In all cases, whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Lender the full amount payable on the claim in the proceeding, and to the full extent necessary for that purpose, Guarantor hereby assigns Lender all Guarantor's rights to any payments or distributions to which Guarantor otherwise would be entitled. Notwithstanding the foregoing, so long as Borrower is not in default of any of Borrower's Obligations to Lender, Borrower may pay Borrower's debts and perform Borrower's obligations as are owing to Guarantor in accordance with the terms and conditions pursuant to which those debts and obligations were established.
 
12. GUARANTOR'S DUTY TO INVESTIGATE
 
Guarantor is presently informed of the financial condition of the Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Guarantor hereby covenants that it will continue to keep itself informed of Borrower's financial condition, the status of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment. Absent a written request for such information by Guarantor to Lender and written consent to the release of such information by Borrower, Guarantor hereby waives its rights, if any, to require Lender to disclose to it any information which Lender may now or hereafter acquire concerning such condition or circumstances including, but not limited to, the release of or revocation by any other guarantor, the substitution of collateral securing the primary obligation or any guaranty, or any act, event or condition which may constitute an event of default of any guaranty or the Loan Documents.
 
13. REVIVAL OF GUARANTY
 
If any payments of money or transfers of property made to Lender by Borrower, or other guarantor, any maker or any endorser should for any reason subsequently be declared to be, or in Lender's counsel's good faith opinion be determined to be, fraudulent (within the meaning of any state or federal law relating to fraudulent conveyances), preferential or otherwise voidable or recoverable in whole or in part for any reason (hereinafter collectively called "Voidable Transfer"), the amount repaid or restored and all costs and expenses (including attorneys' fees) of Lender related thereto, Guarantor's liability hereunder shall automatically be revived, reinstated and restored and shall exist as though such Voidable Transfer had never been made to Lender. In the event Lender shall have returned this Guaranty to Guarantor and subsequently be required or advised by counsel to restore or repay any such Voidable Transfer, the amount thereof, or any portion thereof, Guarantor shall remain liable as provided herein to the same extent as if this Guaranty had not been returned to Guarantor.
 
14. TERM OF OBLIGATIONS
 
This Guaranty shall continue in full force and effect until Borrower's Obligations are fully paid, performed and discharged and Lender gives to Guarantor written notice of that fact. Borrower's Obligations shall not be considered fully paid, performed and discharged unless and until all payments by Borrower to Lender are no longer subject to any right on the part of any person whomsoever, including but not limited to Borrower, Borrower as a debtor-in-possession, and/or any trustee in bankruptcy, to set aside such payments or seek to recoup the amount of such payments, or any part thereof.  The foregoing shall include, by way of example and not by way of limitation, all rights to recover preferences voidable under Title 11 of the United States Code. In the event that any such payments by Borrower to Lender are set aside after the making thereof, in whole or in part, or settled without litigation, to the extent of such settlement, all of which is within Lender's discretion, Guarantor shall be liable for the full amount Lender is required to repay plus costs, interest, attorneys' fees and all expenses which Lender paid or incurred in connection therewith.
 
15. WAIVER OF RIGHT OF SUBROGATION
 
Guarantor expressly waives and releases any and all rights of subrogation, reimbursement, indemnity or contribution which it may now or hereafter have against: (1) Borrower, any other guarantor or any person who now or hereafter has direct or contingent liability (whether by contract, at law or in equity) for all or any portion of the Obligations guaranteed hereby: or (2) any property which now or hereafter serves as collateral security for the obligations guaranteed hereby. If and to the extent the waiver and release set forth in the preceding sentence is held to be unenforceable or is construed to affect the enforceability of Guarantor's obligations under this Guaranty, then such waiver shall be void and Guarantor hereby agrees that all such rights of subrogation, reimbursement, indemnity and contribution shall be junior and subordinate to the right of Lender to obtain payment and performance of the Obligations guaranteed hereby and to all rights of Lender in and to any property which now or hereafter serves as collateral security for such Obligations.

 
 

 

16. SURVIVAL
 
This Guaranty shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of Lender's successors and assigns, including all receivers, trustees, administrators and other successors in interest of Guarantor. The death of Guarantor and the incapacity, lack of authority, death, disability or revocation hereof by any other guarantor shall not terminate or otherwise impair this Guaranty. All Obligations hereunder shall survive the foregoing events and shall be fully satisfied before Guarantor may proceed with action to obtain subrogation, contribution or reimbursement against Borrower.
 
17. MODIFICATIONS
 
No modification of this Guaranty shall be effective for any purpose unless it is in writing and executed by an officer of Lender authorized to do so.  This Guaranty merges all negotiations, stipulations and provisions relating to the subject matter of this Guaranty which proceed or may accompany the execution of this Guaranty.
 
18. EXCLUSIVE AGREEMENT
 
Guarantor acknowledges and agrees that this Guaranty represents the sole and exclusive and final expression of the agreement between the Lender and the Guarantor and that it supersedes and extinguishes all prior negotiations, oral and written representations, covenants or conditions including other agreements between the Guarantor and the Lender but explicitly does not supersede prior guaranties which are intended to guaranty other obligations of the same Borrower or other borrowers. In the event that there is a prior guaranty of the Obligation this Guaranty does not supersede such prior guaranties between Guarantor and Lender but is intended to be a separate and additional guaranty of the Obligation. Guarantor declares that he/she/ it has not relied on any warranty, representation, covenant or condition made by Lender which may qualify this Guaranty or contains any different terms than provided for herein. Further, Guarantor has not signed any other agreement or document in connection with guaranteeing the obligations hereunder which in any way modifies or restricts Guarantor's obligation to perform under the terms of this Guaranty. Guarantor waives any right to have any term or condition of this Guaranty modified or changed by the introduction of prior discussions or negotiations of the parties whether written or oral.  Guarantor understands and acknowledges all of the waivers contained in this Guaranty and has consulted legal counsel or other sources to understand the nature and extent of the waivers and acknowledges that the waivers are enforceable. If any such waivers are determined to be against public policy, the waiver shall be enforced to the extent appropriate under law.
 
19. TERMS OF THE GUARANTY
 
Guarantor acknowledges and agrees that he/she/it has read the guaranty and fully understands all of the terms thereof. The Guarantor further agrees that the guaranty is the complete and accurate expression of the Guarantor's understanding of the agreement between the Guarantor and the Lender and that Guarantor has not relied on any other agreement or representations in executing this Guaranty.
 
20. ATTORNEY FEES
 
Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses which may be incurred by Lender in the enforcement of this Guaranty or in any way arising out of, following, or consequential to the enforcement of Borrower's Obligations, whether under this Guaranty, the Agreement, or otherwise.
 
21. GOVERNING LAW
 
All acts and transactions hereunder and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California.
 
DATE: DATE:
 
GUARANTOR: CO-GUARANTOR:
 
Print Name: Dallas R. Imbimbo Print Name: Nicholas Kovacevich

 
 

 

[Missing Graphic Reference]
 
PROMISSORY NOTE (Revolving Line Of Credit)
 
Santa Ana , CA 04/06/2015 Loan Number: 50900648
 
FOR VALUE RECEIVED, the undersigned, KIM International Corporation , a California  Corporation (“Borrower”), promises to pay to the order of OPUS BANK, a California commercial bank (“Lender”), at 19900 MacArthur Blvd., 12th Floor, Irvine, California 92612, or such other place as Lender from time to time may designate, in accordance with the terms of this Note the principal sum of Two Hundred Forty Thousand Dollars & 00/100 ( $240,000.00 ) or so much thereof as may be borrowed or re-borrowed from time to time, together with interest on unpaid principal from the disbursement date at the “Interest Rate” (as defined below), with principal and interest payable as provided below in lawful money of the United States.
Article I: 2.PAYMENT OF PRINCIPAL AND INTEREST
 
1.1 Monthly Payments of Interest . Beginning on 05/01/2015, and on the First day of each calendar month thereafter during the term of the loan evidenced by this Note, Borrower shall pay to Lender all accrued but unpaid interest due under this Note.
 
1.2 Calculation of Interest . Interest payable with respect to any full calendar month shall be calculated according to the actual number of days in a period as a fraction of a 365-day year. The interest rate used to calculate interest payable hereunder ("Interest Rate") shall equal 2.75% (the “Margin”) plus the following "Index": The rate from time to time published in the "Money Rates" section of the Wall Street Journal and referred to therein as the "Prime Rate;" provided that if the "Prime Rate" should cease to be published in the Wall Street Journal or the Wall Street Journal should cease to be published, then Bank shall select an alternate Index that, in the judgment of Bank is likely to result in the Index being substantially similar to the "Prime Rate" previously published. Notwithstanding the foregoing, the interest rate shall never be adjusted to be less than five percent (5.00%). The Margin is subject to change on an annual basis in accordance with the terms of the Business Loan Agreement entered into between Borrower and Lender as of even date herewith.
 
In the event that changes in the Index are announced, from time to time hereafter, adjustment in the Interest Rate shall be made as of the date of any such change in the Index. In no event shall the Interest Rate exceed the maximum lawful rate enforceable in the jurisdiction where the loan evidenced by this Agreement is consummated. In the event collection from Borrower of interest at the Interest Rate would be contrary to applicable law, then the Interest Rate in effect on any day shall be the highest rate which may be collected from Borrower under applicable law.
 
1.3 Payment of Principal . Borrower may repay advances made hereunder and re-borrow at any time prior to the “Maturity Date” (as defined below), provided that at no time shall the aggregate amount of unpaid advances made to borrower exceed the original principal amount of this Note.
 
1.4 Payment at Maturity . Any unpaid principal payable under this Note, together with all accrued but unpaid interest under this Note shall be due and payable on the earliest of (i) the acceleration of the principal amount of this Loan pursuant to the terms of the Loan Documents; or (ii) 04/01/2016 (the earlier of such dates being the "Maturity Date"). BORROWER ACKNOWLEDGES THAT LENDER IS UNDER NO OBLIGATION TO EXTEND OR REFINANCE THE LOAN EVIDENCED BY THIS NOTE AT MATURITY, AND BORROWER WILL ARRANGE TO REPAY THIS LOAN WITH FUNDS OBTAINED FROM SOURCES OTHER THAN A NEW LOAN BY LENDER.
 
1.5 Application of Payments . Unless applicable law provides otherwise, all payments received by Lender from Borrower under this Note, whether by wire transfer of funds, check, or other item of payment shall be applied in such manner and order of priority as Lender shall determine in Lender's sole discretion; provided, however, that in the absence of any contrary determination by Lender, such funds shall be applied and credited first to pay any late payment charges due under the this Note, second to pay any accrued but unpaid interest due under this Note, and third to reduce any outstanding principal balance due under this Note.
 
1.6 Prepayment . This Note may be prepaid in whole or in part at any time.
 
1.7 Late Payment Charge . If any payment under this Note (whether of principal or interest or both and including the payment due on the Maturity Date or upon any acceleration of this Note) is not paid within ten days after the date on which the payment is due, Borrower shall pay to Lender, in addition to the delinquent payment and without any requirement of notice or demand by Lender, a late payment charge equal to 5.0% of the amount of the delinquent payment or $10.00, whichever is greater. Borrower expressly acknowledges and agrees that the foregoing late payment charge provision is reasonable under the circumstances existing on the date of this Note, that it would be extremely difficult and impractical to fix Lender's actual damages arising out of any late payment and that the foregoing late payment charge shall be presumed to be the actual amount of such damages incurred by Lender. No provision in this Note (including without limitation the provisions for a late payment charge and for interest on any amounts remaining unpaid after the Maturity Date) shall be construed as in any way excusing Borrower from its obligation to make each payment under this Note promptly when due.
 
1.8 Default Interest .   Notwithstanding any provision in this Note to the contrary, upon the occurrence of an “Event of Default” (as defined below), to the extent permitted by law Lender may, but shall not be obligated to, increase the Interest Rate to an annual interest rate that is equal to 5.0% over the Interest Rate in effect immediately prior to such Event of Default. Borrower expressly acknowledges and agrees that the foregoing default interest provision is reasonable under the circumstances existing on the date of this Note, that it would be extremely difficult and impractical to fix Lender's actual damages arising out of any Event of Default and that the foregoing default interest shall be presumed to be the actual amount of such damages incurred by Lender. No provision in this Note (including without limitation the provisions for a late payment charge and for default interest) shall be construed as in any way excusing Borrower from its obligation to make each payment under this Note promptly when due.

 
 

 

Article II: DEFAULTS AND REMEDIES
 
2.1 Events of Default . Any one or more of the following events shall constitute an “Event of Default” by Borrower under this Note:
 
(a) Borrower fails to pay when due and payable, or when declared due and payable, any amounts payable hereunder (whether of principal, interest, late payment charge, prepayment premium, or otherwise) and such amount is not paid within ten (10) calendar days after such amount is due and payable;
 
(b) Borrower fails or neglects to perform, or observe when due, any term, provision, condition, covenant, warranty or representation contained in this Note, in any documents, agreements or instruments executed by Borrower in connection with the loan evidenced by this Note (collectively, “Loan Documents”), or in any other present or future agreement or arrangement between Borrower and Lender, and such default shall not have been cured within fifteen (15) business days after notice thereof is given to Borrower by Lender;
 
(c) There is a material impairment of the prospective of repayment of any portion of the amounts owing to Lender hereunder or a material impairment of the value or priority of Lender's security interests in any collateral pledged to secure (among other things) repayment of this Note;
 
(d) Any material portion of Borrower's assets are attached, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any judicial officer, or any lien is filed or recorded against the assets of the Borrower by a governmental agency, or any judgment against the Borrower becomes a lien against any of the Borrower's assets;
 
(e) A voluntary or involuntary petition in bankruptcy or for reorganization or for an arrangement or any composition, readjustment, liquidation, dissolution or similar relief pursuant to the federal bankruptcy law or under similar present or future federal or state bankruptcy or insolvency law, is filed by or against Borrower, and such petition is not dismissed within sixty (60) days thereafter;
 
(f) A receiver, trustee or liquidator (or other similar official) is appointed for Borrower or for all or any substantial part of its assets, or of the Collateral or any portion thereof, and is not discharged within sixty (60) days thereafter;
 
(g) Borrower makes an assignment of all or any portion of its assets for the benefit of creditors;
 
(h) Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs;
 
(i) There is a default in any material agreement to which Borrower is a party with third parties resulting in a right by such third parties to accelerate the maturity of Borrower's indebtedness;
 
(j) Any guarantor of Borrower's obligations hereunder dies, terminates its guaranty, or becomes the subject of any insolvency proceeding;
 
(k) Any government agency files a lien or commences an action or any third party files a claim or lawsuit against Borrower in connection with a violation of state or federal environmental statutes, which claim may result in a substantial fine or penalty or the payment of damages;
 
(l) Any agency of the federal, state or local government commences any proceedings against Borrower or any guarantor, or the assets of either, for the purpose of enforcing forfeiture rights as provided by federal or state law, or Borrower or any guarantor is the subject of any investigation or any complaint or bill of indictment has been brought against any Borrower or any guarantor in connection with conduct the penalty for which is forfeiture of all or any portion of Borrower's or guarantor's assets;
 
(m) Borrower suspends its business or ceases doing business as a going concern; and
 
(n) Any of the foregoing events occur with respect to any guarantor of Borrower's obligations hereunder.

2.2 Lender ' s Rights And Remedies . Upon the occurrence of an Event of Default, Lender may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
 
(a) Terminate Lender's obligation to make advances to Borrower hereunder;
 
(b) Declare all of Borrower's obligations to Lender immediately due and payable, whether evidenced by this Note, by any of the other(collectively “Loan Documents”) or otherwise; and
 
(c) Exercise all other rights and remedies available to Lender under the Loan Documents, at law or in equity.

2.3 Remedies Cumulative . Lender's rights and remedies under this Note, the Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default on Borrower's part shall be deemed a continuing waiver.  No delay by Lender shall constitute a waiver, election, or acquiescence by it.
 
Article III: MISCELLANEOUS PROVISIONS
 
3.1 Revolving Line Of Credit . This Note evidences a revolving line of credit. The minimum Advance amount is $10,000.00 . Advances under this Note, as well as directions for payment from Borrower's deposit accounts maintained with Lender, may be requested orally or in writing by Borrower or any person authorized in writing to do so by Borrower. Lender may, but need not, require that all oral requests be confirmed in writing.  Borrower agrees to be liable for all sums either: (A) advanced in accordance with Borrower's or Borrower's authorized representative's instructions, or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time will be evidenced by Lender's internal records, including daily computer printouts.

 
 

 

3.2 Costs Of Collection . If either Lender or Borrower commences any legal action to enforce or interpret this Note or any provision hereof, the prevailing party shall be entitled to recover its attorneys' and experts' fees in addition to all other relief awarded by the court.  Subject to the preceding sentence, Borrower and all endorsers jointly and severally promise to pay (a) all costs and expenses of collection, including without limitation attorneys' fees, in the event this Note or any portion of this Note is placed in the hands of attorneys for collection and such collection is effected without suit; (b) attorneys' fees, as determined by the court, and all other costs, expenses and fees incurred by Lender in the event suit is instituted to collect this Note or any portion of this Note; and (c) all costs and expenses, including without limitation attorneys' fees, incurred by Lender in connection with any bankruptcy, insolvency or reorganization proceeding or receivership involving Borrower or any affiliate of Borrower, including without limitation attorneys' fees incurred in making any appearances in any such proceeding or in seeking relief from any stay or injunction issued in or arising out of any such proceeding.
 
3.3 Offsets .   No indebtedness evidenced by this Note shall be deemed to have been offset or shall be offset or compensated by all or part of any claim, cause of action, counterclaim or cross-claim, whether liquidated or unliquidated, which Borrower now or hereafter may have or may claim to have against Lender. Furthermore, in respect to the present indebtedness of, or any future indebtedness incurred by, Borrower to Lender, Borrower waives, to the fullest extent permitted by law, the benefits of any applicable law, regulation, or procedure which substantially provides that, where cross-demands for money have existed between persons at any point in time when neither demand was barred by the applicable statute of limitations, and an action is thereafter commenced by one such person, the other may assert in his answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the claim would at the time of filing the answer be barred by the applicable statute of limitations.
 
3.4 Certain Waivers . Borrower and all endorsers jointly and severally waive diligence, grace, demand, presentment for payment, exhibition of this Note, protest, notice of protest, notice of dishonor, notice of demand, notice of nonpayment, and any and all exemption rights against the indebtedness evidenced by this Note, and agree to any and all extensions or renewals from time to time without notice and to any partial payments of this Note made before or after maturity and that no such extension, renewal or partial payment shall release any one or all of them from the obligation of payment of this Note or any installment of this Note, and consent to offsets of any sums owed to any one or all of them by Lender at any time.
 
3.5 Loss, Theft, Destruction Or Mutilation Of Note . In the event of the loss, theft or destruction of this Note, upon Borrower's receipt of a reasonably satisfactory indemnification agreement executed in favor of Borrower by the party who held this Note immediately prior to its loss, theft or destruction, or in the event of the mutilation of this Note, upon Lender's surrender to the Borrower of the mutilated Note, Borrower shall execute and deliver to such party or Lender, as the case may be, a new promissory note in form and content identical to this Note in lieu of the lost, stolen, destroyed or mutilated Note.
 
3.6 Obligations Joint And Several . If Borrower consists of more than one person or entity, each shall be jointly and severally liable for the performance of each of the obligations of Borrower to Lender hereunder.
 
3.7 Construction Of Note . Captions in this Note are included solely for convenience and are not to be referred to in construing or interpreting this Note. Each reference in this Note to a particular paragraph is a reference to a paragraph of this Note unless otherwise expressly indicated.  The terms "include," "includes" and "including" are not used in any limiting sense, but rather by way of example or illustration. If any portion of this Note is declared invalid, illegal or unenforceable by any court of competent jurisdiction, such portion shall be deemed severed from this Note and the remaining portions shall continue in full force and effect. Time is strictly of the essence of each and every provision of this Note.  This Note shall be governed by and interpreted and enforced according to the laws of the State of California.
 
IN WITNESS WHEREOF , this Note is executed by or on behalf of each party hereto by its duly authorized representative(s) on the date(s) indicated below and effective as of the date set forth above.
 
DATE:
DEBTOR: KIM International Corporation a California corporation
 
By Name Dallas R. Imbimbo Title CEO

 
 

 

[Missing Graphic Reference]
 
SECURITY AGREEMENT (Revolving Line Of Credit)
 
THIS SECURITY AGREEMENT (“Agreement”) is dated for reference purposes and executed as of 04/06/2015 (“Effective Date”), by KIM International Corporation , a California Corporation (“Debtor”) in favor of OPUS BANK, a California commercial bank (“Lender”), with references to the following recitals:
 
ARTICLE I: RECITALS
 
1.1 Pursuant to that certain Business Loan Agreement dated 04/06/2015, between Lender and Borrower ("Loan Agreement"), Lender has agreed to extend credit to Borrower in the form of a revolving line of credit in an amount not to exceed Two Hundred Forty Thousand Dollars & 00/100 ( $240,000.00 ) (the "Credit Line"), evidenced by that certain promissory note of even date herewith, in the original principal amount of the Credit Line and executed by Borrower to the order of Lender or its assignee, together with all amendments, modifications, restatements and renewals thereof ("Note").
 
1.2 As a condition to extending the Credit Line to Borrower, Lender has required that Borrower grant to Lender a security interest in certain personal property assets of Borrower (more particularly described in the definition of the term "Collateral" set forth below) to secure repayment of the Credit Line and to secure performance by Borrower of all of Borrower's obligations under this Agreement, the Loan Agreement, the Note and all other agreements, documents or instruments executed by Borrower in connection with the Credit Line (collectively, the "Loan Documents".
 
NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL BENEFITS ACCRUING TO THE PARTIES HERETO AND OTHER VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO DECLARE, UNDERSTAND AND AGREE TO THE FOLLOWING TERMS:
 
ARTICLE II: DEFINITIONS
 
Capitalized terms in this Agreement that are not defined when first used shall have the meanings set forth below.
 
2.1 Accounts . The term "Accounts" shall mean all presently existing and hereafter arising accounts, as such term is defined in the "UCC," including, without limitation, accounts receivable, contract receivables, receivables of any kind, deposit accounts, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods or the rendition of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, and Borrower's Books relating to any of the foregoing.
 
2.2 Cash Collateral .   The term "Cash Collateral" shall mean all deposit accounts, monies, instruments, certificates of deposit, and related collateral maintained with Bank or with any other depository institution.
 
2.3 Chattel Paper .   The term "Chattel Paper" shall mean all chattel paper, as such term is defined in the UCC, now existing or hereinafter acquired, including, without limitation, leases, contracts, contracts now or hereinafter assigned to Borrower, and any other writing or writings which evidence a monetary obligation and a security interest in goods, and Borrower's Books relating to any of the foregoing.
 
2.4 Equipment . The term "Equipment" shall mean all of Borrower's present and hereafter acquired equipment, as such term is defined in the "UCC," including, without limitation, all machinery, machine tools, motors, furniture, furnishings, fixtures, tools, parts, dies, jigs, and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located.
 
2.5 General Intangibles . The term "General Intangibles" shall mean all of Borrower's present and future general intangibles, as such term is defined in the UCC, including, without limitation, documents, documents of title, contract rights, leases, deposit accounts, insurance policies, guaranties, releases, any monies due from a factor, claims, choses or things in action, goodwill, patents, trade names, trademarks, service masks, rights arising under patent, copyright and trademark law, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, computer programs, computer disks, computer tapes, literature, reports, catalogs, tax refunds and tax refund claims, and Borrower's books relating to any of the foregoing , with one the exclusion to the foregoing intangible items; a custom mold,
known as: Unitary Child-Resistant Containers Configured for Attachment to Identifier Cap, and Identifier Cap.
 
2.6 Instruments. The term "Instruments" shall mean all instruments, as such term is defined in the UCC, whether now existing or hereinafter acquired, including, without limitation, negotiable instruments, letters of credit, notes, drafts, documents of title, certificated and uncertificated sec urities, and any other writing which evidences a right to the payment of money, and Borrower's Books relating to any of the foregoing.
 
2.7 Inventory.   The term "Inventory" shall mean all inventory, as such term is defined in the UCC, whether now existing or hereinafter acquired, including, without limitation, all Used Cars held by Borrower for sale or lease (including, without limitation, all Used Cards listed on a Schedule), all goods, machinery and equipment held by Borrower for sale or lease or to be furnished under a contract of service, all raw materials, work in progress, finished goods, packing and shipping materials, all goods returned or reclaimed relating to the foregoing, and all documents of title repr esenting any of th e foregoing, and Borrower's Books relating to any of the foregoing.
 
2.8 Event of Default. The term "Event of Default" shall mean the occurrence of one or more of the events described in Section 6 of this Agr eem ent.
 
2.9 UCC. The term "UCC" shall mean the Uniform Commercial Code as enacted in the state whose law applies with respect to the creation, perfection and enforcement of Lender's rights as to the Collateral.
 
[Missing Graphic Reference]
 
SBB-LDP-SecurityAgreementRLOC 32414 Page 19 of 24

 
 

 

ARTICLE III: SECURITY INTEREST
 
3.1 Grant .   As security for the due and timely performance of all monetary and non-monetary obligations of Debtor under the Loan Documents and the due and timely performance of all monetary and non-monetary obligations of Debtor hereunder, Debtor hereby transfers, conveys, grants and assigns to Lender a security interest in the “Collateral” (as defined below).
 
(a) Description of Collateral . The term "Collateral" shall include each of the following: [X] Accounts, [X] Cash Collateral, [X] Chattel Paper,
[X] "Equipment," [X] "General Intangibles," [X] Instruments, [X] Inventory, all deposit accounts, all monies, all lock box accounts, and all other assets of Borrower which hereafter come into the possession, custody or control of Bank, and all proceeds whether tangible or intangible, of each and all of the foregoing including, without limitation, all rights under any insurance policies, and the proceeds thereof, insuring against loss, damage or destruction of the any of the foregoing.
 
3.2 Perfection of Security Interest . Debtor shall take all actions that may be necessary or appropriate or that Lender may at any time or from time to time request as necessary in the opinion of Lender to perfect and maintain the perfection of Lender's security interest in the Collateral as a first priority lien, subject to no other liens or encumbrances. Specifically, but without limiting the generality of the foregoing, Debtor hereby irrevocably constitutes and appoints Lender the attorney-in-fact of Debtor to execute, deliver and, if appropriate, to file and/or record with the appropriate filing officer or office such security agreements, financing statements, notices, continuation statements and other instruments as Lender may request or require in order to impose, perfect or continue the perfection of Lender's security interest in the Collateral.
 
ARTICLE IV: DEBTOR'S REPRESENTATIONS AND WARRANTIES
 
4.1 Authority . Debtor has all requisite power and authority to enter into this Agreement and to grant to Lender a security interest in the Collateral.
 
4.2 No Violation of Any Agreement . The execution, delivery and performance of this Agreement by Debtor does not violate any agreement to which Debtor is a party or by which Debtor or Debtor's property is or may be bound, and no consent of, notice to, approval of or withholding of objection by any person or organization, including any governmental agency, is required in connection with such execution, delivery and performance.
 
4.3 Binding Obligation . This Agreement constitutes a legally valid and binding obligation of Debtor, enforceable against Debtor in accordance with its terms, except as limited by applicable bankruptcy, insolvency, or reorganization or similar laws affecting the enforcement of creditors' rights generally.
 
4.4 No Other Assignment . Debtor has not executed any other document or agreement assigning or otherwise transferring any interest in and to the Collateral or Debtor's rights therein, except pursuant to this Agreement.
 
4.5 No Action or Proceeding . There is no action or proceeding pending by or against Debtor before any court or administrative agency, and Debtor has no knowledge of any pending, threatened or imminent litigation, governmental investigation or claim, complaint, action or prosecution involving Debtor, in which the amount in controversy exceeds Twenty Five Thousand Dollars ($25,000.00), except as heretofore disclosed, in writing, to Lender. If any of the foregoing arise during the term of this Agreement, Debtor shall immediately notify Lender in writing.
 
ARTICLE V: AFFIRMATIVE COVENANTS OF DEBTOR.
 
Until all obligations of Debtor under the Loan Documents have been fully satisfied, unless Lender waives compliance in writing, Debtor agrees and covenants as follows:
 
5.1 Compliance with Terms of Loan Documents . Debtor shall comply with each and all of the terms and conditions contained in the Loan Documents.
 
5.2 Taxes, Assessments and Other Charges . Debtor shall duly and promptly pay and discharge, as the same become due and payable, all taxes, assessments, and governmental and other charges, levies or claims levied or imposed, or which if unpaid might become a lien or charge, upon the properties, assets, earnings or business of Debtor, except for such taxes, assessment, charges, levies or claims that are being diligently contested in good faith by Debtor and Debtor has made appropriate provisions, approved by Lender, to pay and discharge same upon resolution of any dispute. If Debtor fails to pay any such tax, assessment, charge, levy or claim, Lender may, in its sole and absolute discretion and without notice to Debtor, make payment of the same or any part thereof as Lender deems necessary to satisfy the liability therefor. Lender may conclusively rely on the usual statements of the amount owing or other official statements issued by the appropriate governmental agency.
 
5.3 Payment of Obligations . Debtor shall pay all of its liabilities and obligations when due and prior to the date on which penalties attach thereto and will keep all existing debts current.
 
5.4 Laws .   Debtor shall comply with all applicable statutes and regulations affecting the ownership of its property and the conduct of its business.
 
5.5 Notice of Certain Events . Debtor shall give prompt written notice to Lender of all events of default under any of the terms or provisions of this or any other agreement entered into by Debtor, material litigation, and any other matter which has resulted in, or might reasonably be expected to result in, a material adverse change in Debtor's condition or operations.
 
5.6 Execution of Other Documents . Debtor shall promptly execute and deliver all supplements and amendments hereto, and all financing statements, fixture filings, continuation statements and such additional agreements, instruments and assurances in connection with this Agreement as Lender reasonably requests to effectuate the provisions hereof.

 
 

 

5.7 Asset Forfeiture . Debtor covenants and agrees that it has not committed and shall not commit any act or engage in any conduct which shall cause the Collateral or any assets of Debtor to be subject to any claim by the federal, state or local government, now or in the future, under the asset forfeiture laws or regulations promulgated thereunder and as may be amended from time to time.
 
5.8 Other Information . Debtor shall promptly supply Lender with such other information concerning its business and general financial condition as Lender may reasonably request from time to time.
 
ARTICLE VI: DEFAULT AND REMEDIES
 
6.1 Events of Default . Any one or more of the following shall constitute an “Event of Default” by Debtor under this Agreement:
 
(a) Debtor fails to pay when due and payable, or when declared due and payable, any amounts payable under the Note (whether of principal, interest, late payment charge, prepayment premium, or otherwise) and other Loan Documents;
 
(b) Debtor fails or neglects to perform, or observe when due, any term, provision, condition, covenant, warranty or representation contained in this Agreement or in any Loan Documents, or in any other present or future agreement or arrangement between Debtor and Lender, and such default shall not have been cured within fifteen (15) business days after notice thereof is given to Debtor by Lender;
 
(c) There is a material impairment of the prospective of repayment of any portion of the amounts owing to Lender under the Note or other Loan Documents, or a material impairment of the value or priority of Lender's security interests in any Collateral;
 
(d) Any material portion of Debtor's assets are attached, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any judicial officer, or any lien is filed or recorded against the assets of the Debtor by a governmental agency, or any judgment against the Debtor becomes a lien against any of the Debtor's assets;
 
(e) A voluntary or involuntary petition in bankruptcy or for reorganization or for an arrangement or any composition, readjustment, liquidation, dissolution or similar relief pursuant to the federal bankruptcy law or under similar present or future federal or state bankruptcy or insolvency law, is filed by or against Debtor, and such petition is not dismissed within sixty (60) days thereafter;
 
(f) A receiver, trustee or liquidator (or other similar official) is appointed for Debtor or for all or any substantial part of its assets, or of the Collateral or any portion thereof, and is not discharged within sixty (60) days thereafter;
 
(g) Debtor makes an assignment of all or any portion of its assets for the benefit of creditors;
 
(h) Debtor is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs;
 
(i) There is a default in any material agreement to which Debtor is a party with third parties resulting in a right by such third parties to accelerate the maturity of Debtor's indebtedness;
 
(j) Any guarantor of the Debtor's obligations to Lender under the Loan Documents dies, terminates its guaranty, or becomes the subject of any insolvency proceeding;
 
(k) Any government agency files a lien or commences an action or any third party files a claim or lawsuit against Debtor in connection with a violation of state or federal environmental statutes, which claim may result in a substantial fine or penalty or the payment of damages;
 
(l) Any agency of the federal, state or local government commences any proceedings against Debtor or any guarantor, or the assets of either, for the purpose of enforcing forfeiture rights as provided by federal or state law, or Debtor or any guarantor is the subject of any investigation or any complaint or bill of indictment has been brought against any Debtor or any guarantor in connection with conduct the penalty for which is forfeiture of all or any portion of Debtor's or guarantor's assets;
 
(m) Debtor suspends its business or ceases doing business as a going concern; and
 
(n) Any of the foregoing events occur with respect to any guarantor of the Debtor's obligations under the Loan Documents.

6.2 Remedies upon Default . Upon the occurrence of an Event of Default under this Agreement, Lender may, at its election, without notice and without demand, do any one or more of the following, all of which are authorized by Debtor:
 
(a) Exercise any of Lender's rights and remedies under the Loan Documents.
 
(b) Without notice to or demand upon Debtor, make such payments and do such acts as Lender considers necessary or reasonable to protect its security interest in the Collateral, including without limitation to pay, purchase, contest or compromise any lien, encumbrance, interest or charge which, in the opinion of Lender, appears to be prior or superior to its security interest and to pay, on Debtor's behalf, all expenses incurred in connection therewith.
 
(c) Have and exercise all the rights and remedies provided to a secured party by the UCC with respect to all parts of the Collateral or from Debtor.
 
(d) Take any other appropriate action to protect and enforce the rights and remedies of Lender hereunder.

6.3 Sale of Collateral . If Lender so elects, Lender may sell or dispose of, or cause the sale or disposal of, the Collateral at one or more public or private sales, or both, by way of one or more finance contracts or transactions, for cash or on terms, in such manner and at such places as is commercially reasonable in the opinion of Lender. It is not necessary that the Collateral be present at any such sale.

 
 

 


(a) Lender shall give notice of the sale or disposition of all or any part of Collateral as provided in the UCC, in effect on the date such notice is given.
(b) Lender may bid for and acquire any portion of the Collateral at any public sale, and may pay all or part of the purchase price of such Collateral by crediting against amounts owing on Debtor's obligations to the Lender all or part of the net proceeds of such sale after deducting expenses incurred by Lender in connection with such sale. The evidence of the Loan to be so credited need not be produced in order to complete any such sale or in order to cause there to be credited thereon its share of such net proceeds.
 
(c) If requested by Lender, Debtor shall use commercially reasonable efforts to obtain qualified purchasers for the Collateral in connection with any sale. Lender will consider any bids for the Collateral submitted by Debtor prior to any private sale, but Lender shall have no obligation to accept any such bid.

6.4 Application of Proceeds . All monies received upon sale or disposition of the Collateral or any part thereof pursuant to this section shall be applied from time to time by Lender as provided in the UCC on the date hereof. Lender shall be entitled to include within the expenses described in said section, all reasonable attorneys' fees and legal expenses of Lender, its agents and counsel incurred in connection with its enforcement of this section or the maintenance, preparation for sale, lease or other disposition of the Collateral. All monies, earnings, revenues, proceeds, rents, issues, profits and income derived pursuant to the exercise of Lender's rights and remedies under this section (after deducting Lender's expenses and other proper charges), and all other money or property received or recovered by Lender pursuant to this Agreement, shall be applied from time to time by Lender to Debtor's obligations under the Loan Documents.
 
ARTICLE VII: MISCELLANEOUS PROVISIONS
 
7.1 Time of the Essence . Time is hereby declared to be of the essence in the performance of this Agreement and of every part hereof.
 
7.2 Entire Agreement; Amendment . This Agreement and any agreements, instruments or documents referred to herein constitute the entire agreement among the parties hereto regarding the subject matter hereof, and all prior and/or contemporaneous communications, verbal or written, between or among the parties hereto regarding the subject matter hereof shall be of no further effect or evidentiary value.  No course of prior dealing between the parties, no usage of trade, and no parole or extrinsic evidence of any nature shall be used to supplement or modify any term of this Agreement This Agreement can be amended only by a written agreement executed by duly authorized representatives of the parties hereto.
 
7.3 Construction of Agreement . This Agreement shall be construed as though drafted by both parties and shall not be construed against or in favor of any one party. On the contrary, this Agreement has been reviewed by all parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, and references to the part include the whole. The use of the word "including" shall be construed as providing examples only and shall not limit the generality of any provision in which it is used. The use of the word "or" has the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder" and similar terms used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, and exhibit references are to this Agreement unless otherwise specified.
 
7.4 Severability .   Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
 
7.5 Governing Law . This Agreement and all other agreements and instruments required in connection herewith shall be governed by and construed in accordance with the laws of the State of California.
 
7.6 Counterpart Execution . This Agreement may be executed in several counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same Agreement.
 
7.7 Attorneys' Fees . In the event any party to this Agreement shall be required to commence any action or proceeding against any other party by reason of any breach or claimed breach of any provision of this Agreement, to commence any action in any way connected with this Agreement, or to seek a judicial declaration of rights under this Agreement, the party prevailing in such action or proceeding shall be entitled to recover from the other party, or parties, the prevailing party's reasonable attorneys' fees and costs including, without limitation, all witness fees and associated expenses, including matters on appeal whether or not the proceeding or action proceeds to judgment.

 
 

 

IN WITNESS WHEREOF, this Agreement is executed by or on behalf of each party by its duly authorized representative(s) on the date(s) indicated below and effective as of the date set forth above.
 
DATE:
 
DEBTOR: KIM International Corporation
 
a California corporation
 
By
 
Name Dallas R. Imbimbo
 
Title CEO

 
 

 

DISBURSEMENT REQUEST AND AUTHORIZATION
 
AUTHORIZATION TO CHARGE ACCOUNT. Borrower hereby authorizes Lender to deduct from Borrower's Account Number [ ], the amount of $275.00 . Initial Here (___________________).
 
AUTOMATIC PAYMENTS WITH LENDER. Lender is hereby authorized to automatically deduct from an Opus Bank account, numbered [ ], in the name of KIM International Corporation , the amount of any loan payment. If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover the payment.
 
X______________________________________________ Authorized Signer.
 
IN WITNESS WHEREOF, the undersigned has executed this Authorization as of the date written above.
 
DATE: BORROWER: KIM International Corporation
 
a California corporation
 
By Name Dallas R. Imbimbo Title CEO

 
 

 


Kush Bottles, Inc.

Board of Directors Services Agreement

This Board of Directors Services Agreement (the “Agreement”), effective as of May 4, 2015, is entered into between Kush Bottles, Inc., a Nevada corporation (the “Company”), and Greg Gamet, an individual with a principal place of residence at 3539 Gaylord St, Denver, CO 80205 (“Board Member”).

WHEREAS, the Company desires to retain the services of Board Member to serve on the Company’s Board of Directors for the benefit of the Company and its stockholders; and

WHEREAS, Board Member desires to serve on the Company’s Board of Directors as Board Member subject to the terms and conditions set forth herein;

NOW, THEREFORE, for consideration and as set forth herein, the parties hereto agree as follows:

1. Board Duties and Services.   Board Member agrees to provide “Services” (as described below) to the Company as a member of the Board of Directors.

(a)  Services.  Board Member shall, for so long as he remains a member of the Board of Directors, meet with the Company upon written request, at dates and times mutually agreeable to Board Member and the Company, to discuss any matter involving the Company or its Subsidiaries, which involves or may involve issues of which Board Member has knowledge and cooperate in the review, defense or prosecution of such matters. In addition to general duties required as a member of the Board of Directors, Board Member shall provide those services described on Exhibit A , and Board Member hereby agrees to use his best efforts to provide the Services. Directors shall not allow any other person or entity to perform any of the Services for or instead of Directors. Directors shall comply with the statutes, rules, regulations and orders of any governmental or quasi-governmental authority, which are applicable to the performance of the Services, and Company's rules, regulations, and practices as they may from time-to-time be adopted or modified.

(b)  Other Activities. Board Member is employed by another company, may serve on other Boards of Directors or Advisory Boards, and may engage in any other business activity (whether or not pursued for pecuniary advantage), as long as such outside activities do not violate Board Member's obligations under this Agreement or Board Member's fiduciary obligations to the shareholders.  The ownership of less than a 10% interest in an entity, by itself, shall not constitute a violation of this duty.  The Company recognizes that the Board Member has had and will have his own financial interest in other companies he has founded and may serve as Chairman, President and Partner in other companies. Board Member represents that, to the best of his knowledge, Board Member has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement, and Board Member agrees to use his best efforts to avoid or minimize any such conflict and agrees not to enter into any agreement or obligation that could create such a conflict, without the approval of the Chief Executive Officer of the Company or a majority of the Board of Directors.  If, at any time, Board Member is required to make any disclosure or take any action that may conflict with any of the provisions of this Agreement, Directors will promptly notify the Chief Executive Officer or the Board of such obligation, prior to making such disclosure or taking such action.



(c)  No Conflict. During the Term of this Agreement and for a period of 60 months thereafter, Board Member will not engage in any activity that creates an actual conflict of interest with Company, regardless of whether such activity is prohibited by Company's conflict of interest guidelines or this Agreement, and Directors agrees to notify the Board of Directors before engaging in any activity that creates a potential conflict of interest with Company.  Specifically, Board Member shall not engage in any activity that is in direct competition with the Company or serve in any capacity (including, but not limited to, as an employee, consultant, advisor or Directors) in any company or entity that competes directly, with the Company, as reasonably determined by a majority of Company's disinterested board members, without the approval of the Chief Executive Officer.

Board Member acknowledges and agrees that the Company may rely upon Board Member’s expertise in product development, marketing, financing, or other business disciplines where Board Member has a deep understanding with respect to the Company’s business operations and that such requests may require substantial additional time and efforts in addition to Board Member’s customary service as a member of the Board of Directors.   Board Member will notify the Company promptly if he is subpoenaed or otherwise served with legal process in any matter involving the Company or its subsidiaries. Board Member will notify the Company if any attorney who is not representing the Company contacts or attempts to contact Board Member (other than Board Member’s own legal counsel) to obtain information that in any way relates to the Company or its Subsidiaries, and Board Member will not discuss any of these matters with any such attorney without first so notifying the Company and providing the Company with an opportunity to have its attorney present during any meeting or conversation with any such attorney.

2. Compensation.   Board Member shall be compensated in accordance with Compensation Schedule attached as Exhibit A as long as Board Member continues to fulfill his duties and provide the services set forth above. All compensation arrangements that existed prior to execution of this Agreement, are hereby terminated. If at any time the Board Member determines that the financial tax impact is too great, he may return the Compensation for the company, and the company will reverse any tax consequences of the payment, as it never happened.

3.  Benefits and Expenses.

(a)  Benefits:  None.

(b)  Expenses:  The Company will reimburse Board Member for reasonable business expenses incurred on behalf of the Company prior to the date hereof.  The Company shall also reimburse Board Member for reasonable out-of-pocket expenses incurred in connection with discharging his duties as a Board member. Any additional expenses shall be pre-approved by the CEO or CFO of the Company and will be reimbursed subject to receiving reasonable substantiating documentation relating to such expenses.

4.  Term; Termination .

(a)  The term of this Agreement shall be for three (3) years (the “Term”).

(b)  Right to Terminate. Regardless of the Term of this Agreement, at any time, for any reason, Board Member may be removed as a Director of the Company as provided in Company's Certificate of Incorporation, as amended, bylaws, as amended, and applicable law. Board Member may resign as a Director of the Company as provided in Company's Certificate of Incorporation, as amended, bylaws, as amended, and applicable law.  Notwithstanding anything to the contrary contained in or arising from this Agreement or any statements, policies, or practices of Company, neither Board Member nor Company shall be required to provide any advance notice or any reason or cause for termination of Board Member’s status as a Director, except as provided in Company's Certificate of Incorporation, as amended, Company's bylaws, as amended, and applicable law.

(c) Effect of Termination as Board Member. Upon a termination of Board Member’s status as a Director of the Company, this Agreement will terminate; Company shall pay to Directors all compensation and benefits to which Directors is entitled up through the date of termination and thereafter, all of Company's obligations under this Agreement shall cease.

(d)  Return of Property.  Board Member agrees that all property, including, without limitation, all equipment, tangible proprietary information, documents, records, notes, contracts, and computer-generated materials provided to or prepared by Board Member incident to his services belong to Company and shall be promptly returned at the request of Company.

5.  Mutual Non-Disparagement. Board Member and the Company mutually agree to forbear from making, causing to be made, publishing, ratifying or endorsing any and all disparaging remarks, derogatory statements or comments made to any party with respect to either of them.  Further, the parties hereto agree to forbear from making any public or non-confidential statement with respect to the any claim or complain against either party without the mutual consent of each of them, to be given in advance of any such statement.

6.  Indemnification.   Company will indemnify and defend Board Member against any liability incurred in the performance of the Services to the fullest extent authorized in Company's Certificate of Incorporation, as amended, bylaws, as amended, and applicable law. Board Member shall be entitled to the protection of any insurance policies the Company maintains for the benefit of its Directors and Officers against all costs, charges and expenses in connection with any action, suit or proceeding to which he may be made a party by reason of his affiliation with Company, its subsidiaries, or affiliates.

7.  Cooperation. In the event of any claim or litigation against the Company and/or Board Member based upon any alleged conduct, acts or omissions of Board Member during the tenure of Board Member as a Director r of the Company, whether known or unknown, threatened or not as of the time of this writing, the Company will cooperate with Board Member and provide to Board Member such information and documents as are necessary and reasonably requested by Board Member or his counsel, subject to restrictions imposed by federal or state securities laws or court order or injunction. The Company shall cooperate in all respects to ensure that Board Member has access all available insurance coverage and shall do nothing to damage Board Member’s status as an insured, and shall provide all necessary information for Board Member to make or tender any claim under applicable coverage.

8.  Confidentiality. Subject to exceptions mutually agreed upon by the parties to this Agreement in advance and in writing, the terms and conditions of this Agreement shall remain confidential and protected from disclosure except as required by law in connection with any registration or filing, in relation to a lawful subpoena, or as may be necessary for purposes of disclosure to accountants, financial advisors or other experts, who shall be made aware of and agree to be bound by the confidentiality provisions hereof.

9.  Nondisclosure Obligations. Board Member shall maintain in confidence and shall not, directly or indirectly, disclose or use, either during or after the term of this Agreement, any Proprietary Information (as defined below), confidential information, or trade secrets belonging to Company, whether or not it is in written or permanent form, except to the extent necessary to perform the Services, as required by a lawful government order or subpoena, or as authorized in writing by Company.  These nondisclosure obligations also apply to Proprietary Information belonging to customers and suppliers of Company, and other third parties, learned by Directors as a result of performing the Services.  "Proprietary Information" means all information pertaining in any manner to the business of Company, unless (i) the information is or becomes publicly known through lawful means; (ii) the information was part of Board Member's general knowledge prior to relationship with Company; or (iii) the information is disclosed to Board Member without restriction by a third party who rightfully possesses the information and did not learn of it from Company.

10.  Governing Law. This Agreement shall be governed by the law of the State of California.
 
 
11.  Jurisdiction and Venue. The parties agree that any suit, action, or proceeding between Board Member (and his attorneys, successors, and assigns) and Company (and its affiliates, shareholders, Directors, officers, employees, members, agents, successors, attorneys, and assigns) relating to the Services or the termination of those Services shall be brought in Orange County, State of California and that the parties shall submit to the use of mediator. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. If any one or more provisions of this Section shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

12.  Entire Agreement. This Agreement is intended to be the final, complete, and exclusive statement of the terms of Board Member’s relationship solely with respect to his position as a Director of the Company.

            13. Amendments; Waivers. This Agreement may not be amended except by a writing signed by Board Member and by a duly authorized representative of the Company other than Board Member.  Failure to exercise any right under this Agreement shall not constitute a waiver of such right.

14. No Assignment. Board Member agrees that Board Member will not assign any rights or obligations under this Agreement.   Nothing in this Agreement shall prevent the consolidation, merger or sale of Company or a sale of all or substantially all of its assets.

15. Severability. If any provision of this Agreement shall be held by a court or arbitrator to be invalid, unenforceable, or void, such provision shall be enforced to fullest extent permitted by law, and the remainder of this Agreement shall remain in full force and effect. In the event that the time period or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope that such court or arbitrator deems enforceable, then such court or arbitrator shall reduce the time period or scope to the maximum time period or scope permitted by law.

16. Interpretation. This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party.  Captions are used for reference purposes only and should be ignored in the interpretation of the Agreement.

17. Binding Agreement. Each party represents and warrants to the other that the person(s) signing this Agreement below has authority to bind the party to this Agreement and that this Agreement will legally bind both Company and Directors. This Agreement will be binding upon and benefit the parties and their heirs, administrators, executors, successors and permitted assigns.  To the extent that the practices, policies, or procedures of Company, now or in the future, are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control.  Any subsequent change in Board Member's duties or compensation will not affect the validity or scope of the remainder of this Agreement.

18. Directors Acknowledgment. Board Member acknowledges that Board Member has:  (i) had the opportunity to consult legal counsel concerning this Agreement; (i) has read and understands the Agreement and is fully aware of its legal effect; (iii) entered into it freely based on Board Member’s own judgment and not on any representations or promises other than those contained in this Agreement.

19. Counterparts and Fax Signatures . This Agreement may be executed by Fax signatures and in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.


In witness whereof, the parties hereto enter into this Agreement as of the date first set forth above.


Kush Bottles, Inc.
The “Company”
 
 
 
_______________________________________
By:
Its:
“Board Member”
 
 
 
 
____________________________________________
Print Name
 
 
____________________________________________
Signature





 
 

 
 


 
____________________            __________________
  

 
 

 


Exhibit A - Compensation Schedule and Services to be Provided by Board Member

Board Member shall be compensated for his Services as follows:

1.  200,000 shares of the Company's common stock, which shall vest or accrue, as applicable over a three-year period as follows: (a) 50% of such equity ownership shall be deemed vested on May 30th, 2016 and none before this date; and (b) from and after May 30 th , 2016, the remaining 50% of such equity ownership shall vest ratably in 8 quarterly installments over the next 24 months (i.e. each quarterly installment will vest on the last day of the fiscal quarter). Should your services terminate for cause before the passage of the next 36 months, the remaining Common Shares granted to you shall not vest beyond the service termination date. Should your services terminate prior to May 30 th , 2016, then 100,000 shares will immediately vest and shall be deemed accrued. Should your services terminate not for cause at any point subsequent to May 30 th , 2016, then the entire 200,000 shares shall be immediately be deemed vested and accrued.

In addition to the Services described in Section 1 of the Agreement above, Board Member shall provide the following Services:

1.  Board Member shall be available for teleconferences with the Company as needed but no more than 4 times per month.
2.  Board Member shall make up to 2 guest appearances per year.



   

 
 

 


Exhibit 23.1
 
List of Subsidiaries
 

 
Name of Subsidiary
Jurisdiction
   
Kim International, Inc.
California
Dank Bottles, LLC
Colorado