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

 

 

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

Date of Report (Date of earliest event reported): November 8, 2018

 

BLUE STAR FOODS CORP.

(Exact Name of Registrant as Specified in Charter)

 

Delaware   000-55903   82-4270040

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

3000 NW 109th Avenue

Miami, Florida

  33172
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (305) 836-6858

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
[  ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company [X]

 

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

 

 

 

     
 

 

CURRENT REPORT ON FORM 8-K

 

BLUE STARS FOOD CORP.

 

TABLE OF CONTENTS

 

   

Page

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS  
     
Item 1.01 Entry into a Material Definitive Agreement 3
     
Item 2.01 Completion of Acquisition or Disposition of Assets 3
  The Merger and Related Transactions 3
  Description of Business 8
  Risk Factors 17
  Management's Discussion and Analysis of Financial Condition and Results of Operations 39
  Security Ownership of Certain Beneficial Owners and Management 51
  Directors, Executive Officers 52
  Executive Compensation 55
  Certain Relationships and Related Transactions 62
  Market Price of and Dividends on Common Equity and Related Stockholder Matters 64
  Description of Securities 66
  Legal Proceedings 71
     
Item 3.02 Unregistered Sales of Equity Securities 71
     
Item 3.03 Material Modification to Rights of Security Holders 72
     
Item 4.01 Changes in Registrant’s Certifying Accountant 72
     
Item 5.01 Changes in Control of Registrant. 73
     
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. 73
     
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. 74
     
Item 5.06 Change in Shell Company Status. 74
     
Item 5.07 Submission of Matters to a Vote of Security Holders 74
     
Item 9.01 Financial Statements and Exhibits. 74

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Current Report on Form 8-K (this “Report”), contains forward-looking statements, including, without limitation, in the sections captioned “Description of Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Plan of Operations,” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, (ii) a projection of income, earnings per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and (iv) the assumptions underlying or relating thereto.

 

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We disclaim any obligation to update the forward-looking statements contained in this Report to reflect any new information or future events or circumstances or otherwise, except as required by law.

 

Readers should read this Report in conjunction with the discussion under the caption “Risk Factors,” our financial statements and the related notes thereto in this Report, and other documents which we may file from time to time with the SEC.

 

Item 1.01 Entry into a Material Definitive Agreement

 

The disclosure set forth below under Item 2.01 (Completion of Acquisition of Disposition of Assets) is incorporated by reference into this Item 1.01.

 

Item 2.01 Completion of Acquisition of Disposition of Assets

 

The Merger and Related Transactions

 

Merger Agreement

 

On November 8, 2018 (the “Closing Date”), Blue Star Foods Corp. (formerly A.G. Acquisition Group II, Inc.), a Delaware corporation (the “Company,” “we,” “us,” or “our”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), with John Keeler & Co., Inc., d/b/a Blue Star Foods, a privately held Florida corporation (“Blue Star”), Blue Star Acquisition Corp., a newly formed, wholly-owned Florida subsidiary of the Company (“Acquisition Sub”), and John Keeler, Blue Star’s sole stockholder (the “Blue Star Stockholder”). Pursuant to the terms of the Merger Agreement, Acquisition Sub merged with and into Blue Star, which was the surviving corporation and thus became our wholly-owned subsidiary (the “Merger”).

 

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Following the Merger, we discontinued our prior activities of seeking a business for a merger or acquisition and acquired the business of Blue Star, which is an international seafood company that processes, packages and sells refrigerated pasteurized blue and red crab meat, and other premium seafood products. See “Description of Business” below.

 

At the Closing Date, each of the 500 shares of Blue Star’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into 30,000 shares of our common stock, $0.0001 par value per share (“Common Stock”). As a result, an aggregate of 15,000,000 shares of our Common Stock were issued to the Blue Star Stockholder.

 

At the effective time of the Merger, the Company redeemed 9,250,000 shares of Common Stock from the pre-Merger stockholders of the Company (the “Pre-Merger Holders”), which retained an aggregate of 750,000 shares of Common Stock.

 

The Merger Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions. Breaches of the representations and warranties will be subject to indemnification provisions.

 

The Merger was treated as a recapitalization and reverse acquisition of the Company for financial accounting purposes. Blue Star is considered the acquirer for accounting purposes, and our historical financial statements before the Merger will be replaced with the historical financial statements of Blue Star before the Merger in future filings with the SEC.

 

The Merger is intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The issuance of shares of Common Stock to the Blue Star Stockholder in connection with the Merger was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Regulation D promulgated by the SEC, under that section. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement and are subject to further contractual restrictions on transfer as described below.

 

As of the date of the Merger Agreement, there were no material relationships between the Company or any of its affiliates and Blue Star, other than in respect of the Merger Agreement.

 

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Merger Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by reference.

 

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The Offering

 

Concurrently with the closing of the Merger, we held an initial closing of our private placement offering (the “Offering”) of a minimum of $700,000 and a maximum of $3,200,000 of units of our securities (the “Units”), in which we sold 725 Units at a purchase price of $1,000 per Unit.

 

Each Unit consisted of one share of the Company’s 8% Series A convertible preferred stock, par value $0.0001 per share (the “Series A Stock”), initially convertible into shares (the “Conversion Shares”) of the Company’s Common Stock, at a conversion rate of $2.00 per share (the “Conversion Rate”) and (ii) a three-year warrant (the “Warrant”) to purchase one-half of one share of Common Stock for every share of Common Stock that would be received upon conversion of a share of Series A Stock (the “Warrant Shares”), at an exercise price equal to $2.40.

 

The aggregate gross proceeds from the Offering were $725,000.

 

The Company Settlement

 

Effective upon the closing of the Merger, we issued an aggregate of 688 Units to eleven “accredited investors” (the “Settlement Parties”) for each such individual or entity entering into a settlement and mutual general release agreement (the “Settlement Agreement”) with the Company in full and complete settlement and satisfaction and release of claims such Settlement Parties may have against the Company (the “Company Settlement”).

 

The shares of the Company’s Common Stock issued to the Blue Star Stockholder in connection with the Merger, and the shares of the Company’s Series A Stock and Warrants issued in connection with the Offering and the Company Settlement were exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated by the SEC thereunder. The Common Stock issued in connection with the Offering and the Company Settlement was sold to “accredited investors,” as defined in Regulation D, and was conducted on a “reasonable best efforts” basis. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Certificates representing these shares contain a legend stating the same.

 

The closing of the Offering and the closing of the Merger were conditioned upon each other.

 

Registration Rights

 

On November 8, 2018, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the investors in the Offering. Pursuant to the terms of the Registration Rights Agreement, within 120 business days after the closing of the Offering, the Company is obligated toll file a registration statement (the “Registration Statement”) with the SEC covering the Conversion Shares and the Warrant Shares (collectively, the “Registrable Shares”) and use its commercially reasonable efforts to cause such Registration Statement to be declared effective and to keep such Registration Statement effective for a period of twelve months or for such shorter period ending on the earlier to occur of (x) the sale of all Registrable Securities and (y) the availability of Rule 144 for the sale of the Registrable Securities without volume limitations within a 90 day period (the “Effectiveness Period”). Notwithstanding the foregoing, in the event that the SEC limits the number of Registrable Securities that may be sold pursuant to the Registration Statement, the Company may remove from the Registration Statement such number of Registrable Securities as specified by the SEC on a pro-rata basis (the “SEC Cutback”).

 

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The holders of Registrable Shares will have “piggyback” registration rights for such Registrable Shares with respect to two registration statements in accordance with the terms and the notice requirements of the Registration Rights Agreement, subject to a SEC Cutback or a customary cutback in an underwritten offering, both which would be pro rata.

 

All descriptions of the Registration Rights Agreement herein are qualified in their entirety by reference to the text thereof filed as an exhibit hereto, which is incorporated herein by reference.

 

2018 Equity Incentive Award Plan

 

In connection with the Merger, we have adopted the 2018 Equity Incentive Award Plan (the “2018 Plan”), which was effective immediately prior to the consummation of the Merger. The principal purpose of the 2018 Plan is to attract, retain and motivate selected employees, consultants and non-employee directors through the granting of stock-based compensation awards and cash-based performance bonus awards. 7,500,000 shares of Common Stock are reserved for issuance under the 2018 Plan as future incentive awards to executive officers, employees, consultants and directors.

 

Upon the closing of the Merger, (i) options to purchase an aggregate of 104 shares of Blue Star’s common stock at an exercise price of $10,000 per share, which were outstanding immediately prior to the closing of the Merger, were converted into ten-year immediately exercisable options to purchase an aggregate of 3,120,000 shares of Common Stock at an exercise price of $0.333 under the 2018 Plan, and (ii) ten-year options to purchase 3,120,000 shares of Common Stock at an exercise price of $2.00, which vest one-year from the date of grant, were issued under the 2018 Plan.

 

Changes to the Board of Directors and Executive Officers

 

On the Closing Date of the Merger, Laura Anthony and Howard Gostfrand, the then-current directors and Chief Financial Officer and Chief Executive Officer of the Company, respectively, resigned from all such positions as directors and officers of the Company and were replaced by new officers and directors. Immediately following the closing of the Merger, our board of directors was reconstituted to consist of John Keeler, Carlos Faria, Christopher Constable and Nubar Herian. Following the Merger, our officers consisted of the officers of Blue Star immediately prior to the Merger. See “Management - Directors and Executive Officers” below for information about our new directors and executive officers.

 

All directors hold office for one-year terms until the election and qualification of their successors. Officers are elected by the board of directors and serve at the discretion of the board.

 

Lock-up Agreements

 

In connection with the Merger, each of our executive officers and directors after giving effect to the Merger (the “Restricted Holders”) and each of the Pre-Merger Holders, holding at the closing date of the Merger an aggregate of 750,000 shares of our Common Stock, entered into lock-up agreements (the “Lock-Up Agreements”), whereby the Restricted Holders are restricted for a period of 18 months and the Pre-Merger Holders are restricted for 12 months, after the Merger (the “Restricted Period”), from sales or dispositions (including pledges) in excess of 50% of all of the Common Stock held by (or issuable to) them and at a price below $2.20 per share (such restrictions together the “Lock-Up”). Notwithstanding such restrictions, during the Restricted Period (i) the Restricted Holders may transfer up to 10% of their shares to a charitable organization which agrees to be bound by such Lock-Up restrictions and (ii) the Pre-Merger Holders may transfer up to 10% of their shares to a third party which agrees to be bound by such Lock-Up restrictions. From and after the Restricted Period, neither the Restricted Holders nor the Pre-Merger Holders may sell, dispose or otherwise transfer more than one-third of the Common Stock held by such Holder in any two-month period.

 

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Redemption from Pre-Merger Holders

 

In connection with the Merger, the Company redeemed an aggregate of 9,250,000 shares of Common Stock from the Pre-Merger Holders for cancellation by the Company (the “Share Redemption”) and, as a result, the stockholders retained an aggregate of 750,000 shares of Common Stock after the Merger, representing a value of $1.5 million. The shares were redeemed in consideration for the direct benefit the Pre-Merger Holders will receive in connection with the consummation of the Merger.

 

Settlement and General Release

 

Effective upon the closing of the Merger, we issued an aggregate of 688 Units to the Settlement Parties for entering into Settlement Agreements with respect to the Company Settlement.

 

Pro Forma Ownership

 

Immediately after giving effect to (i) the Merger, (ii) the Share Redemption, (iii) the initial closing of the Offering, and (iv) the Company Settlement, there were 16,015,000 shares of our Common Stock issued and outstanding as of the Closing Date, as follows:

 

  ●  the Blue Star Stockholder holds 15,000,000 shares of our Common Stock;
     
    the Pre-Merger Stockholders hold 750,000 shares of our Common Stock, and

 

  265,000 shares were issued to certain service providers in connection with the Merger.

 

In addition,

 

    investors in the initial closing of the Offering hold 725 shares of Series A Stock, which Series A Stock is convertible into an aggregate of 362,500 Conversion Shares, and an aggregate of 181,250 Warrants, which are exercisable for 181,250 Warrant Shares.
     
  688 shares of Series A Stock, which Series A Stock is convertible into an aggregate of 344,000 Conversion Shares, and an aggregate of 172,000 Warrants, which are exercisable for 181,250 Warrant Shares, were issued to the Settlement Parties in the Company Settlement;
     
  Options to purchase an aggregate of 6,240,000 shares of Common Stock were issued under the 2018 Plan to certain of our officers and directors upon the closing of the Merger.

 

No other securities convertible into or exercisable or exchangeable for the Common Stock are outstanding.

 

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Our Common Stock is not traded on any exchange or quoted on the OTC Markets, and there is no public market for the Common Stock.

 

Accounting Treatment; Change of Control

 

The Merger is being accounted for as a “reverse merger” or “reverse acquisition,” and Blue Star is deemed to be the accounting acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Merger will be those of Blue Star and will be recorded at the historical cost basis of Blue Star, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of Blue Star, historical operations of Blue Star, and operations of the Company and its subsidiaries from the Closing Date of the Merger. As a result of the issuance of the shares of our Common Stock pursuant to the Merger, a change in control of the Company occurred as of the Closing Date of the Merger. Except as described in this Report, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our Board of Directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company.

 

We continue to be a “smaller reporting company,” as defined under the Exchange Act of 1934, as amended (the “Exchange Act”), and an “emerging growth company” under the Jumpstart Our Business Startups Act, or the JOBS Act, following the Merger. We believe that as a result of the Merger we have ceased to be a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act).

 

Description of Business

 

Immediately following the Merger, the business of Blue Star became our business.

 

Corporate Information

 

We were incorporated on October 17, 2017 in the State of Delaware as a blank check company to be used as a vehicle to pursue a business combination with an unidentified target. Since inception and prior to the Merger, we have only engaged in organizational efforts. As a result of the Merger, we have acquired the business of Blue Star. Blue Star was formed in the State of Florida on May 5, 1995 as John Keeler & Co., Inc., d/b/a Blue Star Foods.

 

Our authorized capital stock currently consists of 100,000,000 shares of Common Stock, and 5,000,000 shares of the preferred stock. Our Common Stock is not traded on any exchange or quoted on the OTC Markets, and there is no public market for our Common Stock.

 

Our principal executive offices are located at 3000 NW 109th Avenue, Miami, Florida, 33172. Our telephone number is (305) 836-6858. Our website address is www.bluestarfoods.com. The information contained on, or that can be accessed through, our website is not a part of this Report

 

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Company Overview

 

We are an international seafood company that imports, packages and sells refrigerated pasteurized crab meat, and other premium seafood products, including crab cakes, finfish and wakami salad. Our current source of revenue is from importing blue and red swimming crab meat primarily from Indonesia, Philippines and China and distributing it in the United States, Canada and Europe under several premium proprietary brand names such as Blue Star, Oceanica, Pacifika, Crab & Go and Harbor Banks. Our products are also sold in Mexico, Central America, the Caribbean, the European Union, the United Arab Emirates, Singapore and Hong Kong.

 

The crab meat which we import is processed in 14 plants throughout Southeast Asia. Our suppliers are primarily via co-packing relationships, including two affiliated suppliers.

 

The Company sells primarily to food service distributors. The Company also sells its products to wholesalers, retail establishments and seafood distributors.

 

Our premium proprietary brands are differentiated in terms of quality and price point.

 

We believe that we utilize best-in-class technology, in both resource sustainability management and ecological packaging.

 

The Company’s executive offices and warehouse facility are based in Miami, Florida Additionally, the Company may, from time to time, utilize third party warehouses located in Miami, Baltimore, Philadelphia and Los Angeles.

 

Strategy

 

Our strategy is to create a vertically integrated seafood company that offers customers high quality products while maintaining a focus on our core values of delivering food safety, traceability and certified sustainability.

 

We plan to grow the Company organically by continuing to grow our customer base, offering additional species to our customers, introducing new value-added product lines and strategically acquiring companies that we believe we can integrate into a larger, vertically integrated company.

 

Competitive Strengths -Sustainable and Traceable Product Sourcing

 

We believe that our greatest point of differentiation from other seafood companies are our efforts to ensure that our seafood products are ethically sourced in a method that is consistent with our core values and those of our customers.

 

We purchase the majority of our crab product from processors which source the crab meat from local fishermen in Indonesia, the Philippines, Thailand, Vietnam, Sri Lanka and India, to whom we pay a premium in order to outfit their boats with a proprietary GPS-based system. This system allows us to trace where the crab product originates and ensure that only mature crabs are being harvested by the use of collapsible traps and not gill nets.

 

We have created a technology platform that tracks the product through its entire chain of custody and collects and transmits various data to the Company in real-time, from the loading site, to the packing plant, through the sorting and pasteurization process and the exporting process to the end customer. Our technology allows our customers access to their “Scan on Demand” QR code-enabled traceability application.

 

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The crab meat is purchased directly from processors with whom we have long-standing relationships, that have agreed to source their product in a sustainable manner. All crab meat is sourced under the Company’s FDA approved Hazard Analysis Critical Control Point (“HACCP”) Plan. Additionally, all suppliers are certified by the British Retail Consortium (the “BRC”) and are audited annually to ensure safety and quality of our product.

 

Our warehouse facility in Miami, Florida is the only crab meat facility audited by the BRC in the U.S.

 

Proprietary Brands. We have created several brands of crab meat that are well regarded amongst our customers and are differentiated by product quality and price point.

 

Blue Star is packed with only high quality Portunus Pelagicus species crab and is produced under exacting specifications and quality control requirements.
   
Pacifika is a quality brand for the price conscious end-user. The Portunus Haanii crab meat is packed in China and is ideal for upscale plate presentations.
   
Oceanica is made from the Portunus Haanii crab, which is caught and processed in Vietnam. It is an affordable choice to help reduce food cost without sacrificing the look / taste of dishes.
   
Crab + Go Premium Seafood is geared towards millennials as part of the trend toward prepackaged grab and go items. The product is packaged in flexible foil pouches.

 

Eco-Friendly Packaging. Another major point of differentiation from our competitors is our use of sustainable and ethical packaging. Our green pouches for Eco-Fresh crab meat are patented in the United States, Europe, Thailand, the Philippines and Indonesia under patent Nos.1526091 B1 and US Patents 8,337,922 and 8,445,046. Since their introduction in 2003, these pouches have saved in excess of 800 metric tons of carbon dioxide emissions versus metal can packaging material.

 

Competition

 

In general, the international seafood industry is intensely competitive and highly fragmented. We compete with local and overseas manufacturers and importers engaged in similar products.

 

The Company’s primary competitors are Tri Union Frozen Products, Inc. (Chicken of the Sea Frozen Foods), Phillips Foods, Inc., Harbor Seafood, Inc., Bonamar Corporation and Twin Tails Seafood Corp.

 

Industry Overview

 

The international seafood industry is going through a period of rapid change as it strives to meet the needs of a growing population around the world, where food consumption habits are evolving. We believe there are powerful trends emerging in the developing world (including a growing demand for animal-based protein) as well as and in the developed world (where there is an increased awareness and focus on sustainable sourcing and protecting marine ecosystems).

 

Population Growth and Global Seafood Consumption

 

    The United Nations estimates that there will be close to 9.8 billion people on our planet by the year 2050(1), a significant increase from the existing population estimates of 7.6 billion.(1)
     
  (1) United Nations – Department of Economic and Social Affairs (2017)
     
  As the population has grown, so has per capita consumption. World per capita apparent fish consumption increased from an average of 9.9 kg in the 1960s to 14.4 kg in the 1990s and 19.7 kg in 2013, with preliminary estimates for 2014 and 2015 pointing towards further growth beyond 20 kg.(2)
     
  (2) Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2016”.

 

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Sources of Seafood

 

    Global total capture fishery production in 2014 was 93.4 million tonnes, of which 81.5 million tonnes from marine waters and 11.9 million tonnes from inland waters(3).
     
  (3) Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2016”.
     
    Where seafood comes is sourced is changing in order to meet the demand. In 2014, a milestone was reached when the aquaculture sector’s contribution to the supply of fish for human consumption overtook that of wild-caught fish for the first time(4).
     
  (4) Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2016”.

 

Seafood Industry Participants

 

  The mix of parties involved in seafood varies from the local village fisherman, to large, international, vertically-integrated seafood companies.
     
  ●  The total number of fishing vessels in the world in 2014 is estimated at about 4.6 million, with the fleet in Asia being the largest, consisting of 3.5 million vessels and accounting for 75 percent of the global fleet, followed by Africa (15%), Latin America and the Caribbean (6%), North America (2% ) and Europe (2% )(5).
     
  (5) Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2016”.

 

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Growth Strategy

 

We intend to grow the business organically and through strategic acquisitions.

 

Organic growth – We believe that allocating additional capital to our existing business plan will allow us to continue to meet growing demand from end-customers for seafood products. The Company also currently intends to introduce new species, including lobster tails, fin fish and other specialty seafood proteins in the next 18 months.

 

Acquisitions –We also currently intend to evaluate strategic acquisitions in the fragmented seafood industry. We believe that such potential acquisitions may add value in several ways, including geographical diversification and new specifies offerings, as well as operational and price synergies.

 

Products

 

We currently have four products: Blue Star, Pacifika, Oceanica, and Crab & Go Premium Seafood:

 

Blue Star is packed with only high quality Portunus Pelagicus species crab and is produced under exacting specifications and quality control requirements.

 

Pacifika is a quality brand for the price conscious end-user. The Portunus Haanii crab meat is packed in China and is ideal for upscale plate presentations.

 

Oceanica is made from the Portunus Haanii crab, which is caught and processed in Vietnam. It is an affordable choice to help reduce food cost without sacrificing the look / taste of dishes.

 

Grab + Go Premium Seafood is geared towards millennials as part of the trend toward pre-packaged, grab-and-go items. The product is packaged in flexible foil pouches.

 

Suppliers

 

We purchase crab meat directly from 14 processors with which we have long-standing relationships, that have agreed to source their product in a sustainable manner. All crab meat is sourced under the Company’s FDA approved HACCP Plan. Additionally, all suppliers are certified by the BRC and are audited annually to ensure safety and quality.

 

The Company has three suppliers which accounted for approximately 75% of the Company’s total purchases during the year ended December 31, 2017. These three suppliers are located in Indonesia, the Philippines and China, which accounted for approximately 93% of the Company’s total purchases during 2017. These suppliers included Bacolod Blue Star Export Corp. (“Bacolod”), an affiliated party based in the Philippines, which accounted for approximately 53% of the Company’s total purchases during 2017. Three non-affiliated suppliers, PT Siger Jaya Abadi and PT Blue Star Anugrah of Indonesia and Longhai Desheng Seafood Stuff Co. Ltd. of China made up the balance of the 22% of the supply concentration.

 

Sales, Marketing and Distribution

 

The Company’s products can be found in the United States, Mexico, Canada, Central America, the Caribbean, the European Union, the United Arab Emirates, Singapore and Hong Kong. Its primary current source of revenue is importing blue and red swimming crab meat primarily from Indonesia, Philippines and China and distributing it in the United States, Canada and Europe under several brand names such as Blue Star, Oceanica, Pacifika and Harbor Banks.

 

The Company has a sales team of four employees based throughout the U.S. who sell directly to customers most of whom are in the food service and retail industry and also manage a network of nine regional and national brokers, that cover both the retail and wholesale segments. The sales team and brokers help to pull the products through the system by creating demand at the end user level and pulling the demand through our distributor customers. We sell to retail customers either directly or via distributors that specialize in the retail segment.

 

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The Company does not own its own fleet of trucks and utilizes “LTL” national freight carriers to deliver its products to its customers. Less than truckload freight shipping (“LTL”) is used for the transportation of small freight or when freight does not require the use of an entire trailer. When shipping LTL, we pay for a portion of a standard truck trailer, and other shippers and their shipments fill the unoccupied space.

 

Our Technology

 

We have created a technology platform that tracks the product through its entire chain of custody and collects and transmits various data to the Company in real-time, from the loading site, to the packing plant, through the sorting and pasteurization process and the exporting process to the end customer. Our technology allows our customers access to their “Scan on Demand” QR code-enabled traceability application.

 

Customers

 

Our customer base is comprised of some of the largest companies in the food service and retail industry. We sell our crab meat to our customers through purchase orders. Currently, almost 70% of our revenue is derived from fortune 500 customers. For the fiscal year ended December 31, 2017, sales to food distributors accounted for 68% of our revenue, sales to large buying cooperatives accounted for 14% of our revenue, and sales to retail and wholesale clubs accounting for 12% of our revenue. The balance of our revenue derived from smaller seafood distributors and value-added processors.

 

Our sales are diversified geographically throughout the United States, with Florida being the largest geographic concentration at 18% of sales. As typical in the seafood industry, a large portion of our revenue is located along the eastern seaboard with 54% of our revenue derived from sales to customers along the East Coast from Massachusetts to Florida. International sales directly or through our affiliate in the United Kingdom, Strike the Gold Foods, Ltd. make up roughly 5% of revenue.

 

The Company had three customers which accounted for approximately 63% of revenue during the year ended December 31, 2017. Outstanding receivables from these customers accounted for approximately 66% of the total accounts receivable as of December 31, 2017. The loss of any major customer could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Intellectual Property

 

Our intellectual property is an essential element of our business. We use a combination of patent, trademark, copyright, trade secret and other intellectual property laws and confidentiality agreements to protect our intellectual property. Our policy is to seek patent protection in the United States and in certain foreign jurisdictions for our products, processes and other technology where available and when appropriate. We also in-license technology, inventions and improvements we consider important to the development of our business.

 

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In addition to our patents, we also rely upon trade secrets, know-how, trademarks, copyright protection and continuing technological and licensing opportunities to develop and maintain our competitive position. We have periodically monitored and continue to monitor the activities of our competitors and other third parties with respect to their use of intellectual property. We require our employees to execute confidentiality and non-competition agreements upon commencing employment with us. Despite these safeguards, any of our know-how or trade secrets not protected by a patent could be disclosed to, or independently developed by, a competitor.

 

It is our standard practice to require our employees to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assigning to us any ownership in those works Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

 

The following is a list of our patents:

 

Title   Country  

Patent No. OR

Publication No.

  Issue Date   Application No.  

Application

Date

POUCH-PACKAGED CRABMEAT PRODUCT AND METHOD   US   2015/0257426 A1       14/205,742   3/12/2014
METHOD FOR PACKAGING CRABMEAT   US   8445046 B2   5/21/2013   13/681,027   11/19/2012
METHOD FOR PACKAGING CRABMEAT   US   8337922 B2   12/25/2012   10/691,480   10/21/2003
METHOD FOR PACKAGING CRABMEAT   EPC   1526091 B1           10/21/2004
    TH   28,256            
    PH   1-2005-000216            
    ID   21261            

 

Our patents expire 20 years from the date of issuance.

 

The following is a list of our registered trademarks, and trademarks for which we have filed applications.

 

Mark   Registration No.  

Registration

Date

  Application No.  

Application

Date

SEASSENTIALS   4573673   22-Jul-14   86050295   28-Aug-13
AMERICA’S FAVORITE CRABMEAT   2961590   7-Jun-05   78344059   22-Dec-03
ECO-FRESH   4525998   6-May-14   77922376   28-Jan-10
  3858522   5-Oct-10   77885209   3-Dec-09
  3818057   13-Jul-10   77885203   3-Dec-09
OCEANICA   3711200   17-Nov-09   77595180   17Oct08
  2419060   9-Jan01   75855876   19Nov-99

 

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Government Regulation

 

Our distribution facility in Florida and our international suppliers are certified in accordance with the HACCP, standards for exporting aquatic products to the United States. The HACCP standards are developed by the U.S. Food and Drug Administration (the “FDA”), pursuant to the FDA’s HACCP regulation, Title 21, Code of Federal Regulations, part 123, and are used by the FDA to help ensure food safety and control sanitary standards.

 

Food Safety and Labeling

 

We are subject to extensive regulation, including, among other things, the Food, Drug and Cosmetic Act, as amended by the Food Safety Modernization Act (“FSMA”), the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, and the rules and regulations promulgated thereunder by the FDA. FSMA was enacted in order to aid the effective prevention of food safety issues in the food supply. This comprehensive and evolving regulatory program will impact how food is grown, packed, processed, shipped and imported into the United States and will govern compliance with Good Manufacturing Practices regulations (“cGMPs”). The FDA has finalized seven major rules to implement FSMA, recognizing that ensuring the safety of the food supply is a shared responsibility among many different points in the global supply chain. The FSMA rules are designed to make clear specific actions that must be taken at each of these points to prevent contamination. Some aspects of these laws use a strict liability standard for imposing sanctions on corporate behavior. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls, or seizures, and criminal sanctions, any of which could impact our results of operations.

 

In addition, the Nutrition Labeling and Education Act of 1990 prescribes the format and content of certain information required to appear on the labels of food products.

 

Our operations and products are also subject to state and local regulation, including the registration and licensing of plants, enforcement by state health agencies of various state standards, and the registration and inspection of facilities. Compliance with federal, state and local regulation is costly and time-consuming. Enforcement actions for violations of federal, state, and local regulations may include seizure and condemnation of products, cease and desist orders, injunctions or monetary penalties. We believe that our practices are sufficient to maintain compliance with applicable government regulations.

 

Trade

 

For the purchase of products harvested or manufactured outside of the United States, and for the shipment of products to customers located outside of the United States, we are subject to customs laws regarding the import and export of shipments. Our activities, including working with customs brokers and freight forwarders, are subject to regulation by U.S. Customs and Border Protection, part of the Department of Homeland Security.

 

Federal Trade Commission

 

We are subject to certain regulations by the U.S. Federal Trade Commission. Advertising of our products is subject to such regulation pursuant to the Federal Trade Commission Act and the regulations promulgated thereunder.

 

Employee Safety Regulations

 

We are subject to certain health and safety regulations, including regulations issued pursuant to the Occupational Safety and Health Act. These regulations require us to comply with certain manufacturing, health, and safety standards to protect our employees from accidents.

 

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Anticorruption

 

Because we are organized under the laws of a state in the U.S. and our principal place of business is in the U.S., we are considered a “domestic concern” under the Foreign Corrupt Practices Act (“FCPA”) and are covered by the anti-bribery provisions of the FCPA. The anti-bribery provisions of the FCPA prohibit any domestic concern and any officer, director, employee, or agent, acting on behalf of the domestic concern from paying or authorizing payment of anything of value to (i) influence any act or decision by a foreign official; (ii) induce a foreign official to do or omit to do any act in violation of his/her lawful duty; (iii) secure any improper advantage; or (iv) induce a foreign official to use his/her influence to assist the payor in obtaining or retaining business, or directing business to another person.

 

Environmental Regulation

 

We are subject to a number of federal, state, and local laws and other requirements relating to the protection of the environment and the safety and health of personnel and the public. These requirements relate to a broad range of our activities, including: the discharge of pollutants into the air and water; the identification, generation, storage, handling, transportation, disposal, recordkeeping, labeling, and reporting of, and emergency response in connection with, hazardous materials (including asbestos) associated with our operations; noise emissions from our facilities; and safety and health standards, practices, and procedures that apply to the workplace and the operation of our facilities. Insurance

 

We maintain general liability and product liability, property, worker’s compensation and business interruption insurance and are in the process of obtaining director and officer insurance in amounts and on terms that we believe are customary for companies similarly situated. In addition, we maintain excess insurance where we believe it is reasonably cost effective.

 

Property

 

We lease approximately 16,800 square feet of office/warehouse space for our executive offices and distribution facility under a lease expiring in June 2021 for $16,916 per month from John Keeler Real Estate Holding, Inc. (“Keeler Real Estate”), a corporation owned by each trust for each of John Keeler III, Andrea Keeler and Sarah Keeler, each of whom is a child of our Executive Chairman, John Keeler. The Company is a guarantor of the mortgage on the distribution facility which had a balance of approximately $1,325,189 as of June 30, 2018. We believe our current facilities are adequate for our immediate and near-term needs.

 

Employees

 

As of November 12, 2018, we have sixteen full time employees and one part-time employee. We believe that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel.

 

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Legal Proceedings

 

There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.

 

Risk Factors

 

You should consider carefully the risks and uncertainties described below, together with all of the other information in this Current Report on Form 8-K. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The risks described below are not the only risks facing the Company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and/or prospects.

 

Risks Relating to Our Company and Business

 

Future acquisitions may have an adverse effect on our ability to manage our business.

 

Selective acquisitions currently form part of our strategy to further expand our business. If we are presented with appropriate opportunities, we may acquire additional businesses, services or products that are complementary to our core business. Future acquisitions and the subsequent integration of new companies into ours would require significant attention from our management. Future acquisitions would also expose us to potential risks, including risks associated with the assimilation of new operations, services and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions and potential loss of, or harm to, relationships with employees as a result of integration of new businesses. The diversion of our management’s attention and any difficulties encountered in any integration process could have a material adverse effect on our ability to manage our business.

 

The value of crab meat is subject to fluctuation which may result in volatility of our results of operations and the value of an investment in the Company.

 

Our business is dependent upon the sale of a commodity which value is subject to fluctuation and which value greatly fluctuates. Our net sales and operating results vary significantly due to the volatility of the value of the crab meat that we sell which may result in the volatility of the market price of our common stock.

 

A material decline in the population and biomass of crab meat that we sell in the fisheries from which we obtain our crab meat would materially and adversely affect our business.

 

The population and biomass of crab meat are subject to natural fluctuations which are beyond our control and which may be exacerbated by disease, reproductive problems or other biological issues and may be affected by changes in weather and global environmental changes. The overall health of a crab or other fish is difficult to measure, and fisheries management is still a relatively inexact science. Since we are unable to predict the timing and extent of fluctuations in the population and biomass of our products, we are unable to engage in any measures that might alleviate the adverse effects of these fluctuations. Any such fluctuation which results in a material decline in the population and biomass in the fisheries from which we obtain our crab meat would materially and adversely affect our business. Our operations are also subject to the risk of variations in supply.

 

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We are subject to the risk of product contamination and product liability claims.

 

The sales of our products may involve the risk of injury to consumers. Such injuries may result from tampering by unauthorized personnel, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, or residues introduced during the packing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, including internal product safety policies, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our brand image.

 

A significant portion of our revenues are derived from a single product, crab meat, and therefore we are highly susceptible to changes in market demand, which may be affected by factors over which we have limited or no control.

 

A significant portion of our revenues are derived from a single product, crab meat. We therefore are highly susceptible to changes in market demand, which may be impacted by factors over which we have limited or no control. Factors that could lead to a decline in market demand for crab meat include economic conditions and evolving consumer preferences. A substantial downturn in market demand for crab meat may have a material adverse effect on our business and on our results of operations.

 

Risks Related to Our Industry

 

Regulation of the fishing industry may have an adverse impact on our business.

 

The international community has been aware of and concerned with the worldwide problem of depletion of natural fish stocks. In the past, these concerns have resulted in the imposition of quotas that subject individual countries to strict limitations on the amount of seafood that is allowed to be caught or harvested. Environmental groups have been lobbying for additional limitations. If international organizations or national governments were to impose additional limitations on crab meat or the seafood products we sell, this could have a negative impact on our results of operations.

 

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Segments of the seafood industry in which we operate are competitive, and our inability to compete successfully could adversely affect our business, results of operations and financial condition.

 

We compete with major integrated seafood companies such as Tri Union Frozen Products, Inc. (Chicken of the Sea Frozen Foods), Phillips Foods, Inc., Harbor Seafood, Inc., Bonamar Corporation and Twin Tails Seafood Corp. Some of our competitors have the benefit of marketing their products under brand names that have better market recognition than ours or have stronger marketing and distribution channels than we do. Increased competition as to any of our products could result in price reduction, reduced margins and loss of market share, which could negatively affect our profitability. An increase in imported products in the U.S. at low prices could also negatively affect our profitability.

 

Our insurance coverage may be inadequate to cover losses we may incur or to fully replace a significant loss of assets.

 

Our involvement in the fishing industry may result in liability for pollution, property damage, personal injury or other hazards. Although we believe we have obtained insurance in accordance with industry standards to address such risks, such insurance has limitations on liability and/or deductible amounts that may not be sufficient to cover the full extent of such liabilities or losses. In addition, such risks may not, in all circumstances, be insurable or, in certain circumstances, we may choose not to obtain insurance to protect against specific risks due to the high premiums associated with such insurance or for other reasons. The payment of such uninsured liabilities would reduce the funds available to us. If we suffer a significant event or occurrence that is not fully insured, or if the insurer of such event is not solvent, we could be required to divert funds from capital investment or other uses towards covering any liability or loss for such events.

 

Our operations, revenue and profitability could be adversely affected by changes in laws and regulations in the countries where we do business.

 

The governments of countries into which we sell our products, from time to time, consider regulatory proposals relating to raw materials, food safety and markets, and environmental regulations, which, if adopted, could lead to disruptions in distribution of our products and increase our operational costs, which, in turn, could affect our profitability. To the extent that we increase our product prices as a result of such changes, our sales volume and revenues may be adversely affected.

 

Furthermore, these governments may change import regulations or impose additional taxes or duties on certain imports from time to time. These regulations and fees or new regulatory developments may have a material adverse impact on our operations, revenue and profitability. If one or more of the countries into which we sell our products bars the import or sale of crab meat or related products, our available market would shrink significantly, adversely impacting our results of operations and growth potential.

 

A decline in discretionary consumer spending may adversely affect our industry, our operations and ultimately our profitability.

 

Luxury products, such as premium grade crab meat, are discretionary purchases for consumers. Any reduction in consumer discretionary spending or disposable income may affect the crab meat industry significantly. Many economic factors outside of our control could affect consumer discretionary spending, including the financial markets, consumer credit availability, prevailing interest rates, energy costs, employment levels, salary levels, and tax rates. Any reduction in discretionary consumer spending could materially adversely affect our business and financial condition.

 

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Risks Related to Our Reliance on Third Parties

 

We are dependent on third parties for our operations.

 

Our business is dependent upon our relationships with vendors in Southeast Asia for co-packing, processing and shipping product to us. If for any reason these companies became unable or unwilling to continue to provide services to us, this would likely lead to a temporary interruption in our ability to import our products until we found another entity that could provide these services. Failure to find a suitable replacement, even on a temporary basis, would have an adverse effect on our results of operations.

 

We are primarily dependent on three suppliers to provide our crab meat product.

 

The Company had three suppliers which accounted for approximately 75% of the Company’s total purchases during the year ended December 31, 2017. These three suppliers are located in Indonesia, Philippines, China, which accounted for approximately 93% of the Company’s total purchases during the year ended December 31, 2017. The Company had four suppliers which accounted for approximately 70% of the Company’s total purchases during the year ended December 31, 2016. These four suppliers were located in four countries (Indonesia, the Philippines, China and the United States), and accounted for approximately 82% of the Company’s total purchases during the year ended December 31, 2016. These suppliers included Bacolod, which accounted for approximately 53% and 22% of the Company’s total purchases, during the years ended December 31, 2017 and 2016, respectively. The loss of any major supplier could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Three customers accounted for the majority of our revenue.

 

The Company had three customers which accounted for approximately 63% and 60% of revenue during the years ended December 31, 2017 and December 31, 2016, respectively. Outstanding receivables from these customers accounted for approximately 66% of the total accounts receivable as of December 31, 2017. The loss of any of these major customers could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

All of our significant customer contracts and some of our supplier contracts are short-term and may not be renewable on terms favorable to us, or at all.

 

All of our customers and some of our suppliers operate through purchase orders or short-term contracts. Though we have long-term business relationships with many of our customers and suppliers and alternative sources of supply for key items, we cannot be sure that any of these customers or suppliers will continue to do business with us on the same basis. Additionally, although we try to renew these contracts as they expire, there can be no assurance that these customers or suppliers will renew these contracts on terms that are favorable to us, if at all. The termination of, or modification to, any number of these contracts may adversely affect our business and prospects, including our financial performance and results of operations.

 

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Risks Related to Our Financial Condition and Capital Requirements

 

We may need to raise additional capital to fund our existing commercial operations and develop and commercialize new products and expand our operations.

 

Based on our current business plan, we believe the net proceeds from the Offering, together with our current cash and cash equivalents and cash receipts from sales will enable us to conduct our planned operations for at least the next 12 months. If our available cash balances, net proceeds from the Offering and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products or due to other risks described herein, we may seek to sell Common Stock or preferred stock or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

 

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:

 

  increase our sales and marketing efforts and address competitive developments;
     
  provide for supply and inventory costs;
     
  fund development and marketing efforts of any future products or additional features to then-current products;
     
  acquire, license or invest in new technologies;
     
  ●  acquire or invest in complementary businesses or assets; and
     
  finance capital expenditures and general and administrative expenses.

 

Our present and future funding requirements will depend on many factors, including:

 

  our ability to achieve revenue growth and improve gross margins;
     
  the cost of expanding our operations and offerings, including our sales and marketing efforts;
     
  the effect of competing market developments; and
     
  costs related to international expansion.

 

The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our stockholders could result. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our Common Stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our Common Stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights or grant licenses on terms that are not favorable to us.

 

We will incur significant costs as a result of operating as a public company and our management expects to devote substantial time to public company compliance programs.

 

As a public company, we will incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) as well as rules implemented by the SEC, and the OTC Markets. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and other personnel will devote a substantial amount of time to these compliance programs and monitoring of and compliance with, public company reporting obligations. These rules and regulations will cause us to incur significant legal and financial compliance costs and will make some activities more time consuming and costly.

 

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To comply with the requirements of being a public company, we may need to undertake various actions, including implementing new internal controls and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. Our current controls and any new controls that we develop may become inadequate and weaknesses in our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls could negatively impact the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we may be required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act, harm our operating results, cause us to fail to meet our reporting obligations or result in a restatement of our prior period financial statements. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the price of our Common Stock could decline. In addition, if we are unable to continue to meet these requirements, our Common Stock may not be able to be eligible for quotation on the OTC Markets or meet the eligibility requirements for the NASDAQ Stock Market(“NASDAQ”).

 

We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not yet required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report. We are just beginning the costly and challenging process of compiling the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.

 

Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company” as defined in the JOBS Act depending on whether we choose to rely on certain exemptions set forth in the JOBS Act. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could harm our business.

 

22  
 

 

Our loan and security agreement with ACF Finco I LP (“ACF”), contains operating and financial covenants that may restrict our business and financing activities.

 

As of November 8, 2018, we had $7,425,386.97 in outstanding debt to ACF. Borrowings under our loan and security agreement with ACF are secured by substantially all of our personal property, including our intellectual property. Our loan and security agreement contain affirmative and negative covenants which restricts our ability to, among other things:

 

  dispose of or sell our assets;
     
  make material changes in our business;
     
  merge with or acquire other entities or assets;
     
  incur additional indebtedness;
   
  create liens on our assets;
     
  pay dividends; and
     
  make investments.

 

The operating and financial restrictions and covenants in our loan and security agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies. Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under our loan and security agreement. If not waived, future defaults could cause all of the outstanding indebtedness under our loan and security agreement to become immediately due and payable and terminate all commitments to extend further credit.

 

If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern.

 

We face risks related to the current global economic environment which could harm our business, financial condition and results of operations.

 

The state of the global economy continues to be uncertain. The current global economic conditions and uncertain credit markets, concerns regarding the availability of credit pose a risk that could impact our international relationships, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. Global trade issues and the impositions of tariffs could also have an adverse effect on our international business activities. If the current global economic environment deteriorates, our business could be negatively affected.

 

23  
 

 

Risks Related to Administrative, Organizational and Commercial Operations and Growth

 

We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

 

We anticipate growth in our business operations. This future growth could create a strain on our organizational, administrative and operational infrastructure, including manufacturing operations, quality control, technical support and customer service, sales force management and general and financial administration. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures. If we are unable to manage our growth effectively, we may be unable to execute our business plan, which could have a material adverse effect on our business and our results of operations.

 

If we are unable to support demand for our current and our future products, including ensuring that we have adequate resources to meet increased demand our business could be harmed.

 

As our commercial operations and sales volume grow, we will need to continue to increase our workflow capacity for processing, customer service, billing and general process improvements and expand our internal quality assurance program, among other things. We may also need to purchase additional equipment and increase our manufacturing, maintenance, software and computing capacity to meet increased demand. We cannot assure you that any of these increases in scale, expansion of personnel, purchase of equipment or process enhancements will be successfully implemented.

 

The loss of our Executive Chairman, Chief Executive Officer or Chief Financial Officer or our inability to attract and retain highly skilled officers and key personnel could negatively impact our business.

 

Our success depends on the skills, experience and performance of our Executive Chairman, Chief Executive Officer and Chief Financial Officer. The individual and collective efforts of these individuals will be important as we continue to develop and expand our commercial activities. The loss or incapacity of existing members of our executive management team could negatively impact our operations if we experience difficulties in hiring qualified successors. Qualified employees periodically are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements. Expansion of our business could require us to employ additional personnel. There can be no assurance that we will be able to attract and retain sufficient numbers of skilled employees in the future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business.

 

If we were sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.

 

The marketing and sale of our products could lead to the filing of product liability claims alleging that our product made users ill. A product liability claim could result in substantial damages and be costly and time-consuming for us to defend.

 

24  
 

 

We maintain product liability insurance, but this insurance may not fully protect us from the financial impact of defending against product liability claims. Any product liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could lead to regulatory investigations, product recalls or withdrawals, damage our reputation or cause current vendors, suppliers and customers to terminate existing agreements and potential customers and partners to seek other suppliers, any of which could negatively impact our results of operations.

 

We face risks associated with our international business.

 

Our international business operations are subject to a variety of risks, including:

 

  difficulties with [managing] foreign and geographically dispersed operations;
     
  having to comply with various U.S. and international laws, including export control laws and the FCPA, and anti-money laundering laws;
     
  changes in uncertainties relating to foreign rules and regulations;
     
  tariffs, export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to import product;
     
  limitations on our ability to enter into cost-effective arrangements with distributors, or at all;
     
  fluctuations in foreign currency exchange rates;
     
  imposition of limitations on production, sale or export in foreign countries;
     
  imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign processors or joint ventures;
     
  imposition of differing labor laws and standards;
     
  economic, political or social instability in foreign countries and regions;
     
  an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action;
     
  availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;
     
  difficulties in recruiting and retaining personnel, and managing international operations; and
     
  less developed infrastructure.

 

If we expand into other target markets we cannot assure you that our expansion plans will be realized, or if realized, be successful. We expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed.

 

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Our results may be impacted by changes in foreign currency exchange rates.

 

Currently, the majority of our international sales contracts are denominated in U.S. dollars. We pay certain of our suppliers in a foreign currency and we may pay others in the future in foreign currency. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could require us to reduce our selling price or risk making our product less competitive in international markets or our costs could increase. Also, if our international sales increase, we may enter into a greater number of transactions denominated in non-U.S. dollars, which could expose us to foreign currency risks, including changes in currency exchange rates.

 

A larger portion of our revenues may be denominated in other foreign currencies if we expand our international operations. Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our operating results. Fluctuations in the value of the U.S. dollar relative to other currencies impact our revenues, cost of revenues and operating margins and result in foreign currency translation gains and losses.

 

We could be negatively impacted by violations of applicable anti-corruption laws or violations of our internal policies designed to ensure ethical business practices.

 

We operate in a number of countries throughout the world, including in countries that do not have as strong a commitment to anti-corruption and ethical behavior that is required by U.S. laws or by corporate policies. We are subject to the risk that we, our U.S. employees or our employees located in other jurisdictions or any third parties that we engage to do work on our behalf in foreign countries may take action determined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business. Any violation of anti-corruption laws or regulations could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might harm our business, financial condition or results of operations. Further, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

 

We depend on our information technology systems, and any failure of these systems could harm our business.

 

We depend on information technology and telecommunications systems for significant elements of our operations. We have developed propriety software for the management and operation of our business. We have installed, and expect to expand a number of enterprise software systems that affect a broad range of business processes and functional areas, including for example, systems handling human resources, financial controls and reporting, contract management, regulatory compliance and other infrastructure operations.

 

Information technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our information technology and telecommunications systems, failures or significant downtime of our information technology or telecommunications systems or those used by our third-party service providers could prevent us from providing support services and product to our customers and managing the administrative aspects of our business. Any disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could harm our business.

 

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Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our control.

 

We conduct a significant portion of our activities, including administration and data processing, at facilities located in Southern Florida that have experienced major hurricanes and floods which could affect our facilities, , could significantly disrupt our operations, and delay or prevent product shipment during the time required to repair, rebuild or replace damaged processing facilities; these delays could be lengthy and costly. Our suppliers in Southeast Asia are also vulnerable to natural disasters which could disrupt their operations and their ability to supply product to us. If any of our customers’ facilities are negatively impacted by a disaster, product shipments could be delayed. Additionally, customers may delay purchases of products until operations return to normal. Even if we and/or our suppliers are able to quickly respond to a disaster, the ongoing effects of the disaster could create some uncertainty in the operations of our business. In addition, our facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business.

 

Risks Related to Intellectual Property

 

Our intellectual property rights are valuable, and any inability to adequately protect, or uncertainty regarding validity, enforceability or scope of them could undermine our competitive position and reduce the value of our products, services and brand, and litigation to protect our intellectual property rights may be costly.

 

We attempt to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements. As a result, our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets to us. Various events outside of our control pose a threat to our intellectual property rights as well as to our products and services. For example, effective intellectual property protection may not be available in countries in which our products are sold. Also, although we have registered our trademark in various jurisdictions, our efforts to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete and hurt our results of operation. Also, protecting our intellectual property rights is costly and time consuming. Policing unauthorized use of our proprietary technology can be difficult and expensive. Litigation might be necessary to protect our intellectual property rights and any such litigation may be costly and may divert our management’s attention from our core business. An adverse determination in any lawsuit involving our intellectual property is likely to jeopardize our business prospects and reputation. Although we are not aware of any of such litigation, we have no insurance coverage against litigation costs, so we would be forced to bear all litigation costs if we cannot recover them from other parties. All foregoing factors could harm our business, financial condition, and results of operations. Any unauthorized use of our intellectual property could make it more expensive for us to do business and harm our operating results.

 

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We may be exposed to infringement or misappropriation claims by third parties, which, if determined against us, could adversely affect our business and subject us to significant liability to third parties.

 

Our success mainly depends on our ability to use and develop our technology and product designs without infringing upon the intellectual property rights of third parties. We may be subject to litigation involving claims of patent infringement or violations of other intellectual property rights of third parties. Holders of patents and other intellectual property rights potentially relevant to our product offerings may be unknown to us, which may make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to us and that we rely upon that are subject to infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components used in our products or by companies we work with in cooperative research and development activities. Our current or potential competitors may have obtained or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products. The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming, and may significantly divert the efforts and resources of our technical personnel and management. These factors could effectively prevent us from pursuing some or all of our business operations and result in our customers or potential customers deferring, canceling or limiting their purchase or use of our products, which may have a material adverse effect on our business, financial condition and results of operations.

 

Our commercial success will depend in part on our success in obtaining and maintaining issued patents and other intellectual property rights in the United States and elsewhere If we do not adequately protect our intellectual property, competitors may be able to use our processes and erode or negate any competitive advantage we may have, which could harm our business.

 

We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our products, any additional features we develop or any new products. Patents, if issued, may be challenged, deemed unenforceable, invalidated or circumvented.

 

Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our knowledge or trade secrets by consultants, suppliers, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If any of these developments were to occur, they each could have a negative impact on our sales.

 

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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.

 

We rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third parties, to protect our confidential and proprietary information. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed.

 

We may not be able to enforce our intellectual property rights throughout the world.

 

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop the infringement or the misappropriation of our intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

 

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

 

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

 

Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

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Risks Related to Regulatory Matters

 

Our products and operations are subject to government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.

 

The FDA and other government agencies regulate, among other things, with respect to our products and operations:

 

  design, development and manufacturing;
     
  testing, labeling, content and language of instructions for use and storage;
     
  product safety;
     
  marketing, sales and distribution;
     
  record keeping procedures;
     
  advertising and promotion;
     
  recalls and corrective actions;
     
  product import and export.

 

The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.

 

The failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as:

 

  warning letters;
     
  fines;
     
    injunctions;
     
  civil penalties;
     
  termination of distribution;
     
  recalls or seizures of products;
     
  delays in the introduction of products into the market; and
     
  total or partial suspension of production.

 

We may also be required to take corrective actions, such as installing additional equipment or taking other actions, each of which could require us to make substantial capital expenditures. We could also be required to indemnify our employees in connection with any expenses or liabilities that they may incur individually in connection with regulatory action against them. As a result, our future business prospects could deteriorate due to regulatory constraints, and our profitability could be impaired by our obligation to provide such indemnification to our employees.

 

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Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition and results of operations.

 

Product liability claims could divert management’s attention from our business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

 

Risks Relating to Our Common Stock

 

We may be unable to register for resale all of the Common Stock included within the Units sold in the Offering, in which case a stockholder will need to rely on an exemption from the registration requirements in order to sell such shares.

 

We are obligated to file the “resale” Registration Statement with the SEC that covers all of our Conversion Shares and Warrant Shares included within the Units sold in the Offering within 120 business days after the closing of the Merger. Nevertheless, it is possible that the SEC may not permit us to register all of such shares of Common Stock for resale. In certain circumstances, the SEC may take the view that the Offering requires us to register the issuance of the securities as a primary offering. Without sufficient disclosure of this risk, rescission of the Offering could be sought by investors or an offer of rescission may be mandated by the SEC, which would result in a material adverse effect to us. To date, the SEC has not made any formal statements or proposed or adopted any new rules or regulations regarding Rule 415 promulgated under the Securities Act, as such rule applies to resale registration statements. However, investors should be aware of the risks that interpretive positions taken with respect to Rule 415, or similar rules or regulations adopted subsequent to the date of this Report, could have on the manner in which the Common Stock may be registered or our ability to register the Common Stock for resale at all.

 

If we are not able to cause the Registration Statement to be declared effective, then investors will need to rely on exemptions from the registration requirements of the Securities Act, such as Rule 144 which may require that the investor have held the shares to be sold for a minimum period of time.

 

Failure to cause a registration statement to become effective in a timely manner could materially adversely affect our company.

 

We have agreed, at our expense, to prepare a registration statement covering the Conversion Shares and Warrant Shares in connection with the Offering. Our obligation requires us to file the Registration Statement with the SEC within 120 business days of the closing of the Merger. There are many reasons, including those over which we have no control, which could delay the filing or effectiveness of the Registration Statement, including delays resulting from the SEC review process and comments raised by the SEC during that process. Failure to file or cause the Registration Statement to become effective in a timely manner or maintain its effectiveness could materially adversely affect us.

 

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As a result of the Merger, Blue Star became subject to the reporting requirements of federal securities laws, which can be expensive.

 

As a result of the Merger, Blue Star became a public reporting company and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal and state securities laws, including compliance with the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders will cause Blue Star’s expenses to be higher than they would have been if Blue Star remained privately-held and did not consummate the Merger.

 

If we fail to maintain an effective system of internal controls we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our Common Stock.

 

We must maintain effective internal controls to provide reliable financial reports and detect fraud. We are in the process of evaluating changes to internal controls for our new public company status but have not yet implemented changes. Failure to implement changes to our internal controls or any other factors that we identify as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our business, operations or reported financial information. Any such inability to establish effective controls or loss of confidence would have an adverse effect on our company and could adversely affect the trading price of our Common Stock.

 

The price of our Common Stock may be volatile and may be influenced by numerous factors, some of which are beyond our control.

 

Factors that could cause volatility in the market price of our Common Stock include, but are not limited to:

 

actual or anticipated fluctuations in our financial condition and operating results;
   
actual or anticipated changes in our growth rate relative to our competitors;
   
commercial success and market acceptance of our products;
   
success of our competitors in commercializing products;
   
strategic transactions undertaken by us;
   
additions or departures of key personnel;
   
product liability claims;
   
prevailing economic conditions;
   
disputes concerning our intellectual property or other proprietary rights;
   
U.S. or foreign regulatory actions affecting us or our industry;
   
sales of our Common Stock by our officers, directors or significant stockholders;
   
future sales or issuances of equity or debt securities by us;
   
business disruptions caused by natural disasters; and
   
issuance of new or changed securities analysts’ reports or recommendations regarding us.

 

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In addition, the stock markets in general have experienced extreme volatility that have been often unrelated to the operating performance of the issuer. These broad market fluctuations may negatively impact the price or liquidity of our Common Stock. In the past, when the price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and may take advantage of certain 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. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

 

In addition, Section 102 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. An “emerging growth company” can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

You may experience dilution of your ownership interests because of the future issuance of additional shares of our Common Stock or preferred stock or other securities that are convertible into or exercisable for our Common Stock or preferred stock.

 

If our existing stockholders convert our Series A Stock or exercise Warrants or sell, or indicate an intention to sell, substantial amounts of our Common Stock in the public market after the lock-up Restricted Period lapses, the price of our Common Stock could decline. The perception in the market that these sales may occur could also cause the price of our Common Stock to decline.

 

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In the future, we may issue authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of the then current stockholders. We are authorized to issue an aggregate of 100,000,000 shares of common stock and 5,000,000 shares of “blank check” preferred stock. We may issue additional shares of our Common Stock or other securities that are convertible into or exercisable for our Common Stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our Common Stock may create downward pressure on the trading price of the common stock. We may need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise prices) below the price you paid for your stock.

 

There is currently no market for our Common Stock and there can be no assurance that any market will ever develop. You may therefore be unable to re-sell shares of our Common Stock at times and prices that you believe are appropriate.

 

Our Common Stock is not listed on a national securities exchange, or any other exchange, or quoted on an over-the-counter market. Therefore, there is no trading market, active or otherwise, for our Common Stock and our Common Stock may never be included for trading on any stock exchange, automated quotation system or any over-the-counter market. Accordingly, our Common Stock is highly illiquid, and you will likely experience difficulty in re-selling such shares at times and prices that you may desire

 

Our Common Stock may be deemed a “penny stock” which may reduce the value of an investment in the stock.

 

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. If our Common Stock is or becomes subject to the “penny stock” rules, it may be more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our Common Stock.

 

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Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

The sales practice requirements of the Financial Industry Regulatory Authority’s (“FINRA”) may limit a stockholder’s ability to buy and sell our Common Stock.

 

FINRA has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock, which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the market for and price of our Common Stock.

 

Our operating results for a particular period may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause the price of our Common Stock to fluctuate or decline.

 

We expect our operating results to be subject to fluctuations. Our operating results will be affected by numerous factors, including:

 

variations in the level of expenses related to future development plans;
   
fluctuations in value of the underlying commodity;
   
inability to procure sufficient quantities to meet demand due to the scarcity of the product available from its suppliers
   
level of underlying demand for our products and any other products we sell;
   
any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved; and
   
regulatory developments affecting us or our competitors.

 

If our operating results for a particular period fall below the expectations of investors or securities analysts, the price of our Common Stock could decline substantially. Furthermore, any fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially. We believe that comparisons of our financial results from various reporting periods are not necessarily meaningful and should not be relied upon as an indication of our future performance.

 

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Our principal stockholders and management own a significant percentage of our Common Stock and will be able to exercise significant influence over matters subject to stockholder approval.

 

As of November 12, 2018, our executive officers, directors and principal stockholders, together with their respective affiliates, owned approximately 94.8% of our Common Stock, including shares subject to outstanding options that are exercisable within 60 days after such date. Accordingly, these stockholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or the board of directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our Common Stock.

 

The shares of Common Stock issued in the Merger, the Offering and the Company Settlement are “restricted securities” and, as such, may not be sold except in limited circumstances.

 

None of the shares of Common Stock issued in the Merger, the Offering and the Company Settlement have been registered under the Securities Act or registered or qualified under any state securities laws. Such shares of Common Stock were sold and/or issued pursuant to exemptions contained in and under those laws. Accordingly, such shares of Common Stock are “restricted securities” as defined in Rule 144 under the Securities Act and must, therefore, be held indefinitely unless registered under applicable federal and state securities laws, or an exemption is available from the registration requirements of those laws. The certificates representing the shares of Common Stock issued in the Merger, Offering and Company Settlement reflect their restricted status.

 

In addition to the Conversion Shares and Warrant Shares, we have agreed to register the 15,000,000 shares of Common Stock issued in the Merger, 750,000 shares retained by the pre-Merger shareholders and the shares issuable pursuant to the Company Settlement. There can be no assurance, however, that the SEC will declare the Registration Statement effective, thereby enabling such shares of Common Stock to be freely tradable. In addition, Rule 144 under the Securities Act, which permits the resale, subject to various terms and conditions, of limited amounts of restricted securities after they have been held for six months will not immediately apply to our Common Stock because we were at one time designated as a “shell company” under SEC regulations. Pursuant to Rule 144(i), securities issued by a current or former shell company that otherwise meet the holding period and other requirements of Rule 144 nevertheless cannot be sold in reliance on Rule 144 until one year after the date on which the issuer filed current “Form 10 information” (as defined in Rule 144(i)) with the SEC reflecting that it ceased being a shell company, and provided that at the time of a proposed sale pursuant to Rule 144, the issuer has satisfied certain reporting requirements under the Exchange Act. We believe this requirement to file Form 10 information has been satisfied by the filing of this Report on Form 8-K. Because, as a former shell company, the reporting requirements of Rule 144(i) will apply regardless of holding period, the restrictive legends on certificates for the shares of Common Stock cannot be removed except in connection with an actual sale that is subject to an effective registration statement under, or an applicable exemption from the registration requirements of, the Securities Act.

 

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Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.

 

Because we did not become a reporting company by conducting an underwritten initial public offering of our Common Stock, and because we will not be listed on a national securities exchange, securities analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our Common Stock.

 

Because the Merger was a reverse merger, the Registration Statement we file with respect to the shares of Common Stock received by investors in the Merger might be subject to heightened scrutiny by the SEC.

 

Additional risks may exist as a result of our becoming a public reporting company through a “reverse merger.” Certain SEC rules are more restrictive when applied to reverse merger companies, such as the ability of stockholders to re-sell their shares of Common Stock pursuant to Rule 144, and the SEC may subject the Registration Statement we file with respect to the shares of Common Stock received by investors in the Merger and the Offering to heightened scrutiny.

 

The resale of shares covered by the Registration Statement could adversely affect the market price of our Common Stock in the public market, should one develop, which result would in turn negatively affect our ability to raise additional equity capital.

 

The sale, or availability for sale, of our Common Stock in the public market may adversely affect the prevailing market price of our Common Stock and may impair our ability to raise additional capital by selling equity or equity-linked securities. We have agreed, at our expense, to prepare and file the Registration Statement with the SEC registering the resale of an aggregate of 17,074,750 shares of Common Stock issued and/or issuable in connection with the Merger, the Offering, the Company Settlement and the shares retained by the pre-Merger shareholders. Once effective, the Registration Statement will permit the resale of these shares at any time. The resale of a substantial number of shares of our Common Stock in the public market could adversely affect the market price for our Common Stock and make it more difficult for you to sell shares of our Common Stock at times and prices that you feel are appropriate. Furthermore, we expect that, because there will be a large number of shares registered pursuant to the Registration Statement, selling stockholders will continue to offer shares covered by such Registration Statement for a significant period of time, the precise duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to the Registration Statement may continue for an extended period of time and continued negative pressure on the market price of our Common Stock could have a material adverse effect on our ability to raise additional equity capital.

 

Issuance of stock to fund our operations may dilute your investment and reduce your equity interest.

 

We may need to raise capital in the future to fund the development of our seafood business. Any equity financing may have significant dilutive effect to stockholders and a material decrease in our stockholders’ equity interest in us. Equity financing, if obtained, could result in substantial dilution to our existing stockholders. At its sole discretion, our board of directors may issue additional securities without seeking stockholder approval, and we do not know when we will need additional capital or, if we do, whether it will be available to us.

 

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Provisions of our charter documents or Delaware law could delay or prevent an acquisition of the Company, even if such an acquisition would be beneficial to our stockholders, which could make it more difficult for you to change management.

 

Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our board of directors. These provisions include:

 

no cumulative voting in the election of directors;
   
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director;
   
a requirement that special meetings of stockholders be called only by the board of directors;
   
a notice provision requirement for stockholders to nominate directors;
   
a requirement that our directors may be removed only by a supermajority (two-thirds) vote of the stockholders; and
   
the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine.

 

In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns, or within the last three years has owned, 15% or more of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of the company. Furthermore, our certificate of incorporation will specify that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable in such action.

 

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We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future; therefore, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.

 

We have never declared or paid cash dividends on our Common Stock. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. In addition, our current loan and security agreement with ACF contains, and our future loan arrangements, if any, may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.

 

We may apply the proceeds of the Offering to uses that ultimately do not improve our operating results or increase the value of our Common Stock.

 

We intend to use the net proceeds from the Offering, including proceeds received upon the exercise of any Warrants sold therein, for general working capital purposes. However, we do not have more specific plans for the net proceeds from the Offering and our management has broad discretion in how we use these proceeds. These proceeds could be applied in ways that do not improve our operating results or otherwise increase the value of our Common Stock.

 

Management’s Discussion and Analysis or Plan of Operation

 

This discussion should be read in conjunction with the other sections of this Report, including “Risk Factors,” “Description of Business” and the Financial Statements and notes thereto filed herewith as Exhibits 99.1 and 99.2. The various sections of this discussion contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Report as well as other matters over which we have no control. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report.

 

On November 8, 2018, our wholly-owned subsidiary, Acquisition Sub, merged with and into Blue Star. Pursuant to the Merger, Blue Star was the surviving corporation and became our wholly-owned subsidiary. All of the outstanding stock of Blue Star was converted into shares of our Common Stock.

 

At the time of the Merger, we redeemed an aggregate of 9,250,000 shares of our Common Stock from our Pre-Merger Holders. The Pre-Merger holder retained an aggregate of 725,000 shares of our Common Stock.

 

As a result of the Merger, we acquired the business of Blue Star and will continue the existing business operations of Blue Star as a publicly-traded company under the name Blue Star Foods Corp.

 

As the result of the Merger and the change in business and operations of the Company, a discussion of the past financial results of the Company is not pertinent, and under applicable accounting principles the historical financial results of Blue Star, the accounting acquirer, prior to the Merger are considered the historical financial results of the Company.

 

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The following discussion highlights Blue Star’s results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on Blue Star’s audited and unaudited financial statements contained in this Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.

 

Basis of Presentation

 

The audited financial statements of Blue Star for the fiscal years ended December 31, 2017 and 2016, and the unaudited financial statements of Blue Star for the six months ended June 30, 2018, include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these audited and unaudited financial statements. All such adjustments are of a normal recurring nature.

 

Overview

 

We were formed in the State of Florida on May 5, 1995 as John Keeler & Co., Inc., d/b/a Blue Star Foods.

 

We are an international seafood company that imports, packages and sells refrigerated pasteurized crab meat, and other premium seafood products, including crab cakes, finfish and wakami salad. Our current source of revenue is from importing blue and red swimming crab meat primarily from Indonesia, the Philippines and China and distributing it in the United States, Canada and Europe under several premium proprietary brand names such as Blue Star, Oceanica, Pacifika, Grab & Go and Harbor Banks. Our products are also sold in Mexico, Central America, the Caribbean, the European Union, the United Arab Emirates, Singapore and Hong Kong.

 

The crab meat which we import is processed in 14 plants throughout Southeast Asia. Our suppliers are primarily via co-packing relationships, including two affiliated suppliers.

 

The Company sells primarily to food service distributors. The Company also sells its products to wholesalers, retail establishments and seafood distributors.

 

Our premium proprietary brands are differentiated in terms of quality and price point.

 

We believe that we utilize best-in-class technology, in both resource sustainability management and ecological packaging.

 

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The Company’s executive offices and warehouse facility are based in Miami, Florida. Additionally, the Company may, from time to time, utilize third party warehouses located in Miami, Baltimore, Philadelphia and Los Angeles.

 

Results of Operations

 

The selected historical financial information presented below is derived from our audited consolidated financial statements for the years ended December 31, 2017 and 2016.

 

The data set forth below should be read in conjunction with the financial statements and accompanying notes elsewhere in this Report.

 

Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

 

Net Sales. Revenue for the twelve months ended December 31, 2017 decreased 1.5% to $36,951,923 as compared to $37,523,380 for the 12 months ended December 31, 2016. The revenue decrease reflects a decrease in poundage sold attributable to pressure on the commodity that caused the Company’s overall imports to decrease by 9% for the twelve months ended December 31, 2017, and a decrease in industry demand as prices increased during 2017 to new market highs causing, we believe, customers to either downgrade their purchases to less expensive specifications, or remove crab from their menus altogether.

 

Cost of Goods Sold. Cost of goods sold for the twelve months ended December 31, 2017 decreased to $31,254,430 as compared to $32,689,580 for the twelve months ended December 31, 2016. The decrease is partially attributable to the revenue decline but is primarily attributable to selling price outpacing the cost of inventory as prices increased during the 12 months ended December 31, 2017.

 

Gross Profit Margin . Gross profit margin for the twelve months ended December 31, 2017 increased $863,693 to $5,697,493 from $4,833,800 for the twelve months ended December 31,2016. This increase is directly attributable to rising market prices that outpaced the increase in cost of products that were being shipped during the twelve months ended December 31, 2017. The Company attributes the increase to data analytics that led to decreased purchasing of inventory during the previous cyclical high commodity costs, and a subsequent increase in purchasing as the commodity bottomed out.

 

Gross profit margin for the twelve months ended December 31, 2017 increased to 15.4% from 12.9% for the same period in 2016. This increase is directly attributable to rising market prices that outpaced the increase in cost of products in inventory during the twelve months ended December 31, 2017.

 

Commissions Expenses. Commissions expenses decreased from $227,272 for the twelve months ended December 31, 2016 to $155,574 for the twelve-month period ended December 31,2017. The decrease was primarily due to a re-alignment of the Company’s sales structure, reducing the number of accounts that earned brokerage commissions.

 

Salaries & Wages Expense . Salaries and wages decreased $26,251, or 1.4%, to $1,859,706 for the twelve months ended December 31, 2017 as compared to $1,885,957 for the twelve months ended December 31, 2016 as a result of employee attrition in the international department.

 

Other Operating Expense. Other operating expenses increased by 1.3% from $2,311,132 for the twelve months ended December 31, 2016 to $2,340,163 for the twelve months ended December 31, 2017. The increase is primarily attributable to an increase in amortization expense for the twelve months ended December 31, 2017, due to an increase in loan costs amortizations related to the lending facility that was executed on August 31, 2016.

 

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Interest Expense. Interest expense increased from $914,355 for the twelve months ended December 31, 2016 to $969,416 for the twelve months ended December 31, 2017. This increase is due to an increase in interest paid to the Company’s stockholder of $47,660 under 6% promissory notes and an increase of $7,468 of interest paid on third party debt. The increase in stockholder interest is related to interest paid on an additional $500,000 that was loaned to the Company during 2017.

 

Other Expenses. Other expenses decreased from $368,989 for the twelve months ended December 31, 2016 to $29,478 for the twelve months ended December 31, 2017. The decrease is attributable to a decrease of $248,340 in consultant fees related to the lender forbearance during the first eight months of 2016, a decrease of $23,565 in legal fees related to such lender forbearance and a decrease of $110,000 in forbearance fees for the eight months ended December 31, 2017 as compared to the twelve months ended December 31, 2016.

 

Net Income/(Loss). The company generated a net profit of $343,156 for the twelve months ended December 31, 2017 as compared to a net loss of $873,905 for the twelve months ended December 31, 2016. The increase in net profit is attributable to an increase in gross profit margins and a decrease in both operating and other expenses. Profits improved despite the reduction in revenue for the twelve months ended December 31, 2017 as compared to December 31, 2016.

 

Cash (Used in) Provided by Operating Activities. Our cash used in operating activities during the twelve months ended December 31, 2017 was $3,075,944 as compared to cash provided by operating activities of $4,119,808 for the twelve months ended December 31, 2016. The decrease is attributable to cash generated from inventory of ($3,429,637) during the twelve months ended December 31, 2107 as compared to cash generated from inventory of $3,595,789 during the twelve months ended December 31, 2016. Additionally, for the twelve months ended December 31, 2017 cash provided by Accounts receivable was ($257,934) as compared to the cash provided by Accounts receivable of $527,719 for the twelve months ended December 31, 2016.

 

Cash Used In Investing Activities. Cash used in investing activities for the twelve months ended December 31, 2017 was $33,491 as compared to $17,554 cash used for the twelve months ended December 31, 2016.

 

Cash Provided by (Used in) Financing Activities. Cash provided by financing activities for the twelve months ended December 31, 2017 was $3,027,821 as compared to cash used in financing activities of $4,064,246 for the twelve months ended December 31, 2016. The primary difference was the increase in the outstanding line of credit and borrowing from the Company’s stockholder during 2017. During the twelve months ended December 31, 2016 cash was utilized to reduce the Company’s working capital line of credit.

 

Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017

 

Results of Operations

 

The selected historical financial information presented below is derived from our unaudited consolidated financial statements for the six months ended June 30, 2018 and June 30, 2017.

 

The data set forth below should be read in conjunction with the financial statements and accompanying notes elsewhere in this Report.

 

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Net Sales. Revenue for the six months ended June 30, 2018 decreased 12.9% to $16,877,503 as compared to $19,374,358 for the six months ended June 30, 2017 as a result of a decrease in poundage sold due to a decrease in industry demand as prices reached a record high during the second quarter of 2018. We believe that these new market highs caused customers to either downgrade their purchases to less expensive specifications or remove crab from their menus altogether. In addition, the Company sold $2,991,200 or 102,000 pounds less of Hanaii crab meat during the six months ended June 30, 2018 due to a shortage of supply coming out of China in the first three months of 2018.

 

Cost of Goods Sold. Cost of goods sold for the six months ended June 30, 2018 decreased to $14,527,461 as compared to $16,203,074 for the six months ended June 30, 2017. The decrease is attributable to the revenue decline and the reduction in selling price outpacing the reduction in cost of inventory during the first three months of the six-month period ended June 30, 2018. However, during the last three months of the six-month period ended June 30, 2018, the market conditions changed, and the increasing pricing outpaced that of the cost of product in inventory.

 

Gross Profit Margin . Gross profit margin for the six months ended June 30, 2018 decreased by $821,242 as compared to the six months ended June 30, 2017. This decrease was attributable to the decline in revenue and the downward pressure on the commodity during the first three months of the six- month period ended June 30, 2018 where the decline in selling price outpaced the decline in cost of products that were being shipped during the second three months of the six-month period. The commodity began its record setting rise during the six months ended June 30, 2018 whereby the increase in pricing far outpaced the cost of inventory, but there was insufficient revenue generated during that period to outpace the suppressed margins of the first three months of 2018.

 

Gross profit margin for the six months ended June 30, 2018 decreased to 13.9% from 16.4% for the same period in 2017. This increase is directly attributable to volatility in the commodity during the first six months of 2018.

 

Commissions Expenses. Commissions expenses decreased from $78,959 in the six months ending June 30, 2017 to $66,215 for the six months ending June 30, 2018, primarily due to a re-alignment of the Company’s sales structure, reducing the number of accounts that earned brokerage commissions.

 

Salaries and Wages Expense . Salaries and wages expense increased $8,056, or 0.8% for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. This increase is reflective of a net hiring in the Company’s selling department late in the first six months of 2018.

 

Other Operating Expense. Other operating expenses increased by 1.6% from $1,128,197 for the six months ended June 30, 2017 to $1,146,415 for the six months ended June 30, 2018. The increase is primarily attributable to an increase in professional fees during the six months ended June 30, 2018, as the Company prepared for the Merger.

 

Interest Expense. Interest expense increased from $511,600 for the six months ended June 30, 2017 to $556,224 for the six months ended June 30, 2018. This increase is due to the increase of 0.82%in the underlying 30-day LIBOR rate as compared to 30-day LIBOR rate in the six months ended June 30,2017.

 

Other Expenses. Other expenses decreased from $9,065 for the six months ended June 30, 2017 to $679 for the six months ended June 30, 2018. This reduction is attributable to the fact that the Company is no longer in forbearance with its credit facility lender.

 

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Net Income/(Loss). The Company generated a net loss of $352,461 for the six months ended June 30, 2018 as compared to a net profit of $518,549 for the six months ended June 30, 2017. The decrease in net profit is attributable to decreased revenues combined with suppressed margins during the first three months of the six-month period ended June 30, 2018.

 

Cash Provided by Operating Activities. Cash provided by operating activities during the six months ended June 30, 2018 was $3,134,823 as compared to cash provided by operating activities of $853,141 for the six months ended June 30, 2017. The increase is attributable to cash generated from the reduction of inventory of $5,094,327 during the six months ended June 30, 2018 as compared to cash generated from inventory of $3,549,519 during the six months ended June 30, 2017.

 

Cash Used for Investing Activities. Cash used for investing activities for the six months ended June 30, 2018 was $6,371 as compared to $3,391 used for investing activities for the six months ended June 30, 2017.

 

Cash Used in Financing Activities. Cash used from financing activities for the six months ended June 30, 2018 was $3,140,813 as compared to cash used in financing activities of $895,569 for the six months ended June 30, 2017. The Company’s revolving working capital line of credit was paid down via the conversion of inventory during the first six months of each period.

 

Liquidity and Capital Resources

 

At June 30, 2018, the Company had working capital deficit of $1,954,434 as compared to $1,676,219 working capital at December 31, 2017. The primary sources of liquidity consisted of inventory of $7,858,523 and accounts receivable of $4,313,662. The decrease in working capital was due primarily from the reduction of inventories of $5,094,327 as opposed to the reduction in accounts payable and the working capital line of credit $4,020,942.

 

The Company has historically financed its operations through the cash flow generated from operations, loans from John Keeler and a working capital line of credit.

 

Loan and Security Agreement

 

On August 31, 2016, the Company entered into a Loan and Security Agreement and a revolving credit note for a $14,000,000 revolving line of credit with ACF, the proceeds of which were used to pay off the prior line of credit, pay new loan costs of approximately $309,000, and provide additional working capital. The credit facility was amended on November 18, 2016, June 19, 2017, October 16, 2017, September 19, 2018 and November 8, 2018. In the fourth amendment the term of this facility was extended to 2021 and is subject to early termination by the lender upon defined events of default. The Company continues to be obligated to meet certain financial covenants.

 

The line of credit bears an interest at the greater of (i) the 3-month LIBOR rate plus 6.25%, (ii) the prime rate plus 3.0% and (iii) 6.5%. Borrowing is based on up to 85% of eligible accounts receivable plus the net orderly liquidation value of eligible inventory at the same rate, subject to certain specified lim itations. The credit line is collateralized by substantially all the assets of the Company and is personally guaranteed by John Keeler, our Executive Chairman. The Company is restricted with respect to certain distribution payments, use of funds and is required to comply with certain other covenants including certain financial ratios.

 

During the first six months of 2018, the Company failed to meet certain financial covenants. Such default was waived in September 2018 pursuant to the fourth amendment to the Loan and Security Agreement and no default interest was incurred. The Company is currently in compliance with all covenants and the line of credit currently bears interest at the rate of 8.593%. At June 30, 2018 the outstanding balance of the line of credit was $8,972,011.

 

John Keeler Promissory Notes

 

From January 2006 through May 2017, Blue Star issued an aggregate of $2,910,000 6% demand promissory notes to John Keeler, our Executive Chairman. As of June 30, 2018, $2,910,000 of principal was outstanding under the notes and we paid an aggregate of $87,300 in interest in monthly payments under the notes. We can prepay the notes at any time first against interest due thereunder. If an event of default occurs under the notes, interest will accrue at 18% per annum and if not paid within 10 days of payment becoming due, the holder of the note is entitled to a late fee of 5% of the amount of payment not timely received.

 

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Critical Accounting Policies and Estimates

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its variable interest entity for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

 

Variable Interest Entity

 

Under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, Consolidation , when a reporting entity is the primary beneficiary of an entity that is a variable interest entity (“VIE”), as defined in ASC 810, the VIE must be consolidated into the financial statements of the reporting entity. The determination of which owner is the primary beneficiary of a VIE requires management to make significant estimates and judgments about the rights, obligations, and economic interests of each interest holder in the VIE.

 

The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.

 

Effective April 1, 2014, the Company’s stockholder was transferred the controlling interest of Strike the Gold Foods, Ltd. (“Strike”), a related party entity which holds the Company’s inventory on consignment in United Kingdom (see Note 3). The Company evaluated its interest in Strike and determined that Strike is a VIE due to the Company’s implicit interest in Strike and the fact that Strike and the Company were under common control after the transfer of the controlling interest. Moreover, the Company determined that it is the primary beneficiary of Strike due to the fact that the Company had both the power to direct the activities that most significantly impact Strike and the obligation to absorb losses or the right to receive benefits from Strike. Therefore, the Company consolidated Strike in its financial statements.

 

Strike’s activities are reflected in the Company’s financial statements starting on April 1, 2014, the effective date of the controlling interest transfer. Strike’s equity is classified as non-controlling interest in the Company’s financial statements since the Company is not a shareholder of Strike. Strike was not a VIE of the Company and the Company was not the primary beneficiary of Strike prior to the controlling interest transfer.

 

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The Company also evaluated its interest in three related party entities that are under common control with the Company, Bacolod, Bicol Blue Star Export Co. (“Bicol”) and John Keeler Real Estate Holding (“JK Real Estate”), in light of ASC 810. The Company purchased inventory from Bacolod, an exporter of pasteurized crab meat out of the Philippines. The Company purchased inventory, via Bacolod, from Bicol. The Company leases its office and warehouse facility from JK Real Estate, a landlord that is a related party through common family beneficial ownership (see Note 7).

 

The Company determined that Bacolod and Bicol are not VIE’s as they do not meet the criteria to be considered a VIE per ASC 810. The Company does not directly or indirectly absorb any variability of Bacolod or Bicol. The relationship between the Company and Bacolod and Bicol is strictly a supplier/customer relationship (see Advances to Suppliers and Related Party accounting policy). Moreover, Bacolod and Bicol have other customers besides the Company. Even if the Company is no longer Bacolod or Bicol’s customer, they would be able to sustain their operations from selling their inventory to their other customers. As the Company concluded that Bacolod and Bicol are not VIE’s and the Company is not deemed their primary beneficiary, Bacolod or Bicol is not consolidated with the Company’s financial statements.

 

The Company determined that JK Real Estate is a VIE due the fact that the Company guarantees the mortgage on the facility rented from JK Real Estate. Therefore, JK Real Estate’s equity at risk is not deemed sufficient to permit JK Real Estate to finance its activities without subordinated financial support. Moreover, the activities of JK Real Estate are substantially conducted on behalf of the Company’s stockholder. The Company concluded that it not the primary beneficiary of JK Real Estate since the Company does not have the power to direct the activities that most significantly impact JK Real Estate. Therefore, JK Real Estate is not consolidated with the Company’s financial statements.

 

Cash, Restricted Cash and Cash Equivalents

 

The Company maintains cash balances with financial institutions in excess of Federal Deposit Insurance Company insured limits. The Company has not experienced any losses on such accounts and believes it does not have a significant exposure.

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

The Company considers any cash balance in the lender designated cash collateral account as restricted cash. All cash proceeds must be deposited into cash collateral account and will be cleared and applied to the Company’s line of credit. The Company has no access to this account, and the purpose of the funds is restricted to repayment of the line of credit. As of December 31, 2017 and December 31, 2016 restricted cash was approximately $29,500 and $194,000, respectively.

 

Accounts Receivable

 

Accounts receivable consist of unsecured obligations due from customers under normal trade terms, usually net 30 days. The Company grants credit to its customers based on the Company’s evaluation of a particular customer’s credit worthiness.

 

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Allowances for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of the Company’s periodic credit evaluations of its customers’ financial condition. Receivables are written off as uncollectible and deducted from the allowance for doubtful accounts after collection efforts have been deemed to be unsuccessful. Subsequent recoveries are netted against the provision for doubtful accounts expense. The Company generally does not charge interest on receivables.

 

Receivables are net of estimated allowances for doubtful accounts and sales return and allowances and are stated at estimated net realizable value. As of December 31, 2017 and December 31, 2016, the Company recorded sales return and allowances of approximately $155,000 and $134,000, respectively. There was no allowance for bad debt recorded during the years ended December 31, 2017 and December 31, 2016.

 

Inventories

 

Substantially all of the Company’s inventory consists of packaged crab meat located at the Company’s warehouse facility as well as public cold storage facilities and merchandise in transit from suppliers. The cost of inventory is primarily determined using the specific identification method. Inventory is valued at the lower of cost or market, using the first-in, first-out method.

 

Merchandise is purchased cost and freight shipping point and becomes the Company’s asset and liability upon leaving the suppliers’ warehouse. The Company had in-transit inventory of approximately $6,148,000 and $5,363,000 as of December 31, 2017 and December 31, 2016, respectively.

 

The Company periodically reviews the value of items in inventory and records an allowance to reduce the carrying value of inventory to the lower of cost or market based on its assessment of market conditions, inventory turnover and current stock levels. Inventory write-downs are charged to cost of goods sold. The Company recorded an inventory allowance of approximately $39,300 and $48,500 for the years ended December 31, 2017 and December 31, 2016, respectively.

 

Advances to Suppliers and Related Party

 

In the normal course of business, the Company may advance payments to its suppliers, inclusive of Bacolod, a related party. These advances are in the form of prepayments for products that will ship within a short window of time. In the event that it becomes necessary for the Company to return products or adjust for quality issues, the Company is issued a credit by the vendor in the normal course of business and these credits are also reflected against future shipments.

 

As of December 31, 2017 and December 31, 2016, the balance due from Bacolod for future shipments was approximately $0 and $982,000, respectively. The 2016 balances represent approximately two to three months of purchases from the supplier.

 

Fixed Assets Fixed assets are stated at cost less accumulated depreciation and are being depreciated using the straight-line method over the estimated useful life of the asset as follows:

 

Furniture and fixtures 7 to 10 years
   
Computer equipment 5 years
   
Warehouse and refrigeration equipment 10 years
   
Leasehold improvements 7 years
   
Automobile 5 years
   
Trade show booth 7 years

 

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Leasehold improvements are amortized using the straight-line method over the shorter of the expected life of the improvement or the remaining lease term.

 

The Company capitalizes expenditures for major improvements and additions and expenses those items which do not improve or extend the useful life of the fixed assets.

 

The Company reviews fixed assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At December 31, 2017 and December 31, 2016, the Company believes the carrying values of its long-lived assets were recoverable and as such, the Company did not record any impairment.

 

Other Comprehensive (loss) Income

 

The Company reports its comprehensive (loss) income in accordance with ASC 220, Comprehensive Income , which establishes standards for reporting and presenting comprehensive (loss) income and its components in a full set of financial statements. Other comprehensive (loss) income consists of net income (loss) and cumulative foreign currency translation adjustments.

 

Foreign Currency Translation

 

The Company’s functional and reporting currency is the U.S. Dollars. The assets and liabilities held by the Company’s VIE have a functional currency other than the U.S. Dollar. They are translated into U.S. Dollars at exchange rates in effect at the end of each reporting period. The VIE’s revenue and expenses are translated into U.S. Dollars at the average rates that prevailed during the period. The resulting net translation gains and losses are reported as foreign currency translation adjustments in stockholders’ equity as a component of comprehensive (loss) income. The Company recorded foreign currency translation adjustment of approximately $56,000 and $(12,000) for the years ended December 31, 2017 and December 31, 2016, respectively.

 

Revenue Recognition

 

The Company recognizes revenue when the products are shipped, the risks of ownership transfer to the customer and collectability is reasonably assured. Revenue is stated net of sales returns and allowances. Provision for sales return is estimated based on the Company’s historical return experience.

 

The Company offers sales discounts and promotions to its customers in various forms. These incentives are accounted for as a reduction of revenue when they are characterized as cash consideration, in accordance with ASC 605, Revenue Recognition . Otherwise, the incentives are expensed.

 

Revenue is inclusive of shipping and handling fees and all related costs of shipping and handling related to sales to customers are categorized as cost of revenue.

 

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The Company expenses the costs of advertising as incurred. Advertising expenses which are included in Other Operating Expenses were approximately $108,000 and $82,500, for the years ended December 31, 2017 and December 31, 2016, respectively.

 

Use of Estimates

 

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

 

Customer Concentration The Company had three customers which accounted for approximately 63% and 60%, of revenue during the years ended December 31, 2017 and 2016, respectively. Outstanding receivables from these customers accounted for approximately 66% and 63% of the total accounts receivable as of December 31, 2017 and 2016, respectively. The loss of any major customer could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Supplier Concentration

 

The Company had three suppliers which accounted for approximately 75% of the Company’s total purchases during the year ended December 31, 2017. These three suppliers are located in three countries, Indonesia, Philippines, China, which accounted for approximately 93% of the Company’s total purchases during the year ended December 31, 2017.

 

The Company had four suppliers which accounted for approximately 70% of the Company’s total purchases during the year ended December 31, 2016. These four suppliers are located in four countries, Indonesia, Philippines, China and USA, which accounted for approximately 82% of the Company’s total purchases during the year ended December 31, 2016.

 

These suppliers included Bacolod, a related party, which accounted for approximately 53% and 22% of the Company’s total purchases, during the years ended December 31, 2017 and December 31, 2016, respectively.

 

The loss of any major supplier could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Fair Value of Financial Instruments

 

Our financial instruments include cash, accounts receivable, accounts payable, accrued expenses, and debt obligations. We believe the carrying values of our financial instruments approximate their fair values because they are short term in nature or payable on demand.

 

Reclassifications

 

Certain amounts in prior year have been reclassified to conform to the current year presentation.

 

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Income Taxes

 

The Company with stockholder consent has elected to be taxed under the S Corporation provisions of the Internal Revenue Code. Under these provisions, taxable income or loss of the Company is reflected on the stockholder’s individual income tax return.

 

The Company assesses its tax positions in accordance with ASC 740, Income Taxes , which provides guidance for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return for open tax years (generally a period of three years from the later of each return’s due date or the date filed), that remain subject to examination by the Company’s major tax jurisdictions. The Company’s tax returns for 2014 through 2017 remain subject to examination by the Internal Revenue Service.

 

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to uncertain tax positions, if any, are classified as a component of income tax expense. The Company believes that it does not have any significant uncertain tax positions requiring recognition or measurement in the accompanying financial statements.

 

For the years ended December 31, 2016 and December 31, 2017, a pro forma income tax provision has been disclosed as if the Company was a C corporation and thus was subject to U.S. federal and state income taxes. The Company computed pro forma tax expense using an effective rate of 34.92% and 68.09% as of December 31, 2016 and December 31, 2017, respectively. The pro-forma provision for income taxes excludes information related to the Company’s VIE.

 

Recently Issued Accounting Pronouncements

 

ASU No. 2014-09 , Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The below disclosure reflects the Company’s updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily through distributors, and the Company has no significant post-delivery obligations, this did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition .

 

Required Elements of Revenue Recognition : Revenue from the Company’s product sales is recognized under Topic 606 in a manner that reasonably reflects the delivery of its goods to customers in return for expected consideration and includes the following elements:

 

the Company ensures it has an executed purchase order with its customers that it believes is legally enforceable;
   
the Company identifies the “performance obligation in the respective purchase order;
   
the Company determines the “transaction price” for each performance obligation in the respective purchase order;
   
the Company allocates the transaction price to each performance obligation; and
   
the Company recognizes revenue only when it satisfies each performance obligation.

 

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These five elements, as applied to each of the Company’s revenue category, is summarized below:

 

Revenue – the Company sells its products to wholesalers, distributors and retailers (i.e., its customers). The Company’s wholesalers/distributors in turn sell its products directly to restaurants or end users as well as retail stores. Revenue from the Company’s product sales is recognized as when the product is taken from the Company’s warehouse via arranged freight or customer pick-up, in return for agreed-upon consideration. Additionally, the Company offers sales discounts and promotions to its customers in various forms. These incentives are accounted for as a reduction of revenue when they are characterized as cash consideration. Otherwise, the incentives are expensed. Revenue is inclusive of shipping and handling fees and all related costs of shipping and handling related to sales to customers are categorized as cost of revenue.
   
Product Returns Allowances – The Company estimates expected product returns for its allowance based on its historical return rates. Returned product is evaluated for resale and may be resold.

 

ASC 842 Leases . In February 2016, the FASB issued ASC 842 Leases which is to be effective for reporting periods beginning after December 15, 2018. The Company has reviewed the pronouncement and believes it will not have a material impact on the Company’s financial position, operations or cash flows.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information relating to the beneficial ownership of our Common Stock at November 12, 2018, by:

 

  each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of Common Stock;
     
  each of our directors;
     
  each of our named executive officers; and
     
  all current directors and executive officers as a group.

 

The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of November 12, 2018 through the exercise of any stock option, warrants or other rights. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock held by such person.

 

The percentage of shares beneficially owned is computed on the basis of 16,015,000 shares of Common Stock outstanding as of November 12, 2018, giving effect to the Offering and taking into account the consummation of the Merger, the Share Surrender and the Company Settlement. Shares of Common Stock that a person has the right to acquire within 60 days of November 12, 2018 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated below, the address for each beneficial owner listed in the table is c/o Blue Star Foods Corp., 3000 NW 109th Avenue, Miami, Florida 33172.

 

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Name and Address of Beneficial Owner   Number of
Shares
Beneficially
Owned
    Percentage
of Beneficial
Ownership
 
Named Executive Officers and Directors                
John Keeler     15,000,000       93.7 %
Carlos Faria     3,120,000 (1)     16.3 %
Christopher H. Constable     (2 )     -  
Nubar Herian     450,000 (3)     2.7 %
All current directors and executive officers as a group (4 persons)     18,570,000       94.8 %

 

 

 

  (1) Represents a currently exercisable option to purchase shares of Common Stock at an exercise price of $0.333 per share.
  (2) Does not include stock options to purchase 3,120,000 shares of Common Stock issued on November 8, 2018, which do not vest until one year from the date of grant.
  (3)

Represents 300,000 Conversion Shares and 150,000 Warrant Shares.

 

 

Executive Officers and Directors

 

The following persons became our executive officers and directors on November 8, 2018, upon effectiveness of the Merger and hold the positions set forth opposite their respective names.

 

Name Age Position
John Keeler 47 Executive Chairman of the Board
Carlos Faria 48 President and Chief Executive Officer and a director
Christopher H. Constable 52 Chief Financial Officer, Treasurer and Secretary and a director
Nubar Herian 49 Director

 

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Our directors hold office for three-year terms and until their successors have been elected and qualified. Our officers are elected by the board of directors and serve at the discretion of the board.

 

Biographies

 

John Keeler has been Executive Chairman of the Board since the effectiveness of the Merger. Mr. Keeler founded John Keeler & Co., d/b/a Blue Star Foods in May 1995 and served as its Executive Chairman of the Board since inception during which time he grew the company to become one of the leading marketers of imported blue swimming crab meat in the United States. Mr. Keeler built sales over the past 20 years to $35+ million annually through 2017. Mr. Keeler oversees procurement as well as operating facilities in the Philippines and Indonesia. Mr. Keeler is an executive committee member of the National Fisheries Institute-Crab Council and a founding member of the Indonesia and Philippines crab meat processors associations. Mr. Keeler received his BS in Economics from Rutgers University in 1995 and attended Harvard Business School executive programs in supply chain management, negotiations and marketing in 2005. Mr. Keeler’s extensive experience in the industry led to the decision to appoint him to the board of directors.

 

Carlos Faria has been President and Chief Executive Officer and a director since the effectiveness of the Merger. Mr. Faria was Senior Vice President of Blue Star since December 2016. Prior thereto, from September 2015 to November 2016, Mr. Faria was senior vice president of Procurement at AquaStar, the largest division of the privately-held Red Chamber Group, a diversified and vertically integrated seafood company, where he developed four new product lines of pasteurized seafood and helped build a supplier network in Indonesia, the Philippines, Thailand, Vietnam and China. From February 2012 to August 2015 Mr. Faria was vice president of operations at Chicken of the Sea Frozen Foods, the largest US division of the Thai Union Group, a diversified and vertically integrated worldwide seafood company and head of East Coast operations of Empress International, where he was responsible for M&A strategy and the acquisition of $250 million Orion Seafood International, Inc., the largest marketer of frozen lobster products in the United States. From May 2003 to January 2012, Mr. Faria was senior vice president of International, Supply Chain & Strategy at John Keeler & Co. where he implemented sales and operations planning process to structure growth for the company and vertically integrated operations in Indonesia and the Philippines with multiple processing plants. Mr. Faria has also held positions in corporate finance, including as a deputy general manager at WestLB Group (Banque Europeenne pour l’Amerique Latine – a West Deutsche Landesbank subsidiary) (Caracas, Venezuela) and as an international business analyst at Citibank, NA (Caracas, Venezuela). Mr. Faria graduated from the Universidad Metropolitana (Venezuela), with a bachelor’s in business administration, majoring in management and received training at the Harvard Business School in supply chain management. Mr Faria’s extensive experience in the seafood industry led to the decision to appoint him to the board of directors.

 

Christopher H. Constable has been Chief Financial Officer, Treasurer and Secretary and a director since the effectiveness of the Merger. Mr. Constable was Chief Financial Officer of Blue Star since May 2003. Mr. Constable manages the Company’s US finance operations. In addition, Mr. Constable manages the finance operations of the Company’s international affiliates, Bacolod Blue Star Export Corp, Bicol Blue Star Export Corp Strike the Gold Foods, Ltd., affiliated suppliers. Prior thereto, from 1999 to 2003, Mr. Constable was a consultant at Gateway Capital Corp., a business consulting firm, where he analyzed the financial and reporting capabilities of prospective lending customers for lines of credit from $10 to $100 million. Additionally, Mr. Constable was involved with loan workouts of facilities that required either liquidation or restructuring to ensure collectability for the financial institutions. From 1990 to 1999, Mr. Constable was a commercial banker at Mercantile Bankshares in Baltimore, Finova Capital Corporation and Capital Bank, both in south Florida. Mr. Constable received his B.S. in Finance with an Accounting Minor from the Merrick School of Business at the University of Baltimore, in 1989. Mr. Constable’s experience with the Company and industry knowledge led to the decision to appoint him to the board of directors.

 

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Nubar Herian Nubar Herian has been a director since the effectiveness of the Merger. Since 2014, Mr. Herian has been the chief executive officer of Monaco Group Holdings, a privately-held company headquartered in Miami, Florida, which owns and operates Monaco Foods, Inc., an importer, exporter and distributor of premium gourmet foods from around the world. Since 1995, Mr. Herian has been the commercial director of Casa de Fruta Caracas, a privately-held company based in Caracas, Venezuela, that focuses on importing foods. Mr. Herian is also the president of Lunar Enterprises, a holding company for his family’s public and private equity investments and real estate holdings. Mr. Herian received his BS in Mechanical Engineering from Florida Atlantic University in 1994 and an Executive M.B.A. from the University of Miami in 2014. Mr. Herian’s experience in the food import industry led to the decision to appoint him to the board of directors.There are no family relationships among our directors and executive officers.

 

Committees

 

The Company has no nominating, audit or compensation committees at this time. The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. The entire Board is involved in such decision-making processes. 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. We are not aware of any other conflicts of interest with any of our executive officers or directors.

 

Role of Board in Risk Oversight Process

 

Risk assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts strategic planning and review sessions during the year that include a discussion and analysis of the risks facing us.

 

Director Independence

 

Our board of directors currently consists of three members. We are not currently subject to listing requirements of any national securities exchange that has requirements that a majority of the board of directors be “independent.”

 

Board Diversity

 

Upon consummation of the Merger, the board of directors will review, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:

 

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    personal and professional integrity;
       
    ethics and values;
       
    experience in the industries in which we compete;
       
    experience as a director or executive officer of another publicly held company;
       
    diversity of expertise and experience in substantive matters pertaining to our business relative to other board members;
       
    conflicts of interest; and
       
    practical business judgment.

 

Executive Compensation

 

The table below sets forth certain information about the compensation paid, earned or accrued by our Chief Executive Officer and all other executive officers who received annual remuneration in excess of $100,000 during 2017 (each a “Named Executive Officer”).

 

Summary Compensation Table

 

Name and Principal Position*   Fiscal Year     Salary ($)     Bonus ($)     Other Annual Compensation ($)     Total ($)  
John Keeler     2017       104,595               18,912 (1)     123,507  
Executive Chairman of the Board     2016       104, 595               18,915 (1)     123,510  
                                         
Carlos Faria     2017       120,000       5,000       1,668 (1)     126,668  
Chief Executive Officer     2016       10,000               -       10,000  
                                         
Christopher Constable
    2017       235,852       10,897       3,109 (1)     249,768  
Chief Financial Officer     2016       236, 362               2,837 (1)     199  

 

  (1) Represents health insurance premiums paid on behalf of the executive officer by the Company.

 

*Howard Gostfrand, served as the Company’s Chief Executive Officer prior to the Merger and received no compensation for such service.

 

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Outstanding Equity Awards at Fiscal Year-End

 

As of December 31, 2017, there were no outstanding equity awards held by any Named Executive Officer.

 

Employment Agreements

 

We do not currently have employment agreements with our officers.

 

Director Compensation

 

We do not currently compensate our directors for acting as such, although we may do so in the future. We reimburse our directors for reasonable expenses incurred in connection with their service as directors.

 

Board of Directors and Corporate Governance

 

Upon the closing of the Merger, Laura Anthony and Howard Gostfrand resigned as officers and directors and simultaneously therewith a new board of directors was appointed consisting of John Keeler, Carlos Faria, Christopher Constable and Nubar Herian.

 

Limitation on Liability and Indemnification Matters

 

Our certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

 

  any breach of the director’s duty of loyalty to us or our stockholders;
     
  any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
     
  unlawful payments of dividends or unlawful stock repurchases, or redemptions as provided in Section 174 of the Delaware General Corporation Law; or
     
  any transaction from which the director derived an improper personal benefit.

 

Our certificate of incorporation and bylaws provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law and provide for the advancement of expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his, her or its actions in that capacity regardless of whether we would otherwise be permitted to indemnify him, her or it under Delaware law.

 

In addition to the indemnification required in our certificate of incorporation and bylaws, we currently intend to enter into indemnification agreements with each of our directors, officers and certain other employees. These agreements will provide for the indemnification of our directors, officers and certain other employees for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are, or were, our agents. We believe that these provisions in our certificate of incorporation, bylaws and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. This description of the limitation of liability and indemnification provisions of our certificate of incorporation and of our bylaws is qualified in its entirety by reference to these documents, each of which is attached as an exhibit to this Report.

 

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The limitation of liability and indemnification provisions in our certificate of incorporation and may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons 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. There is no pending litigation or proceeding naming any of our directors, officers or employees as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director, officer or employee.

 

We are in the process of obtaining directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions. When obtained, such insurance also insures us against losses which we may incur in indemnifying our officers and directors.

 

Code of Ethics

 

We intend to adopt a code of ethics that applies to our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer, but have not done so to date due to our relatively small size.

 

Board Independence

 

None of our directors are “independent” director as that term is defined by NASDAQ listing standards and SEC rules.

 

2018 Incentive Plan

 

We have adopted the 2018 Plan that provides for the grant of up to 7,500,000 shares of Common Stock. Under the 2018 Plan, we are authorized to issue incentive stock options intended to qualify under Section 422 of the Code and non-qualified stock options. The 2018 Plan is administered by our board of directors. In connection with the Merger, we issued options to purchase an aggregate of 6,240,000 million shares of Common Stock to certain executive officers and directors.

 

Share Reserve . Under the 2018 Plan, 7,500,000 shares of Common Stock will be initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights(“SARs”), restricted stock awards, restricted stock unit awards, deferred stock awards, dividend equivalent awards, stock payment awards, performance awards and other stock-based awards.

 

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● to the extent that an award terminates, expires or lapses for any reason or an award is settled in cash without the delivery of shares, any shares subject to the award at such time will be available for future grants under the 2018 Plan;

 

● to the extent shares are tendered or withheld to satisfy the grant, exercise price or tax withholding obligation with respect to any award under the 2018 Plan, such tendered or withheld shares will be available for future grants under the 2018 Plan;

 

● to the extent that shares of Common Stock are repurchased by us prior to vesting so that shares are returned to us, such shares will be available for future grants under the 2018 Plan;

 

● the payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2018 Plan; and

 

● to the extent permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by us or any of our subsidiaries will not be counted against the shares available for issuance under the 2018 Plan.

 

Administration. The compensation committee is expected to administer the 2018 Plan unless our board of directors assumes authority for administration. The compensation committee must consist of at least three members of our board of directors, each of whom is intended to qualify as an “outside director,” within the meaning of Section 162(m) of the Code, a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act and an “independent director” within the meaning of the NASDAQ rules. The 2018 Plan provides that the board of directors or compensation committee may delegate its authority to grant awards to employees other than executive officers to a committee consisting of one or more members of our board of directors or one or more of our officers, other than awards made to our non-employee directors, which must be approved by our full board of directors.

 

Subject to the terms and conditions of the 2018 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2018 Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the 2018 Plan. Our board of directors may at any time remove the compensation committee as the administrator and revest in itself the authority to administer the 2018 Plan. The full board of directors will administer the 2018 Plan with respect to awards to non-employee directors.

 

Eligibility. Options, SARs, restricted stock and all other stock-based and cash-based awards under the 2018 Plan may be granted to individuals who are then our officers, employees or consultants or are the officers, employees or consultants of subsidiaries. Such awards also may be granted to our directors. Only employees of the Company or certain subsidiaries may be granted ISOs.

 

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Awards. The 2018 Plan provides that the administrator may grant or issue stock options, SARs, restricted stock awards, restricted stock unit awards, deferred stock awards, deferred stock unit awards, dividend equivalent awards, performance awards, stock payment awards and other stock-based and cash-based awards, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.

 

Nonstatutory Stock Options (“NSOs”) will provide for the right to purchase shares of common stock at a specified price that may not be less than the fair market value of a share of common stock on the date of grant, and usually will become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued employment or service with us and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does not exceed 10 years.

 

Incentive Stock Options (“ISOs”) will be designed in a manner intended to comply with the provisions of Section 422 of the Code and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of our Common Stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of 10 years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of our capital stock, the 2018 Plan provides that the exercise price must be at least 110% of the fair market value of a share of our Common Stock on the date of grant and the ISO must not be exercisable after a period of five years measured from the date of grant.

 

Restricted Stock Awards may be granted to any eligible individual and made subject to such restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for no consideration or repurchased by us at the original purchase price if the conditions or restrictions on vesting are not met. In general, restricted stock may not be sold or otherwise transferred until restrictions are removed or expire. Purchasers of restricted stock, unlike recipients of options, will have voting rights and will have the right to receive dividends, if any, prior to the time when the restrictions lapse; however, extraordinary dividends will generally be placed in escrow, and will not be released until restrictions are removed or expire.

 

Restricted Stock Unit Awards may be awarded to any eligible individual, typically without payment of consideration, but subject to vesting conditions based on continued employment or service or on performance criteria established by the administrator. Like restricted stock, restricted stock units may not be sold, or otherwise transferred or hypothecated, until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied.

 

Deferred Stock Awards represent the right to receive shares of common stock on a future date. Deferred stock may not be sold or otherwise hypothecated or transferred until issued. Deferred stock will not be issued until the deferred stock award has vested, and recipients of deferred stock generally will have no voting or dividend rights prior to the time when the vesting conditions are satisfied and the shares are issued. Deferred stock awards generally will be forfeited, and the underlying shares of deferred stock will not be issued, if the applicable vesting conditions and other restrictions are not met.

 

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Deferred Stock Units are denominated in unit equivalent of shares of common stock and vest pursuant to a vesting schedule or performance criteria set by the administrator. The common stock underlying deferred stock units will not be issued until the deferred stock units have vested, and recipients of deferred stock units generally will have no voting rights prior to the time when vesting conditions are satisfied.

 

Stock Appreciation Rights (“SARS”), may be granted in connection with stock options or other awards, or separately. SARs granted in connection with stock options or other awards typically will provide for payments to the holder based upon increases in the price of our Common Stock over a set exercise price. The exercise price of any SAR granted under the 2018 Plan must be at least 100% of the fair market value of a share of our Common Stock on the date of grant. Except as required by Section 162(m) of the Code with respect to a SAR intended to qualify as performance-based compensation as described in Section 162(m) of the Code, there are no restrictions specified in the 2018 Plan on the exercise of SARs or the amount of gain realizable therefrom, although restrictions may be imposed by the administrator in the SAR agreements. SARs under the 2018 Plan will be settled in cash or shares of common stock, or in a combination of both, at the election of the administrator.

 

Dividend Equivalent Awards represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the award. Dividend equivalents may be settled in cash or shares and at such times as determined by our compensation committee or board of directors, as applicable.

 

Performance Awards may be granted by the administrator on an individual or group basis. Generally, these awards will be based upon specific performance targets and may be paid in cash or in common stock or in a combination of both. Performance awards may include “phantom” stock awards that provide for payments based upon the value of our Common Stock. Performance awards may also include bonuses that may be granted by the administrator on an individual or group basis and that may be payable in cash or in common stock or in a combination of both.

 

Stock Payment Awards may be authorized by the administrator in the form of common stock or an option or other right to purchase common stock as part of a deferred compensation or other arrangement in lieu of all or any part of compensation, including bonuses, that would otherwise be payable in cash to the employee, consultant or non-employee director.

 

Change in Control . In the event of a change in control where the acquirer does not assume or replace awards granted prior to the consummation of such transaction, awards issued under the 2018 Plan will be subject to accelerated vesting such that 100% of such awards will become vested and exercisable or payable, as applicable. Performance awards will vest in accordance with the terms and conditions of the applicable award agreement. In the event that, within the 12 month period immediately following a change in control, a participant’s services with us are terminated by us other than for cause (as defined in the 2018 Plan) or by such participant for good reason (as defined in the 2018 Plan), then the vesting and, if applicable, exercisability of 100% of the then-unvested shares subject to the outstanding equity awards held by such participant under the 2018 Plan will accelerate effective as of the date of such termination. The administrator may also make appropriate adjustments to awards under the 2018 Plan and is authorized to provide for the acceleration, cash-out, termination, assumption, substitution or conversion of such awards in the event of a change in control or certain other unusual or nonrecurring events or transactions. Under the 2018 Plan, a change in control is generally defined as:

 

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● the transfer or exchange in a single transaction or series of related transactions by our stockholders of more than 50% of our voting stock to a person or group;

 

● a change in the composition of our board of directors over a two-year period such that the members of the board of directors who were approved by at least two-thirds of the directors who were directors at the beginning of the two-year period or whose election or nomination was so approved cease to constitute a majority of the board of directors;

 

● a merger, consolidation, reorganization or business combination in which we are involved, directly or indirectly, other than a merger, consolidation, reorganization or business combination that results in our outstanding voting securities immediately before the transaction continuing to represent a majority of the voting power of the acquiring company’s outstanding voting securities and after which no person or group beneficially owns 50% or more of the outstanding voting securities of the surviving entity immediately after the transaction; or

 

● stockholder approval of our liquidation or dissolution.

 

Adjustments of Awards . In the event of any stock dividend, stock split, spin-off, recapitalization, distribution of our assets to stockholders (other than normal cash dividends) or any other corporate event affecting the number of outstanding shares of our Common Stock or the share price of our Common Stock other than an “equity restructuring” (as defined below), the administrator may make appropriate, proportionate adjustments to reflect the event giving rise to the need for such adjustments, with respect to:

 

● the aggregate number and type of shares subject to the 2018 Plan;

 

● the number and kind of shares subject to outstanding awards and terms and conditions of outstanding awards (including, without limitation, any applicable performance targets or criteria with respect to such awards); and

 

● the grant or exercise price per share of any outstanding awards under the 2018 Plan.

 

In the event of one of the adjustments described above or other corporate transactions, in order to prevent dilution or enlargement of the potential benefits intended to be made available under the 2018 Plan, the administrator has the discretion to make such equitable adjustments and may also:

 

● provide for the termination or replacement of an award in exchange for cash or other property;

 

● provide that any outstanding award cannot vest, be exercised or become payable after such event;

 

● provide that awards may be exercisable, payable or fully vested as to shares of common stock covered thereby; or

 

● provide that an award under the 2018 Plan cannot vest, be exercised or become payable after such event.

 

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In the event of an equity restructuring, the administrator will make appropriate, proportionate adjustments to the number and type of securities subject to each outstanding award and the exercise price or grant price thereof, if applicable. In addition, the administrator will make equitable adjustments, as the administrator in its discretion may deem appropriate to reflect such equity restructuring, with respect to the aggregate number and type of shares subject to the 2018 Plan. The adjustments upon an equity restructuring are nondiscretionary and will be final and binding on the affected holders and the Company.

 

For purposes of the 2018 Plan, “equity restructuring” means a nonreciprocal transaction between us and our stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares (or other securities) or the share price of our Common Stock (or other securities) and causes a change in the per share value of the common stock underlying outstanding stock-based awards granted under the 2018 Plan. In the event of a stock split in connection with an offering, the administrator will proportionately adjust (i) the number of shares subject to any outstanding award under the 2018 Plan, (ii) the exercise or grant price of any such awards, if applicable, and (iii) the aggregate number of shares subject to the 2018 Plan.

 

Amendment and Termination . Our board of directors or the compensation committee (with board approval) may terminate, amend or modify the 2018 Plan at any time and from time to time. However, we must generally obtain stockholder approval:

 

● to increase the number of shares available under the 2018 Plan (other than in connection with certain corporate events, as described above);

 

● reduce the price per share of any outstanding option or SAR granted under the 2018 Plan;

 

● cancel any option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares; or

 

● to the extent required by applicable law, rule or regulation (including any NASDAQ rule).

 

Termination. Our board of directors may terminate the 2018 Plan at any time. No ISOs may be granted pursuant to the 2018 Plan after the 10th anniversary of the effective date of the 2018 Plan, and no additional annual share increases to the 2018 Plan’s aggregate share limit will occur from and after such anniversary. Any award that is outstanding on the termination date of the 2018 Plan will remain in force according to the terms of the 2018 Plan and the applicable award agreement.

 

We intend to file with the SEC a registration statement on Form S-8 covering the shares of common stock issuable under the 2018 Plan.

 

Certain Relationships and Related Transactions

 

The following is a description of transactions since January 1, 2016 to which we have been a party, in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or holders of more than 5% of Blue Star’s pre-Merger capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described in the section titled “Executive Compensation.” The following description is historical and has not been adjusted to give effect to the Merger or the share conversion ratio pursuant to the Merger Agreement.

 

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From January 2006 through May 2017, Blue Star issued an aggregate of $2,910,000 6% demand promissory notes to John Keeler, our Executive Chairman. We can prepay the notes at any time first against interest due thereunder. If an event of default occurs under the notes, interest will accrue at 18% per annum and if not paid within 10 days of payment becoming due, the holder of the note is entitled to a late fee of 5% of the amount of payment not timely received.

 

John Keeler, our Executive Chairman, and Christopher Constable, our Chief Financial Officer own 75% and 20%, respectively, of Bacolod, an exporter of pasteurized crab meat from the Philippines.

 

John Keeler, our Executive Chairman, and Christopher Constable, our Chief Financial Officer own 80% and 15%, respectively, of Bicol, a Philippine company, and an indirect supplier of crab meat via Bacolad to the Company.

 

John Keeler, our Executive Chairman, and Christopher Constable, our Chief Financial Officer own 80% and 20%, respectively, of Strike the Gold Foods, Ltd., a UK company, which holds the Company’s packaged crab meat on consignment in the United Kingdom.

 

We lease approximately 16,800 square feet of office/warehouse space for our executive offices and distribution facility under a lease expiring in June 2021 for $16,916 per month from Keeler Real Estate, a corporation 33% owned by each trust for each of John Keeler III, Andrea Keeler and Sarah Keeler, each of whom are our Executive Chairman, John Keeler’s children. The Company is a guarantor of the mortgage on the distribution facility which had a balance of approximately $1,325,189 as of June 30, 2018.

 

From time to time, we may prepay Bacolod for future shipments of product which may represent two to three months of purchases. There was no balance due for future shipments from Bacolad as of December 31, 2017 and there was $982,000 due as of December 31, 2016.

 

A company owned by the parents of John Keeler, our Executive Chairman, is a party to the Settlement Agreement and was issued 40 Units on November 8, 2018 in connection with the Company Settlement.

 

John Keeler, our Executive Chairman, is a party to an Unconditional and Continuing Guaranty, dated August 31, 2016, with ACF, pursuant to which Mr. Keeler is guarantor of the Company’s obligations under our Loan and Security Agreement with ACF.

 

On March 31, 2018, we issued options to purchase 104 shares of common stock of Blue Star with an exercise price of $10,000 per share to Carlos Faria, our President and Chief Executive Officer, for services provided to Blue Star. Upon the closing of the Merger, such options were converted into ten-year immediately exercisable options to purchase an aggregate of 3,120,000 shares of Common Stock at an exercise price of $0.333 under the 2018 Plan,

 

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On November 8, 2018, we issued Christopher Constable, our Chief Financial Officer, a ten-year option under the 2018 Plan to purchase 3,120,000 shares of Common Stock at an exercise price of $2.00 which vest one-year from the date of grant.

 

On November 8, 2018, we issued 600 Units in the Offering to Nubar Herian, a director of our company, for $600,000.

 

Market Price of and Dividends on Common Equity and Related Stockholder Matters

 

Our Common Stock is not quoted or traded on any exchange. As soon as practicable, and assuming we satisfy all necessary initial listing requirements, we intend to apply to have our Common Stock quoted on the OTC Markets. There can be no assurances that our Common Stock will be quoted on the OTC Markets or that an active trading market will ever develop.

 

As of November 12, 2018, we have 16,015,000 shares of Common Stock outstanding held by six stockholders of record.

 

Dividend Policy

 

We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements. Our Loan and Security Agreement with ACF contains terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

 

Shares Eligible for Future Sale

 

Prior to the Merger, there has been no public market for our Common Stock. Future sales of our Common Stock, including shares issued upon the exercise of outstanding options or warrants, in the public market after the Merger, or the perception that those sales may occur, could cause the prevailing price for our Common Stock to fall or impair our ability to raise equity capital in the future. As described below, only a limited number of shares of our Common Stock will be available for sale in the public market for a period of several months after consummation of the Merger due to contractual and legal restrictions on resale described below. Future sales of our Common Stock in the public market either before (to the extent permitted) or after restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing price of our Common Stock at such time and our ability to raise equity capital at a time and price we deem appropriate.

 

Upon the completion of the Offering, we had 15,750,000 shares of Common Stock outstanding, of which our directors and executive officers beneficially own 15,000,000 shares. No shares issued in connection with the Merger can be publicly sold under Rule 144 promulgated under the Securities Act until 12 months after the date of filing this Current Report on Form 8-K.

 

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Sale of Restricted Shares

 

All of the shares of Common Stock outstanding upon completion of the Offering will be “restricted securities” as such term is defined in Rule 144. These restricted securities were issued and sold by us, or will be issued and sold by us, in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701.

 

Lock-up Agreements

 

In connection with the Merger, holders of 15,750,000 shares of our Common Stock have agreed, subject to certain exceptions, not to dispose of or hedge any shares of Common Stock or securities convertible or exercisable for shares of Common Stock during the Restricted Period in excess of 50% of all of the Common Stock held by (or issuable to) them and at a price below $2.20 per share. Notwithstanding such restrictions, during the Restricted Period (i) the Restricted Holders may transfer up to 10% of their shares to a charitable organization which agrees to be bound by such Lock-Up restrictions and (ii) the Pre-Merger Holders may transfer up to 10% of their shares to a third party which agrees to be bound by such Lock-Up restrictions. From and after the Restricted Period, neither the Restricted Holders nor the Pre-Merger Holders may sell, dispose or otherwise transfer more than one-third of the Common Stock held by such Holder in any two-month period.

 

Following the Restricted Period and subject to the terms of the lock-up agreements described above, and assuming that no parties are released from these agreements and that there is no extension of the Restricted Period, certain of the shares of Common Stock that are restricted securities or are held by our affiliates as of the date of the Merger will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act.

 

Registration Rights

 

Within 120 business days after the closing of the Offering, the Company agreed pursuant to the Registration Agreement to file the Registration Statement on Form S-1 with the SEC covering the Registrable Shares, and use its commercially reasonable efforts to cause such Registration Statement to be declared effective and to keep such Registration Statement effective for the Effectiveness Period. Notwithstanding the foregoing, in the event that the SEC limits the number of Registrable Securities that may be sold pursuant to the Registration Statement, the Company may remove from the Registration Statement such number of Registrable Securities as specified by the SEC Cutback.

 

The holders of Registrable Shares will have “piggyback” registration rights for such Registrable Shares with respect to two registration statements in accordance with the terms and the notice requirements of the Registration Agreement, subject to a SEC Cutback or a customary cutback in an underwritten offering, both which would be pro rata.

 

The Company has also agreed to register shares issued in connection with the Merger and shares issuable to the Settlement Parties on the Registration Statement.

 

Stock Plans

 

We intend to file with the SEC a registration statement under the Securities Act covering the shares of Common Stock that we may issue (i) upon exercise of outstanding options under the 2018 Plan, and (ii) that are outstanding or reserved for issuance under the 2018 Plan. Such registration statement is expected to be filed and become effective as soon as practicable after the consummation of the Merger. Accordingly, shares registered under such registration statement will be available for sale in the open market following its effective date, subject to Rule 144 lock-up agreements described above, if applicable.

 

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DESCRIPTION OF SECURITIES

 

We have authorized capital stock consisting of 100,000,000 shares of Common Stock and 5,000,000 shares of preferred stock. As of the date of this Report, we had 16,015,000 shares of Common Stock issued and outstanding, and 1,413 shares of Series A Stock issued and outstanding.

 

Also outstanding are options to purchase 3,120,000 shares of Common Stock issued in connection with the Merger under the 2018 Plan at an exercise price of $0.333 per share and 3,120,000 shares at an exercise price of $2.00 per share; and warrants to purchase 353,250 shares of Common Stock which were issued to investors in the Offering and those investors which entered into the Settlement Agreement, at an exercise price of $2.40.

 

Common Stock

 

The holders of outstanding shares of Common Stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing for election. The Common Stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.

 

Preferred Stock

 

Our Board of Directors has designated 10,000 shares of preferred stock as “8% Series A Convertible Preferred Stock”.

 

The Series A Stock has no maturity and is not subject to any sinking fund or redemption and will remain outstanding indefinitely unless and until converted by the holder or the Company redeems or otherwise repurchases the Series A Stock.

 

Ranking . The Series A Stock ranks, with respect to the payment of dividends and/or the distribution of assets in the event of any liquidation, dissolution or winding up of the Company, (i) senior to all classes or series of Common Stock, and to all other equity securities issued by the Company; (ii) on parity with all equity securities issued by the Company with terms specifically providing that those equity securities rank on parity with the Series A Stock; (iii) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series A Stock; and (iv) effectively junior to all existing and future indebtedness (including indebtedness convertible into our Common Stock or preferred stock) of the Company.

 

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Dividends. Cumulative dividends shall accrue on each share of Series A Stock at the rate of 8% (the “Dividend Rate”) of the purchase price of $1,000.00 per share, commencing on the date of issuance. Dividends are payable quarterly, when and if declared by the Board, beginning on September 30, 2018 (each a “Dividend Payment Date”) and are payable in shares of Common Stock (a “PIK Dividend”) with such shares being valued at the daily volume weighted average price (“VWAP”) of the Common Stock for the thirty trading days immediately prior to each Dividend Payment Date or if not traded or quoted as determined by an independent appraiser selected in good faith by the Company. Any fractional shares of a PIK Dividend will be rounded to the nearest one-hundredth of a share. All shares of Common Stock issued in payment of a PIK Dividend will be duly authorized, validly issued, fully paid and non-assessable. Dividends will accumulate whether or not the Company has earnings, there are funds legally available for the payment of those dividends and whether or not those dividends are declared by the Board. No dividends on shares of Series A Stock shall be authorized, paid or set apart for payment at any time when the terms and provisions of any agreement of the Company prohibit the authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting apart for payment thereof would constitute a breach of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment is restricted or prohibited by law. No dividends will be declared or paid or set aside for payment and no other distribution will be declared or made upon shares of Common Stock or preferred stock that rank junior to the Series A Stock as to the payment of dividends, or upon liquidation, dissolution, or winding up of the Company, and (iii) any shares of Common Stock and preferred stock that the Company may issue ranking junior to the Series A Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up, shall not be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Company (except by conversion into or exchange for other capital stock of the Company that it may issue ranking junior to the Series A Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up).

 

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series A Stock will be entitled to be paid out of the assets the Company has legally available for distribution to its shareholders, subject to the preferential rights of the holders of any class or series of capital stock of the Company it may issue ranking senior to the Series A Stock with respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference of the Purchase Price, before any distribution of assets is made to holders of Common Stock or any other class or series of capital stock of the Company that it may issue that ranks junior to the Series A Stock as to liquidation rights. The liquidation preference shall be proportionately adjusted in the event of a stock split, stock combination or similar event so that the aggregate liquidation preference allocable to all outstanding shares of Series A Stock immediately prior to such event is the same immediately after giving effect to such event.

 

Liquidation Preference. In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of the Company are insufficient to pay the amount of the liquidating distributions on all outstanding shares of the Series A Stock and the corresponding amounts payable on all shares of other classes or series of capital stock of the Company that it may issue ranking on a parity with the Series A Stock in the distribution of assets, then the holders of the Series A Stock and all other such classes or series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. The consolidation or merger of the Company with or into any other entity or the sale, lease, transfer or conveyance of all or substantially all of the property or business the Company, will not be deemed a liquidation, dissolution or winding up of the Company.

 

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Conversion. Each share of Series A Stock is convertible at any time and in the sole discretion of the holder thereof, into shares of Common Stock at a conversion rate of 500 shares of Common Stock per each share of Series A Stock (the “Conversion Rate”), subject to adjustment from time to time as follows: if the Company declares or pays any dividend or makes any distribution on Common Stock payable in shares of Common Stock, or effects a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock then in each such case the Conversion Ratio will be adjusted, so that the holder of any shares of Series A Stock will be entitled to receive upon conversion thereof the number of shares of Common Stock or other securities or property that such holder would have owned or have been entitled to receive upon the happening of such event had such Series A Stock been converted immediately prior to the relevant record date or the effective date of such event.

 

Other than the Merger, upon a merger, share exchange or consolidation of the Company; the sale, lease, exchange, mortgage, pledge, transfer or other disposition or encumbrance, of all or substantially all of the Company’s assets; or any agreement providing for any of the foregoing, each share of Series A Stock will remain outstanding and will thereafter be convertible into, or will be converted into a security which shall be convertible into, the kind and amount of securities or other property to which a holder of the number of shares of Common Stock of the Company deliverable upon conversion of such share of Series A Stock immediately prior to such business combination would have been entitled upon such business combination.

 

Share Reservation . The Company is obligated to at all times reserve and keep available out of its authorized but unissued shares of Common Stock, a sufficient number of its shares of Common Stock as shall from time to time be to effect the conversion of all outstanding shares of the Series A Stock.

 

Voting. Holders of Series A Stock have no voting rights, except (i) the affirmative vote of at least two-thirds of the Series A Stock outstanding will be required to authorize or create, or increase the authorized or issued amount of capital stock ranking senior to the Series A Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any of the authorized capital stock of the Company into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares, or amend the Certificate of Incorporation which would have a material adverse effect on the rights, preferences, privileges or voting powers of the Series A Stock or (ii) as otherwise required by law. On each matter on which holders of Series A Stock are entitled to vote, each share of Series A Stock will be entitled to one vote.

 

While we do not currently have any plans for the issuance of additional preferred stock, the issuance of such preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock; however, these effects may include:

 

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Restricting dividends on the Common Stock
   
Diluting the voting power of the Common Stock;
   
Impairing the liquidation rights of the Common Stock; or
   
Delaying or preventing a change in control of the Company without further action by the stockholders.

 

Warrants

 

We issued Warrants to purchase an aggregate of 181,250 shares of Common Stock to investors purchasing Units in the Offering and Warrants to purchase an aggregate of 172,000 shares of Common Stock to the Settlement Parties in connection with the Company Settlement. Each Warrant entitles the holder to purchase shares of Common Stock at an exercise price of $2.40 per share and will expire three years from the date of issuance. Prior to exercise, the Warrants do not confer upon holders any voting or any other rights as a stockholder.

 

The Warrants contain provisions that protect the holders against dilution by adjustment of the purchase price in certain events such as stock dividends, stock splits and other similar events.

 

Options

 

An option to purchase 3,120,000 shares of Common Stock with an exercise price of $0.333 per share and an option to purchase 3,120,000 shares of Common Stock with an exercise price of $2.00 per share have been granted under the 2018 Plan to certain of our officers.

 

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Other Convertible Securities

 

As of November 12, 2018, other than the securities described above, the Company does not have any outstanding convertible securities.

 

Anti-Takeover Effects of Provisions of our Certificate of Incorporation, our Bylaws and Delaware Law

 

Some provisions of Delaware law, our certificate of incorporation and our bylaws that will be in effect immediately prior to the consummation of the Merger contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the price of our Common Stock.

 

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

 

Delaware Anti-Takeover Statute

 

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a person deemed an “interested stockholder” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date such person becomes an interested stockholder unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, such as discouraging takeover attempts that might result in a premium over the price of our Common Stock.

 

Undesignated Preferred Stock

 

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of the company. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the company.

 

Special Stockholder Meetings

 

Our certificate of incorporation bylaws provide that a special meeting of stockholders may be called only by the majority of our board of directors.

 

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Requirements for Advance Notification of Stockholder Nominations and Proposals

 

Our certificate of incorporation and bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

 

The provisions of the Delaware General Corporation Law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the price of our Common Stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

 

Limitations of Liability and Indemnification Matters

 

For a discussion of liability and indemnification, please see the section titled “Directors, Executive Officers, Promoters and Control Persons—Limitation on Liability and Indemnification Matters.”

 

Transfer Agent

 

The transfer agent for our Common Stock is VStock Transfer, LLC, with an address at 18 Lafayette Place, Woodmere, New York 11598.We will serve as warrant agent for the outstanding warrants.

 

Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.

 

We are currently not aware of any pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.

 

Item 3.02 Unregistered Sales of Equity Securities

 

The Offering

 

The information regarding the Offering set forth in Item 2.01, “Completion of Acquisition or Disposition of Assets—The Merger and Related Transactions—The Offering” and “Description of Securities” is incorporated in this Item 3.02 by reference.

 

Securities Issued by the Company in Connection with the Merger

 

On November 8, 2018, pursuant to the terms of the Merger Agreement, all of the shares of common stock of Blue Star were exchanged for 15,000,000 restricted shares of Common Stock.

 

On November 8, 2018, Christopher Constable was issued a ten-year option to purchase 3,120,000 shares of Common Stock, which option vests and becomes exercisable one year from the date of issuance.

 

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On November 8, 2018, upon the closing of the Merger, 80,000 shares of Common Stock were issued to The Crone Law Group, P.C. for legal services, 129,500 shares of Common Stock were issued to Sandstone Group Corp. and 55,500 shares were issued to Newbridge Securities Corporation for financial advisory services provided to Blue Star in connection with the Merger.

 

These transactions were exempt from registration under Section 4(a)(2) of the Securities Act as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.

 

Sales of Units in the Company Settlement

 

Concurrently with the closing of the Merger on November 8, 2018, we issued an aggregate of 688 Units to the Settlement Parties in connection with the Company Settlement. The sale of these securities was exempt from registrations pursuant to Section 4(a)(2) of the Securities Act as not involving any public offering.

 

Sales of Unregistered Securities of Blue Star

 

The following list sets forth information as to all securities Blue Star sold from November __, 2015 through immediately prior to the consummation of the Merger, which were not registered under the Securities Act. The following description is historical and has not been adjusted to give effect to the Merger or the share conversion ratio pursuant to the Merger Agreement.

 

On May 5, 1995, we issued 500 founder shares to John Keeler for $500. Prior to the Merger, John Keeler was the sole stockholder of Blue Star.

 

On March 31, 2018, Carlos Faria was issued an option to purchase 104 shares of Blue Star common stock at an exercise price of $10,000 per share. Upon the closing of the Merger, such option was converted into an immediately exercisable ten-year option to purchase 3,120,000 shares of Common Stock at an exercise price of $0.333 under the 2018 Plan.

 

These transactions were exempt from registration under Section 4(a)(2) of the Securities Act as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.

 

Item 3.03 Material Modification to Rights of Security Holders.

 

The information contained in Item 5.03, “Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year” is incorporated in this Item 3.03 by reference.

 

  Item 4.01 Changes in Registrant’s Certifying Accountant

 

On November 8, 2018, our board of directors approved the dismissal of D. Brooks and Associates CPA’s, P.A. (“Brooks”) as our independent accountants. Brooks had previously been engaged as the principal accountant to audit our financial statements. The reason for the dismissal of Brooks is that, following the consummation of the Merger on November 8, 2018, (i) the former stockholders of Blue Star owned a significant amount of the outstanding shares of our Common Stock and (ii) our primary business became the business previously conducted by Blue Star. The independent registered public accountant of Blue Star was the firm of MaloneBailey, LLP (“Malone”). We believe that it is in our best interest to have Malone continue to work with our business, and we therefore retained Malone as our new independent registered accounting firm, to be effective immediately following the filing with the SEC of our Annual Report on Form 10-K for the fiscal year ended October 31, 2018. Malone is located at 9801 Westheimer Road, Suite 1100, Houston, Texas 77042.

 

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The report of Brooks on our financial statements for the fiscal years ended February 28, 2018 and February 28, 2017 did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except that the report was qualified as to our ability to continue as a going concern.

 

From inception, there were no disagreements with Brooks on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Brooks, would have caused it to make reference to the matter in connection with its reports.

 

We have made the contents of this Current Report on Form 8-K available to Brooks and requested it to furnish us a letter addressed to the SEC as to whether Brooks agrees or disagrees with, or wishes to clarify our expression of, our views, or containing any additional information. On November 8, 2018, our board of directors approved the engagement of Malone as our new independent registered public accountants. During our two most recent fiscal years and the subsequent interim periods through June 30, 2018, we did not consult Malone regarding either: (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K.

 

Item 5.01 Changes in Control of Registrant.

 

The information regarding change of control of the Company in connection with the Merger set forth in Item 2.01, “Completion of Acquisition or Disposition of Assets—The Merger and Related Transactions” is incorporated in this Item 5.01 by reference.

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

The information regarding departure and election of directors and departure and appointment of executive officers of the Company in connection with the Merger set forth in Item 2.01, “Completion of Acquisition or Disposition of Assets—The Merger and Related Transactions” is incorporated in this Item 5.02 by reference.

 

For information regarding the terms of employment of our newly appointed executive officers, see “Executive Compensation” in Item 2.01 of this Current Report on Form 8-K, which description is incorporated in this Item 5.02 by reference. For certain biographical, related party and other information regarding our newly appointed executive officers, see the disclosure under the headings “Directors, Executive Officers, Promoters and Control Persons” and “Certain Relationships and Related Transactions” in Item 2.01 of this Current Report on Form 8-K, which disclosures are incorporated this Item 5.02 by reference.

 

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For information about compensation to our directors see “Directors, Executive Officers, Promoters and Control Persons—Director Compensation” in Item 2.01 of this Current Report on Form 8-K, which description is incorporated in this Item 5.02 by reference.

 

There are no arrangements or understandings pursuant to which any of our current directors was appointed as a director. For certain biographical, related party and other information regarding our newly appointed directors, see the disclosure under the headings “Directors, Executive Officers, Promoters and Control Persons” and “Certain Relationships and Related Transactions” in Item 2.01 of this Current Report on Form 8-K, which disclosures are incorporated in this Item 5.02 by reference.

 

Reference is made to the descriptions of the 2018 Plan, set forth under the heading “Executive Compensation—Equity Compensation Plans” in Item 2.01 of this Current Report on Form 8-K, which descriptions are incorporated in this Item 5.02 by reference. The descriptions of the 2018 Plan, contained in this Report does not purport to be complete, and is qualified in its entirety by reference to the full text of the 2018 Plan, which is attached hereto as Exhibit 10.8, and is incorporated herein.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

 

Change in Fiscal Year

 

On November 8, 2018, our board of directors approved a change in our fiscal year from a fiscal year ending October 31 to a fiscal year ending on December 31 of each year, which is the fiscal year of Blue Star. Our 2018 fiscal year will end on December 31, 2018.

 

Item 5.06 Change in Shell Company Status.

 

Prior to the Merger, we were a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act). As a result of the consummation of the Merger we believe that we are no longer a shell company as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

Item 5.07 Submission of Matters to a Vote of Security Holders

 

On November 8, 2018, stockholders holding all of the then outstanding shares of our Common Stock executed a written consent in lieu of meeting to approve the following:

 

● the Merger Agreement and all transactions and agreements contemplated thereby, including the consummation of the Merger; and

 

● the adoption of the 2018 Plan. The information regarding submission of matters to a vote of security holders set forth in Item 5.03, “Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year” is incorporated in this Item 5.07.

 

Item 9.01 Financial Statements and Exhibits.

 

  (a) Financial Statements of Businesses Acquired. In accordance with Item 9.01(a), the following are filed as exhibits to this Current Report on Form 8-K:

 

 

    Unaudited financial statements of Blue Star as of, and for the six months ended June 30, 2018 and 2017 are filed as Exhibit 99.1 hereto.
    Audited financial statements of Blue Star as of, and for the fiscal years ended, December 31, 2017 and 2016 are filed as Exhibit 99.2 hereto.

 

74  
 

 

(b) Pro Forma Financial Information.

 

In accordance with Item 9.01(b), the unaudited pro forma condensed combined financial statements as of July 31, 2018, and for the fiscal year ended October 31, 2017 and as of and for the nine months ended July 31, 2018 are filed as Exhibit 99.3 hereto.

 

  (c) Shell Company Transactions.

 

Reference is made to Items 9.01(a) and 9.01(b) and the exhibits referred to therein, which are incorporated herein by reference.

 

  (d) Exhibits

 

Exhibit No. Description
2.1* Agreement and Plan of Merger, dated as of November 8, 2018, by and among the Company, Blue Star, Acquisition Sub and John Keeler
2.2* Articles of Merger between Blue Star and Acquisition Sub
3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Company’s Form 10/A filed with the SEC on May 17, 2018)
3.2 Certificate of Amendment, dated November 5, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 9, 2018)
3.3 Certificate of Designation of 8% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 9, 2018)
10.1* Form of Subscription Agreement
10.2* Form of Amendment to Subscription Agreement
10.3* Form of Warrant
10.4* Form of Registration Rights Agreement
10.5* Form of Settlement Agreement and Mutual General Release
10.6* Forms of Lockup Agreement for Pre-Merger Stockholders and Officers and Directors
10.7* Form of Redemption Agreement
10.8* 2018 Incentive Stock Option Plan
10.9* Form of Stock Option Agreement
10.10* Loan and Security Agreement, dated August 31, 2016 between the Company and ACF
10.11* First Amendment to Loan and Security Agreement and Reservation of Rights, dated November 18, 2016, between the Company and ACF
10.12* Second Amendment to Loan and Security Agreement, dated June 19, 2017, between the Company and ACF
10.13* Third Amendment to Loan and Security Agreement, dated October 16, 2017, between the Company and ACF
10.14* Fourth Amendment to Loan and Security Agreement, dated September 19, 2018, between the Company and ACF
10.15* Fifth Amendment to Loan and Security Agreement, dated November 8, 2018, between the Company and ACF
10.16* $14,000,000 Revolving Credit Note, dated August 31, 2016 between the Company and ACF
10.17* Patent Security Agreement, dated August 31, 2016, between Blue Star and ACF FINCO LP
10.18* Lease Agreement, dated May 1, 2001, between Blue Star and John Keeler Real Estate Holdings, Inc.
10.19* Master Software Development Agreement, dated February 6, 2017 between the Company and Claritus Management Pvt. Ltd.
10.20* $500,000 Demand Note, dated January 4, 2006 from Blue Star in favor of John Keeler and Maria Keeler
10.21* $300,000 Demand Note, dated March 22, 2006 from Blue Star in favor of John Keeler and Maria Keeler
10.22* $200,000 Demand Note, dated March 31, 2006 from Blue Star in favor of John Keeler and Maria Keeler
10.23* $100,000 Demand Note, dated November 21, 2007, from Blue Star in favor of John Keeler
10.24* $516,833.83 Demand Note, dated July 31, 2013 from Blue Star in favor of John Keeler
10.25* $500,000 Demand Note, dated May 30, 2017 from Blue Star in favor of John Keeler
99.1* Blue Star financial statements for the fiscal years ended December 31, 2017 and 2016
99.2* Blue Star financial statements for the six months ended June 30, 2018 and 2017
99.3* Pro-forma financial statements

 

 

*Filed herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 14, 2018

 

  Blue Star Foods Corp.
     
  By: /s/ John Keeler
    John Keeler
    Executive Chairman

 

76  
 

 

 

Agreement and Plan of Merger and Reorganization

 

By and Among:

 

Blue Star Foods Corp.

(formerly A.G. Acquisition Group II, Inc.), a Delaware Corporation

 

Blue Star Acquisition, Inc., a Florida Corporation

 

John Keeler & Co., Inc. d/b/a Blue Star Foods, a Florida Corporation

 

and

 

John R. Keeler

(for the limited purposes as set forth herein)

 

Dated as of November 8, 2018

 

     
 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS 2
  Section 1.01 Definitions. 2
  Section 1.02 Interpretive Provisions. 9
ARTICLE II MERGER AND CLOSING 10
  Section 2.01 The Merger. 10
  Section 2.02 Closing. 11
  Section 2.03 Effects of the Merger. 11
  Section 2.04 Conversion of Company Common Stock; Company Options; etc. 11
  Section 2.05 Merger Sub Stock. 12
  Section 2.06 Merger Consideration. 12
  Section 2.07 Exchange Procedures. 12
  Section 2.08 No Further Ownership Rights in the Company Common Stock. 12
  Section 2.09 Withholding Rights. 12
  Section 2.10 Stock Transfer Books. 12
  Section 2.11 Company Options. 13
  Section 2.12 Closing Actions and Deliverables. 13
  Section 2.13 Tax-Free Reorganization. 15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHAREHOLDER AND THE COMPANY 16
  Section 3.01 Organization, Authority and Qualification of the Company. 16
  Section 3.02 Capitalization. 16
  Section 3.03 No Subsidiaries. 17
  Section 3.04 Enforceability and Authority; No Conflicts; Consents. 17
  Section 3.05 Financial Statements. 18
  Section 3.06 Undisclosed Liabilities. 19
  Section 3.07 Absence of Certain Changes, Events and Conditions. 19
  Section 3.08 Material Contracts. 21
  Section 3.09 Title to Assets; Real Property. 22
  Section 3.10 Condition and Sufficiency of Assets. 23
  Section 3.11 Intellectual Property. 23
  Section 3.12 Accounts Receivable. 25
  Section 3.13 Customers and Suppliers. 26
  Section 3.14 Insurance. 26
  Section 3.15 Legal Proceedings; Governmental Orders. 26
  Section 3.16 Compliance with Laws; Permits. 27
  Section 3.17 Employee Benefit Matters. 27
  Section 3.18 Employment Matters. 29
  Section 3.19 Taxes. 30
  Section 3.20 Books and Records. 32
  Section 3.21 Investment Purpose. 33

 

  i  
 

 

  Section 3.22 Brokers. 33
  Section 3.23 Full Disclosure. 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT 33
  Section 4.01 Organization and Authority of Parent and Merger Sub. 33
  Section 4.02 No Conflicts; Consents. 34
  Section 4.03 Parent and Merger Sub Capitalization. 34
  Section 4.04 Brokers. 35
  Section 4.05 Legal Proceedings. 35
  Section 4.06 Financial Statements and Liabilities. 36
  Section 4.07 No Insolvency; Litigation. 36
  Section 4.08 Compliance with Laws, Etc. 36
ARTICLE V COVENANTS 37
  Section 5.01 Parent Actions Prior to the Closing. 37
  Section 5.02 Books and Records. 37
  Section 5.03 Company’s and Company Shareholder’s Affirmative Covenants. 38
  Section 5.04 Company’s and Company Shareholder’s Negative Covenants. 39
  Section 5.05 Confidentiality. 40
  Section 5.06 Registration. 41
  Section 5.07 Public Announcements. 41
  Section 5.08 Tax Covenants. 41
  Section 5.09 Cooperation and Exchange of Information. 43
  Section 5.10 Further Assurances. 43
ARTICLE VI CONDITIONS TO CLOSING 43
  Section 6.01 Conditions to Parent’s and Merger Sub’s Obligations to Close. 43
  Section 6.02 Conditions to Company’s and Company Shareholder’s Obligations to Close. 44
ARTICLE VII DEFAULT AND TERMINATION 45
  Section 7.01 Default by Parent. 45
  Section 7.02 Default by the Company or the Company Shareholder. 45
  Section 7.03 Termination. 46
  Section 7.04 Termination Costs. 46
  Section 7.05 Effect of Termination. 46
ARTICLE VIII INDEMNIFICATION AND LIABILITY LIMITATIONS 47
  Section 8.01 Survival; Limitations 47
  Section 8.02 Indemnification by the Company Shareholder. 47
  Section 8.03 Indemnification by Parent. 48
  Section 8.04 Indemnification Procedures. 49
  Section 8.05 Payments. 51
  Section 8.06 Certain Limitations. 51
  Section 8.07 Tax Treatment of Indemnification Payments. 52
  Section 8.08 Effect of Investigation. 52
  Section 8.09 Exclusive Remedy. 52

 

  ii  
 

 

  Section 8.10 Limitation on Damages. 52
ARTICLE IX MISCELLANEOUS 53
  Section 9.01 Expenses. 5 3
  Section 9.02 Notices. 5 3
  Section 9.03 Construction; Incorporation. 54
  Section 9.04 Headings. 5 4
  Section 9.05 Severability. 5 4
  Section 9.06 Entire Agreement. 5 4
  Section 9.07 Successors and Assigns. 5 4
  Section 9.08 No Third-party Beneficiaries. 5 4
  Section 9.09 Amendment and Modification; Waiver. 55
  Section 9.10 Dispute Resolution. 5 5
  Section 9.11 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. 56
  Section 9.12 Specific Performance. 56
  Section 9.13 Counterparts. 5 6

 

  iii  
 

 

EXHIBITS AND SCHEDULES

 

Disclosure Schedules

 

Exhibit A-1 Form of Parent Lock-Up Agreement
   
Exhibit A-2 Form of Company Lock-Up Agreement
   
Exhibit B 2018 Equity Incentive Award Plan

 

  iv  
 

 

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this “ Agreement ”), dated as of November 8, 2018 (the “Effective Date”), by and among Blue Star Foods Corp. (formerly A.G. Acquisition Group II, Inc. ) , a Delaware corporation (the “Parent”), Blue Star Acquisition, Inc., a Florida corporation and a wholly owned subsidiary of Parent (“Merger Sub”), John Keeler & Co., Inc. d/b/a Blue Star Foods, a Florida corporation (the “Company”), and John R. Keeler, the sole stockholder of the Company (the “Company Stockholder”), for the limited purposes as set forth herein. The Parent, Merger Sub, the Company and the Company Stockholder may be collectively referred to herein as the “Parties” and individually as a “Party.”)

 

RECITALS

 

WHEREAS, the respective Boards of Directors of each of Parent, Merger Sub and the Company deem it advisable and in the best interests of each corporation and its respective stockholders, that Parent and the Company combine in order to advance the long-term business strategies of Parent and the Company;

 

WHEREAS, the sole director on the Board of Directors of the Company has determined that the merger of Merger Sub with and into the Company with the Company being the surviving entity therein (the “Merger”) and this Agreement are fair to, and in the best interests of, the Company and the Company Stockholder;

 

WHEREAS, the Board of Directors of Parent has unanimously determined that the Merger and this Agreement are fair to, and in the best interests of, Parent and the holders of the Parent Common Stock;

 

WHEREAS, the respective Boards of Directors of each of Parent, Merger Sub and the Company have approved this Agreement and the Merger on the terms and conditions contained in this Agreement;

 

WHEREAS, Parent, as the sole stockholder of Merger Sub, has approved this Agreement, the Merger and the transactions contemplated by this Agreement pursuant to action taken by unanimous written consent in accordance with the requirements of the FBCA (as defined below) and the Articles of Incorporation and Bylaws of Merger Sub; and

 

WHEREAS, the Company Shareholder, as the sole stockholder of the Company, has approved this Agreement, the Merger and the transactions contemplated by this Agreement pursuant to action taken by written consent in accordance with the requirements of the FBCA (as defined below) and the Articles of Incorporation and Bylaws of Company; and

 

WHEREAS, for federal income tax purposes, it is intended by the parties hereto that the Merger shall qualify as a “reorganization” within the meaning of the Code (as defined below);

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

     
 

 

Article I
Definitions

 

Section 1.01 Definitions. The following terms, as used herein, have the following meanings:

 

(a) “2018 Equity Incentive Award Plan” has the meaning set forth in Section 2.12(e)

 

(b) “Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

 

(c) “ACV” has the meaning set forth in Section 2.12(e).

 

(d) “Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

(e) “Agreement” has the meaning set forth in the preamble.

 

(f) “Articles of Merger” has the meaning set forth in Section 2.02.

 

(g) “Assumed Parent Common Stock Value” is $2.00 per share.

 

(h) “Balance Sheet Date” has the meaning set forth in Section 3.05.

 

(i) “Balance Sheet” has the meaning set forth in Section 3.05.

 

(j) “Benefit Plan” has the meaning set forth in Section 3.17(a).

 

(k) “Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in New York, New York are authorized or required by Law to be closed for business.

 

(l) “Cap” has the meaning set forth in Section 8.06(c).

 

(m) “Closing Capitalization Table” means the closing capitalization table as provided by Parent to the Company via email as of the date hereof .

 

(n) “Closing Date” has the meaning set forth in Section 2.02.

 

(o) “Closing” has the meaning set forth in Section 2.02.

 

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

 

  2  
 

 

(q) “Company” has the meaning set forth in the recitals.

 

(r) “Company Board” means the Board of Directors of the Company.

 

(s) “Company Capitalization Table” has the meaning set forth in Section 2.04(a).

 

(t) “Company Common Stock” has the meaning set forth in Section 3.02.

 

(u) “Company Intellectual Property” has the meaning set forth in Section 3.11(a).

 

(v) “Company Options” means the issued and outstanding non-qualified stock options to purchase 104 shares of Company Common Stock at an exercise price of $10,000 per share.

 

(w) “Company Party Default” has the meaning set forth in Section 7.02(a).

 

(x) “Company Lock-Up Agreement” has the meaning set forth in Section 2.12(a)(iii).

 

(y) “Company Settlement Transaction” has the meaning set forth in Section 2.10(i).

 

(z) “Company Settlement Parties” has the meaning set forth in Section 2.10(i).

 

(aa) “Company Shareholder” has the meaning set forth in the recitals .

 

(bb) “Company Shareholder’s Basket Exclusions” has the meaning set forth in Section 8.06(b).

 

(cc) “Company Surviving Representations” has the meaning set forth in Section 8.01(a).

 

(dd) “Contemplated Transactions” means the transactions contemplated by this Agreement, together with the transactions contemplated by any of the other Transaction Documents.

 

(ee) “Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

 

(ff) “Derivatives” means any options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the capital stock of the Company or obligating the Company Shareholder or the Company to issue or sell any shares of capital stock of, or any other interest in, the Company.

 

(gg) “DGCL” means the Delaware General Corporation Law, as the same may be amended from time to time.

 

(hh) “Direct Claim” has the meaning set forth in Section 8.04(c).

 

  3  
 

 

(ii) “Disclosure Schedules” means the Disclosure Schedules delivered concurrently with the execution and delivery of this Agreement.

 

(jj) “Dispute” has the meaning set forth in Section 9.10(a).

 

(kk) “Dollars” or “$” means the lawful currency of the United States.

 

(ll) “DTC” has the meaning set forth in Section 4.03(d).

 

(mm) “Effective Date” has the meaning set forth in the recitals.

 

(nn) “Effective Time” has the meaning set forth in Section 2.02.

 

(oo) “Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership in the amount of $25,000 or more.

 

(pp) “Enforceability Exceptions” means (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally and (b) general principles of equity.

 

(qq) “Equity Security” means, in respect of any Person, (a) any capital stock or similar security, (b) any security convertible into or exchangeable for any security described in clause (a), (c) any option, warrant, or other right to purchase or otherwise acquire any security described in clauses (a), (b), or (c), and, (d) any “equity security” within the meaning of the Exchange Act.

 

(rr) “ERISA Affiliate” means, with respect to any Person, any other Person that, together with such first Person, would be treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

 

(ss) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

(tt) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(uu) “FBCA” means the Florida Business Corporation Act.

 

(vv) “Financial Statements” has the meaning set forth in Section 3.05.

 

(ww) “GAAP” means United States generally accepted accounting principles as in effect from time to time.

 

(xx) “Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

 

  4  
 

 

(yy) “Governmental Authorization” means any (a) consent, license, registration, or permit issued, granted, given, or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Law; or (b) right under any Contract with any Governmental Authority.

 

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

 

(aaa) “Indebtedness” means without duplication (whether or not contingent and including, without limitation, any and all principal, accrued and unpaid interest, prepayment premiums or penalties, related expenses, commitment and other fees which would be payable in connection therewith), (a) all indebtedness for borrowed money or in respect of loans or advances, (b) all obligations for deferred purchase price of property or services, (c) all obligations evidenced by notes, bonds, debentures or other similar instruments (other than performance bonds and other obligations of a like nature incurred in the Ordinary Course of Business), (d) all obligations, contingent or otherwise, as an account party under acceptance, letter of credit, bankers’ acceptances, performance bonds, sureties or similar obligations that have been drawn down, in each case, to the extent of such draw, (e) all obligations as lessee under any arrangement required to be recorded as a capital lease in accordance with GAAP, (f) all Liabilities arising out of interest rate and currency swap arrangements and any other arrangements designed to provide protection against fluctuations in interest or currency rates; (g) any Liabilities pursuant to any off balance sheet financing; (h) all guarantees with respect to any indebtedness or obligation of any other Person of a type described in clauses (a)-(g) above, (i) all indebtedness and obligations of any other Person of a type described in clauses (a)-(h) above resulting in any Lien or other claim against the Company Common Stock or the assets the Company.

 

(bbb) “Indemnified Party” has the meaning set forth in Section 8.03(e).

 

(ccc) “Indemnifying Party” has the meaning set forth in Section 8.03(e).

 

(ddd) “Insurance Policies” has the meaning set forth in Section 3.14.

 

(eee) “Intellectual Property Registrations” has the meaning set forth in Section 3.11(b).

 

(fff) “Intellectual Property” has the meaning set forth in Section 3.11(a).

 

(ggg) “Interim Balance Sheet Date” has the meaning set forth in Section 3.05.

 

(hhh) “Interim Balance Sheet” has the meaning set forth in Section 3.05.

 

(iii) “Knowledge of the Company” means the actual knowledge, after due inquiry, of the Company Shareholder.

 

(jjj) “Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

 

(kkk) “Lease” or “Leases” has the meaning set forth in Section 3.09(b).

 

  5  
 

 

(lll) “Leone” has the meaning set forth in Section 2.12(d).

 

(mmm) “Liability” or “Liabilities” has the meaning set forth in Section 3.06.

 

(nnn) “Licensed Intellectual Property” has the meaning set forth in Section 3.11(a).

 

(ooo) “Losses” means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that “Losses” shall not include (i) punitive damages, except in the case of fraud or to the extent actually awarded to a Governmental Authority or other third party or (ii) lost profits or consequential damages, in any case.

 

(ppp) “Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Company, or (b) the ability of the Company Shareholder to consummate the Contemplated Transactions on a timely basis; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition, or change, directly or indirectly, arising out of or attributable to: (i) any changes, conditions or effects in the United States economy or securities or financial markets in general; (ii) changes, conditions or effects that generally affect the industries in which the Company operates; (iii) any change, effect or circumstance resulting from an action required or permitted by this Agreement; or (iv) conditions caused by acts of terrorism or war (whether or not declared); provided further, however, that any event, occurrence, fact, condition, or change referred to in clauses (i), (ii) or (iv) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred to the extent that such event, occurrence, fact, condition, or change has a disproportionate effect on the Company compared to other participants in the industries in which the Company conducts its business.

 

(qqq) “Material Contracts” has the meaning set forth in Section 3.08(a).

 

(rrr) “Material Customers” has the meaning set forth in Section 3.13(a).

 

(sss) “Material Suppliers” has the meaning set forth in Section 3.13(b).

 

(ttt) “Merger Consideration” has the meaning set forth in Section 2.06 .

 

(uuu) “Merger Sub” has the meaning set forth in the preamble.

 

(vvv) “Multiemployer Plan” has the meaning set forth in Section 3.17(c).

 

(www) “Notice of Dispute” has the meaning set forth in Section 9.10(b).

 

(xxx) “Ordinary Course of Business” means an action which is taken in the ordinary course of the normal day-to-day operations of the Person taking such action consistent with the past practices of such Person, is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority) and is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person.

 

  6  
 

 

(yyy) “Organizational Documents” means (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the certificate of formation and limited liability company agreement, operating agreement, or like agreement of a limited liability company; (c) the partnership agreement and any statement of partnership of a general partnership; (d) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (e) any charter or agreement or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (f) any amendment to or restatement of any of the foregoing.

 

(zzz) “Parent” has the meaning set forth in the preamble.

 

(aaaa) “Parent Board” means the Board of Directors of Parent.

 

(bbbb) “Parent Capitalization Table” has the meaning set forth in Section 4.03(a).

 

(cccc) “Parent Common Stock” has the meaning set forth in Section 4.03.

 

(dddd) “Parent Default” has the meaning set forth in Section 7.01.

 

(eeee) “Parent Indemnification Liabilities” has the meaning set forth in Section 8.06(d).

 

(ffff) “Parent Indemnitees” has the meaning set forth in Section 8.02.

 

(gggg) “Parent Lock-Up Agreement” has the meaning set forth in Section 2.12(c)(iii).

 

(hhhh) “Parent Preferred Stock” has the meaning set forth in Section 4.03(a).

 

(iiii) “Parent Series A Preferred Stock Original Issue Price” means $1,000 per share.

 

(jjjj) “Parent Series A Preferred Stock” means the Parent’s Series A convertible preferred stock, par value $0.0001 per share, initially convertible into shares of Parent Common Stock at a conversion rate of 500-for-1 (a total of 500 shares of Parent Common Stock per share of Parent Series A Preferred Stock) .

 

(kkkk) “Parent Warrant” means a warrant to purchase one-half (½) of one share of Parent Common Stock for every share of Parent Common Stock that would be received upon conversion of a share of Parent Series A Preferred Stock (a total of 250 Parent Warrants per Parent Unit), exercisable for a period of three (3) years from the date of issuance, at an exercise price equal of $2.40 per each whole share.

 

(llll) “Parent’s Basket Exclusions” has the meaning set forth in Section 8.06(a).

 

(mmmm) “Parent’s Surviving Representations” has the meaning set forth in Section 8.01(a).

 

  7  
 

 

(nnnn) “Parent Unit” means a unit of Parent’s securities consisting of (a) one share of Parent Series A Preferred Stock, and (b) a Parent Warrant.

 

(oooo) “Parties” has the meaning set forth in the recitals.

 

(pppp) “Party” has the meaning set forth in the recitals.

 

(qqqq) “Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

 

(rrrr) “Permitted Encumbrances” has the meaning set forth in Section 3.09(a).

 

(ssss) “Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

 

(tttt) “Post-Closing Tax Period” means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.

 

(uuuu) “Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.

 

(vvvv) “Pre-Closing Taxes” means Taxes of the Company for any Pre-Closing Tax Period.

 

(wwww) “Preferred Offering” means the Parent’s offer for sale, and sale, to “accredited investors,” in one or more closings, of a minimum of $700,000 and a maximum of $3,200,000 of Parent Units, at a purchase price of $1,000 per Parent Unit, in an offering intended to be exempt from registration under the Securities Act, pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D promulgated thereunder.

 

(xxxx) “Qualified Benefit Plan” has the meaning set forth in Section 3.17(c).

 

(yyyy) “Real Property” means the real property owned, leased or subleased by the Company, together with all buildings, structures and facilities located thereon.

 

(zzzz) “Registration Statement” has the meaning set forth in Section 5.06(a).

 

(aaaaa) “Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

 

(bbbbb) “Requirements of Law” means, as to any Person, any law, treaty, rule, regulation, right, privilege, qualification, license or franchise or determination of an arbitrator or a court or other Governmental Authority, in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject, or pertaining to any or all of the Contemplated Transactions or referred to herein.

 

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(ccccc) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

(ddddd) “Settlement Parties” has the meaning set forth in Section 2.10(i).

 

(eeeee) “Software” means all computer programs (including any and all software implementation of algorithms, models and methodologies whether in source code or object code), databases and computations (including any and all data and collections of data), documentation (including user manuals and training materials) relating to any of the foregoing and the content and information contained in any web sites.

 

(fffff) “Subsidiary” means, with respect to a specified Person, any corporation, partnership, limited liability company, limited liability partnership, joint venture, or other legal entity of which the specified Person (either alone and/or through and/or together with any other Subsidiary) owns, directly or indirectly, more than 50% of the voting stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body, of such legal entity or of which the specified Person controls the management.

 

(ggggg) “Surviving Corporation” has the meaning set forth in Section 2.01.

 

(hhhhh) “Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

(iiiii) “Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

 

(jjjjj) “Third Party Claim” has the meaning set forth in Section 8.04(a).

 

(kkkkk) “Transaction Documents” means this Agreement, the Company Lock-Up Agreements the Parent Lock-Up Agreements and any other document, certificate or agreement to be delivered hereunder.

 

(lllll) “Union” has the meaning set forth in Section 3.18(b).

 

Section 1.02 Interpretive Provisions. Unless the express context otherwise requires:

 

(a) the words “hereof,” “herein,” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

 

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(b) terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa;

 

(c) the terms “Dollars” and “$” mean United States Dollars;

 

(d) references herein to a specific Section, Subsection, Recital or Exhibit shall refer, respectively, to Sections, Subsections, Recitals or Exhibits of this Agreement;

 

(e) wherever the word “include,” “includes,” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation”;

 

(f) references herein to any gender shall include each other gender;

 

(g) references herein to any Person shall include such Person’s heirs, executors, personal Representatives, administrators, successors and assigns; provided, however, that nothing contained in this Section 1.02(g) is intended to authorize any assignment or transfer not otherwise permitted by this Agreement;

 

(h) references herein to a Person in a particular capacity or capacities shall exclude such Person in any other capacity;

 

(i) references herein to any contract or agreement (including this Agreement) mean such contract or agreement as amended, supplemented or modified from time to time in accordance with the terms thereof;

 

(j) with respect to the determination of any period of time, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”;

 

(k) references herein to any Law or any license mean such Law or license as amended, modified, codified, reenacted, supplemented or superseded in whole or in part, and in effect from time to time; and

 

(l) references herein to any Law shall be deemed also to refer to all rules and regulations promulgated thereunder.

 

Article II
Merger and Closing

 

Section 2.01 The Merger. Upon the terms and subject to the conditions of this Agreement, and in accordance with the FBCA, at the Effective Time (as hereinafter defined), Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation following the Merger (the “Surviving Corporation”). The corporate existence of the Company, with all its purposes, rights, privileges, franchises, powers and objects, shall continue unaffected and unimpaired by the Merger.

 

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Section 2.02 Closing. The consummation of the Contemplated Transactions (the “Closing”) shall take place on the third Business Day following the satisfaction or waiver (by the Party for whose benefit the condition exists) of the conditions to closing as set forth in Article VI or on such other date and at such other time and place as the Parties shall agree in writing (the “Closing Date”), by electronic delivery, overnight delivery, and wire transfers. At the Closing the Parties shall cause the Merger to be consummated by filing of Articles of Merger (the “Articles of Merger”) with the Secretary of State of Florida and by making all other filings or recordings required under the FBCA in connection with the Merger, in such form as is required by, and executed in accordance with the relevant provisions of, the FBCA. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Secretary of State of Florida, or at such other time as the parties hereto agree shall be specified in the Articles of Merger (the date and time the Merger becomes effective, the “Effective Time”). At the Closing, the Company shall deliver to Parent and Parent shall deliver to the Company or the Company Shareholder, as applicable, such documents as contemplated by Section 2.12(a), Section 2.12(b) and Section 2.12(c), respectively.

 

Section 2.03 Effects of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the FBCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time:

 

(a) All the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation;

 

(b) The Articles of Incorporation of the Company shall be the Articles of Incorporation of the Surviving Company, until duly amended or repealed in accordance with the provisions thereof and of applicable Law; and

 

(c) The Bylaws of the Company shall be the Bylaws of the Surviving Company, until duly amended or repealed in accordance with the provisions thereof and of applicable Law.

 

Section 2.04 Conversion of Company Common Stock; Company Options; etc. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof:

 

(a) The shares of Company Common Stock issued and outstanding immediately prior to the Effective Time shall be canceled and shall by virtue of the Merger and without any action on the part of the holder thereof be converted automatically into the right to receive the Merger Consideration, described in Section 2.06;

 

(b) At the Effective Time, all shares of the Company Common Stock converted pursuant to Section 2.04(a) shall no longer be outstanding and shall automatically be canceled and retired and cease to exist, and the Company Shareholder shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration in accordance with the terms herein; and

 

(c) The Company Options issued and outstanding immediately prior to the Effective Time shall be canceled and shall by virtue of the Merger and without any action on the part of the holder thereof be converted automatically into the right to receive stock options to purchase shares of the Parent, described in Section 2.11.

 

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Section 2.05 Merger Sub Stock. At the Effective Time, all outstanding shares of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become, collectively, one validly issued, fully paid and nonassessable share of common stock, no par value per share, of the Surviving Corporation and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

 

Section 2.06 Merger Consideration. The Merger Consideration shall be comprised of a total of 15,000,000 shares of Parent Common Stock (the “Merger Consideration”), which Merger Consideration (i) shall have an aggregate fair market value of $30,000,000 as of the Closing Date (based on a value per share of Parent Common Stock equal to the Assumed Parent Common Stock Value), and (ii) may be represented by one or more certificates or may be uncertificated, at the election of the Company Shareholder; provided, however, that any issuance of Merger Consideration to be made hereunder shall be made only in whole shares of Parent Common Stock, and any fractional shares of Parent Common Stock otherwise payable shall be rounded up to the nearest whole share of shares of Parent Common Stock.

 

Section 2.07 Exchange Procedures. Upon the Effective Time, the Company Shareholder shall deliver and surrender to Parent the Certificate representing the Company Shareholder’s shares of Company Common Stock, and thereafter the Company Shareholder shall be entitled to receive the Merger Consideration in exchange therefor.

 

Section 2.08 No Further Ownership Rights in the Company Common Stock. All shares of Parent Common Stock issued upon conversion of shares of Company Common Stock in accordance with the terms of this Article II shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to the shares of Company Common Stock and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time.

 

Section 2.09 Withholding Rights. The Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to the Company Shareholder such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Corporation such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Company Shareholder in respect of which such deduction and withholding was made by the Surviving Corporation.

 

Section 2.10 Stock Transfer Books. On the Closing Date, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of shares of Company Common Stock thereafter on the records of the Company. From and after the Effective Time, the Company Shareholder shall cease to have any rights with respect to such shares of Company Common Stock formerly represented thereby, except as otherwise provided herein or by law. On or after the Effective Time, any Certificates presented to the Parent for any reason shall be converted into the Merger Consideration with respect to the shares of Company Common Stock formerly represented thereby.

 

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Section 2.11 Company Option s . As of the Effective Time, all of the Company Options shall be deemed to be cancelled, but shall entitle the holder of record to exchange such Company Options for new stock options to purchase 3,120,000 non-qualified stock options of the Parent, at an exercise price of $0.333 per share, to be issued under the Company’s newly adopted 2018 Equity Incentive Award Plan, in substitution for the Company Options.

 

Section 2.12 Closing Actions and Deliverables. At the Closing, and contingent thereon, the Parties shall deliver, and shall undertake such actions as to accomplish, the following:

 

(a) The Company shall deliver to Parent:

 

(i) The Articles of Merger, duly executed by an authorized officer of the Company;

 

(ii) a certificate, dated as of the Closing Date, signed by an officer of the Company, in form and substance reasonably acceptable to Parent:

 

  (A) certifying that each of the conditions set forth in Section 6.01(a) and Section 6.01(b) has been satisfied;
     
  (B) attaching and certifying copies of the resolutions or written consents of the sole director of the Company Board and the Company Shareholder, in each case authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents;
     
  (C) certifying the name, title and true signature of each officer of the Company executing or authorized to execute this Agreement, the Transaction Documents, and such other documents, instruments and certifications required or contemplated hereby or thereby;
     
  (D) attaching a true, correct and complete copy of the Articles of Incorporation of the Company certified by the Secretary of State of the State of Florida,
     
  (E) attaching and certifying By-laws of the Company; and
     
  (F) attaching a certificate of good standing and legal existence of the Company issued by the Secretary of State of the State of Florida;

 

(iii) A lock-up agreement, substantially in the form attached hereto as Exhibit A-2 (the “Company Lock-Up Agreement”) duly executed by the Company Shareholder;

 

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(iv) all approvals, consents and waivers that are listed on Section 3.04 of the Disclosure Schedules;

 

(v) such other documents as Parent may reasonably request for the purpose of evidencing the accuracy of any of the Company’s or the Company Shareholder’s representations and warranties; evidencing the performance by the Company or the Company Shareholder, or the compliance by Company or the Company Shareholder, in each case as applicable, with any covenant or obligation required to be performed or complied with by the Company or the Company Shareholder; or otherwise facilitating the consummation or performance of any of the Contemplated Transactions.

 

(b) Parent shall deliver to the Company Shareholder:

 

(i) the Merger Consideration pursuant to Section 2.06(a).

 

(c) Parent shall deliver to the Company:

 

(i) The Articles of Merger, duly executed by an authorized officer of the Merger Sub and Parent;

 

(ii) a certificate, dated the Closing Date, signed by a duly authorized officer of Parent, in form and substance reasonably acceptable to the Company:

 

  (A) certifying that each of the conditions set forth in Section 6.02(a) and Section 6.02(b) have been satisfied;
     
  (B) attaching and certifying copies of the resolutions or written consents of the Parent Board, the Merger Sub Board and Parent as the sole stockholder of Merger Sub, in each case authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents;
     
  (C) certifying the name, title and true signature of each officer of Parent and Merger Sub executing or authorized to execute this Agreement, the Transaction Documents, and such other documents, instruments and certifications required or contemplated hereby or thereby;
     
  (D) attaching a true, correct and complete copy of the Certificate of Incorporation of Parent certified by the Secretary of State of the State of Delaware
     
  (E) attaching and certifying the By-laws of Parent;
     
  (F) attaching a certificate of good standing and legal existence issued by the Secretary of State of the State of Delaware for Parent; and
     
  (G) attaching a certificate of good standing and legal existence issued by the Secretary of State of the State of Florida for Merger Sub;

 

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(iii) A lock-up agreement, substantially in the form attached hereto as Exhibit A-1 (the “Parent Lock-Up Agreement”) duly executed by each shareholder of Parent as of immediately prior to the Closing;

 

(iv) Duly countersigned copies of the Company Lock-Up Agreements delivered by the Company pursuant to Section 2.12(a)(iii); and

 

(d) Leone Group, LLC (“Leone”) shall surrender to the Parent a number of shares of Parent Common Stock currently held by Leone, such that Leone or its designees together with any entities to which it has transferred shares of Parent Common Stock prior to the Closing shall, as of the Closing, retain shares of Parent Common Stock with a total value of $750,000 based on the Assumed Parent Common Stock Value, which the Parties acknowledge and agree is expected to be 375,000 shares of Parent Common Stock to be retained by Leone or such designees or transferees, and such surrendered shares shall be acquired, retired, and cancelled by Parent.

 

(e) American Capital Ventures, Inc. (“ACV”) shall surrender to Parent a number of shares of Parent Common Stock currently held by ACV, such that ACV or its designees shall, as of the Closing, retain shares of Parent Common Stock with a total value of $750,000 based on the Assumed Parent Common Stock Value, which the Parties acknowledge and agree is expected to be 375,000 shares of Parent Common Stock to be retained by ACV or its designees, and such redeemed shares shall be acquired, retired, and cancelled by Parent.

 

(f) The current members of the Parent Board shall elect John R. Keeler, Carlos Faria and Christopher Constable to the Parent Board, with John R. Keeler being appointed as Chairman of the Parent Board, and shall resign when such election is complete, leaving those three named individuals as the sole directors of Parent.

 

(g) The officers of Parent as of immediately before the Closing shall resign, and the Parent Board, as newly-constituted under Section 2.12(f), shall elect (i) John R. Keeler as Executive Chairman of the Parent, (ii) Carlos Faria as Chief Executive Officer and President of the Parent, and (iii) Christopher Constable as Chief Financial Officer, Secretary and Treasurer of the Parent.

 

(h) The Parent shall consummate an initial closing of the Preferred Offering and the funds from the Preferred Offering shall be released to the Parent.

 

(i) The Parent shall issue an aggregate of 688 Parent Units to certain individuals and entities (the “Settlement Parties”), in full and complete settlement and satisfaction of any and all potential claims such Settlement Parties may have against the Company and/or certain of the Company’s related parties (collectively, the “Company Settlement Parties”), and in consideration for a general release provided to the Company Settlement Parties by the Settlement Parties (the “Company Settlement Transaction”).

 

Section 2.13 Tax-Free Reorganization. The Merger is intended to be a reorganization within the meaning of Section 368(a) of the Code, and this Agreement is intended to be a “plan of reorganization” within the meaning of the regulations promulgated under Section 368(a) of the Code and for the purpose of qualifying as a tax-free transaction for federal income tax purposes. The Parties hereto will agree to report the Merger as a tax-free reorganization under the provisions of Section 368(a). None of the Parties will take or cause to be taken any action which would prevent the transactions contemplated by this Agreement from qualifying as a reorganization under Section 368(a).

 

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Article III
Representations and Warranties of The Company Shareholder and the Company

 

Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, the Company Shareholder and the Company represent and warrant to Parent that the statements contained in this Article III are true and correct.

 

Section 3.01 Organization, Authority and Qualification of the Company. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Florida and has full corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it has been and is currently conducted, except, in each case, where the failure to be so organized, existing and in good standing (or the equivalent thereof) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or reasonably be expected to prevent, materially impair or materially delay the Company’s ability to consummate the Contemplated Transactions. Section 3.01 of the Disclosure Schedules sets forth each jurisdiction in which the Company is licensed or qualified to do business, and the Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary except, in each case, where the failure to be so licensed and in good standing (or the equivalent thereof) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or reasonably be expected to prevent, materially impair or materially delay the Company’s ability to consummate the Contemplated Transactions. All corporate actions taken by the Company in connection with this Agreement and the other Transaction Documents will be duly authorized on or prior to the Closing. The Company has delivered to Parent copies of the Organizational Documents of the Company. The Company is not in default or in violation of any of its Organizational Documents. The Company has not conducted business under and has not otherwise used, for any purpose or in any jurisdiction, any legal, fictitious, assumed or trade name other than the names listed in Section 3.01 of the Disclosure Schedules.

 

Section 3.02 Capitalization.

 

(a) The authorized capital stock of the Company consists of 1,000 shares of common stock, par value $1.00 per share (the “Company Common Stock ”), of which 500 shares are issued and outstanding. All of the shares of Company Common Stock have been duly authorized, are validly issued, fully paid and non-assessable, and are owned of record and beneficially by the Company Shareholder, free and clear of all Encumbrances. The capitalization of the Company as set forth on the capitalization table of the Company dated the date hereof and delivered by the Company to Parent via email on the date hereof (the “Company Capitalization Table”) is true, complete and correct in all respects.

 

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(b) All of the shares of Company Common Stock were issued in compliance with applicable Laws. None of the shares of Company Common Stock were issued in violation of any agreement, arrangement or commitment to which the Company Shareholder or the Company is a party or is subject to or in violation of any preemptive or similar rights of any Person, and no Person has any pre-emptive rights or similar rights to purchase or receive any Equity Securities in the Company.

 

(c) Except as set forth in Section 3.02 of the Disclosure Schedules, there are no outstanding or authorized Derivatives. The Company does not have outstanding or authorized any stock appreciation, phantom stock, profit participation or similar rights. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the shares of Company Common Stock.

 

Section 3.03 No Subsidiaries. The Company does not own, or have any interest in any shares or have an ownership interest in any other Person.

 

Section 3.04 Enforceability and Authority; No Conflicts; Consents.

 

(a) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid, and binding obligation of the Company, enforceable against it in accordance with its terms except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions. Upon the execution and delivery of the Transaction Documents by the Company and by the Company Shareholder, as applicable, each Transaction Document will constitute the legal, valid, and binding obligation of the Company and/or the Company Shareholder, as applicable, enforceable against the Company and/or the Company Shareholder, as applicable, in accordance with its terms, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions. The Company and the Company Shareholder have the absolute and unrestricted right, power, authority, and capacity to execute and deliver, and to perform its respective obligations under, this Agreement and each Transaction Document to which it is a party.

 

(b) Except as set forth in Section 3.04(b) of the Disclosure Schedules, neither the execution and delivery of this Agreement or of any of the Transaction Documents nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time):

 

(i) contravene, conflict with, or violate (A) any Organizational Document of the Company, or (B) any resolution adopted by the Company Board or the Company Shareholder (or Persons exercising similar authority) of the Company;

 

(ii) to the Knowledge of the Company, contravene, conflict with, or violate, or give any Governmental Authority or other Person the right to challenge any of the Contemplated Transactions, or to exercise any remedy or obtain any relief under, any Law or Governmental Order to which the Company or the Company Shareholder, or any assets owned or used by the Company, could be subject;

 

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(iii) contravene, conflict with, violate, result in the loss of any benefit to which the Company is entitled under, or give any Governmental Authority the right to revoke, suspend, cancel, terminate, or modify, any Governmental Authorization held by the Company or that otherwise relates to the business of, or any assets owned or used by, the Company, except to the extent that the forgoing would not cause a Material Adverse Effect on the Company;

 

(iv) cause Parent or the Company to become subject to, or to become liable for payment of, any Tax, except to the extent that the forgoing would not cause a Material Adverse Effect on the Company;

 

(v) to the Knowledge of the Company, cause any assets owned or used by the or the Company to be reassessed or revalued by any Governmental Authority;

 

(vi) breach, or give any Person the right to declare a default or exercise any remedy or to obtain any additional rights under, or to accelerate the maturity or performance of, or payment under, or cancel, terminate, or modify, any Contract to which the Company Shareholder or the Company is a party, except to the extent that the forgoing would not cause a Material Adverse Effect on the Company;

 

(vii) result in the imposition or creation of any Encumbrance upon, or with respect to, any assets owned or used by the Company; or

 

(viii) result in, or give any other Person the right or option to cause or declare: (A) a loss of any Intellectual Property, (B) the release, disclosure, or delivery of any Intellectual Property by or to any escrow agent or other Person, or (C) the grant, assignment, or transfer to any other Person of any license, Encumbrance, or other right or interest under, to, or in any Intellectual Property.

 

(c) Except as set forth in Section 3.04(c) of the Disclosure Schedules, neither the Company Shareholder nor the Company is or shall be required to give notice to, or obtain Consent from, any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions, or in order to be able to continue the business of the Company following the Closing in substantially the same manner as conducted prior to the Closing.

 

Section 3.05 Financial Statements. Complete copies of the Company’s financial statements consisting of the balance sheet of the Company as at December 31 in each of the years 2016 and 2017 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended, and financial statements consisting of the balance sheet of the Company as at June 30, 2018 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the six-month period then ended (the “Financial Statements”) are included in Section 3.05 of the Disclosure Schedules. The Financial Statements are based on the books and records of the Company, and fairly present the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated, in all material respects. The balance sheet of the Company as at December 31, 2017 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Company as at June 30, 2018 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date.”

 

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Section 3.06 Undisclosed Liabilities. The Company has no liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise, including without limitation any penalties, interest and/or excise tax as may be applicable (individually, a “Liability,” and collectively, the “Liabilities”), except (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) those which have been incurred in the Ordinary Course of Business since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount.

 

Section 3.07 Absence of Certain Changes, Events and Conditions. Since the Balance Sheet Date, and other than in the Ordinary Course of Business, there has not been, with respect to the Company, any:

 

(a) event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

(b) amendment of the charter, by-laws or other Organizational Documents of the Company;

 

(c) split, combination or reclassification of any shares of its capital stock;

 

(d) issuance, sale or other disposition of any of its capital stock, or grant of any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its capital stock;

 

(e) declaration or payment of any dividends or distributions on or in respect of any of its capital stock or redemption, purchase or acquisition of its capital stock;

 

(f) material change in any method of accounting or accounting practice of the Company, except as disclosed in the notes to the Financial Statements;

 

(g) material change in the Company’s cash management practices and its policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

 

(h) entry into any Contract that would constitute a Material Contract;

 

(i) incurrence, assumption or guarantee of any material indebtedness for borrowed money except unsecured current obligations and Liabilities incurred in the Ordinary Course of Business;

 

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(j) transfer, assignment, sale or other disposition of any material amount of assets shown or reflected in the Balance Sheet or cancellation of any material debts or material entitlements;

 

(k) transfer, assignment or grant of any license or sublicense of any rights under or with respect to any Intellectual Property;

 

(l) material damage, material destruction or loss (whether or not covered by insurance) to its property, except for ordinary wear and tear;

 

(m) any capital investment in, or any loan to, any other Person;

 

(n) acceleration, termination, modification to or cancellation of any Material Contract to which the Company is a party or by which it is bound;

 

(o) any capital expenditures in excess of $25,000;

 

(p) imposition of any Encumbrance upon any of the Company properties, capital stock or assets, tangible or intangible;

 

(q) Except as set forth in Section 3.07(q) of the Disclosure Schedules (i) grant of any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of its employees, officers, directors, independent contractors or consultants, other than as provided for in any written agreements or required by applicable Law, (ii) change in the terms of employment for any employee or any termination of any employees, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any employee, officer, director, independent contractor or consultant;

 

(r) Except as set forth in Section 3.07(r) of the Disclosure Schedules adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant, (ii) Benefit Plan or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;

 

(s) any loan to (or forgiveness of any loan to), or entry into any other transaction with, any of its stockholders, directors, officers and employees;

 

(t) entry into a material new line of business or abandonment or discontinuance of existing material lines of business;

 

(u) adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;

 

(v) purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $10,000, individually (in the case of a lease, per annum) or $50,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of inventory or supplies in the Ordinary Course of Business;

 

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(w) acquisition by merger or consolidation with, or by purchase of a substantial portion of the assets or stock of, or by any other manner, any business or any Person or any division thereof; or

 

(x) Except as set forth in Section 3.07(r) of the Disclosure Schedules action by the Company to make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Parent in respect of any Post-Closing Tax Period.

 

Section 3.08 Material Contracts.

 

(a) Section 3.08(a) of the Disclosure Schedules lists each of the following Contracts of the Company (such Contracts, together with all Contracts concerning the occupancy, management or operation of any Real Property (including without limitation, brokerage contracts) listed or otherwise disclosed in Section 3.09(b) of the Disclosure Schedules and all Contracts relating to Intellectual Property set forth in Section 3.11(d) and Section 3.11(f) of the Disclosure Schedules, being “ Material Contracts ”):

 

(i) each Contract of the Company involving aggregate consideration in excess of $100,000 and which, in each case, cannot be cancelled by the Company without penalty or without more than ninety (90) calendar days’ notice, except Contracts of the Company entered into in the Ordinary Course of Business;

 

(ii) all Contracts that require the Company to purchase its total requirements of any product or service from a third party or that contain “take or pay” provisions;

 

(iii) all Contracts that provide for the indemnification by the Company of any Person or the assumption of any Tax, environmental or other Liability of any Person;

 

(iv) all Contracts that relate to the acquisition or disposition of any business, the stock or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);

 

(v) all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which the Company is a party;

 

(vi) all employment agreements and Contracts with independent contractors or consultants (or similar arrangements) to which the Company is a party, and which are not cancellable without penalty or without more than thirty (30) calendar days’ notice;

 

(vii) except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including, without limitation, guarantees) of the Company;

 

(viii) all Contracts with any Governmental Authority to which the Company is a party;

 

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(ix) all Contracts that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time;

 

(x) any Contracts to which the Company is a party that provide for any joint venture, partnership or similar arrangement by the Company;

 

(xi) all Contracts between or among the Company on the one hand and the Company Shareholder or any Affiliate of the Company Shareholder (other than the Company) on the other hand;

 

(xii) all collective bargaining agreements or Contracts with any Union to which the Company is a party; and

 

(xiii) any other Contract that is material to the Company and not previously disclosed pursuant to this Section 3.08.

 

(b) Each Material Contract is valid and binding on the Company in accordance with its terms and is in full force and effect, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions. Neither the Company nor any other party thereto is in breach of or default under (or is alleged to be in breach of or default under) or has provided or received any notice of any intention to terminate, any Material Contract. To the Knowledge of the Company, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Parent.

 

Section 3.09 Title to Assets; Real Property.

 

(a) The Company has good and valid (and, in the case of owned Real Property, good and marketable fee simple) title to, or a valid leasehold interest in, all Real Property and personal property and other assets reflected in the Financial Statements or acquired after the Balance Sheet Date, other than properties and assets sold or otherwise disposed of in the Ordinary Course of Business since the Balance Sheet Date. All such properties and assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively referred to as “ Permitted Encumbrances ”):

 

(i) those items set forth in Section 3.09(a) of the Disclosure Schedules;

 

(ii) liens for Taxes not yet due and payable or being contested in good faith by appropriate procedures and for which there are adequate accruals or reserves on the Balance Sheet;

 

(iii) mechanics, carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the Ordinary Course of Business or amounts that are not delinquent, and which are not, individually or in the aggregate, material to the business of the Company;

 

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(iv) easements, rights of way, zoning ordinances and other similar encumbrances affecting Real Property which are not, individually or in the aggregate, material to the business of the Company; or

 

(v) other than with respect to owned Real Property, liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the Ordinary Course of Business which are not, individually or in the aggregate, material to the business of the Company.

 

(b) Section 3.09(b) of the Disclosure Schedules lists (i) the street address of each parcel of Real Property; (ii) if such property is leased or subleased by the Company, the landlord under the lease, the rental amount currently being paid, and the expiration of the term of such lease or sublease for each leased or subleased property; and (iii) the current use of such property. With respect to owned Real Property, the Company has delivered or made available to Parent true, complete and correct copies of the deeds and other instruments (as recorded) by which the Company acquired such Real Property, and copies of all title insurance policies, opinions, abstracts and surveys in the possession of the Company and relating to the Real Property. With respect to leased Real Property, the Company has delivered or made available to Parent true, complete and correct copies of any leases affecting the Real Property (each, “Lease” and collectively, the “Leases”). The Company is not a sublessor or grantor under any sublease or other instrument granting to any other Person any right to the possession, lease, occupancy or enjoyment of any leased Real Property. The use and operation of the Real Property in the conduct of the Company’s business do not violate any Law, covenant, condition, restriction, easement, license, permit or agreement. No improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company. To the Knowledge of the Company, there are no Actions pending or threatened against or affecting the Real Property or any portion thereof or interest therein in the nature or in lieu of condemnation or eminent domain proceedings.

 

Section 3.10 Condition and Sufficiency of Assets. Except as set forth in Section 3.10 of the Disclosure Schedules, and except for ordinary wear and tear, the buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property of the Company are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property currently owned or leased by the Company, together with all other properties and assets of the Company, are sufficient for the conduct of the Company’s business as conducted as of the Closing and constitute all of the rights, property and assets necessary to conduct the business of the Company as conducted as of the Closing.

 

Section 3.11 Intellectual Property.

 

(a) “ Intellectual Property ” means all of the following and similar intangible property and related proprietary rights, interests and protections, however arising, pursuant to the Laws of any jurisdiction throughout the world, including such property that is owned by the Company (the “ Company Intellectual Property ”) and that in which the Company holds exclusive or non-exclusive rights or interests granted by license from other Persons, including the Company Shareholder (the “ Licensed Intellectual Property ”):

 

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(i) trademarks, service marks, trade names, brand names, logos, trade dress and other proprietary indicia of goods and services, whether registered or unregistered, and all registrations and applications for registration of such trademarks, including intent-to-use applications, all issuances, extensions and renewals of such registrations and applications and the goodwill connected with the use of and symbolized by any of the foregoing;

 

(ii) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority;

 

(iii) original works of authorship in any medium of expression, whether or not published, all copyrights (whether registered or unregistered), all registrations and applications for registration of such copyrights, and all issuances, extensions and renewals of such registrations and applications;

 

(iv) confidential information, formulas, designs, devices, technology, know-how, research and development, inventions, methods, processes, compositions and other trade secrets, whether or not patentable; and

 

(v) patented and patentable designs and inventions, all design, plant and utility patents, letters patent, utility models, pending patent applications and provisional applications and all issuances, divisions, continuations, continuations-in-part, reissues, extensions, reexaminations and renewals of such patents and applications.

 

(b) Section 3.11(b) of the Disclosure Schedules lists all Company Intellectual Property that is either (i) subject to any issuance, registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction (collectively, the “ Intellectual Property Registrations ”), including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing; or (ii) used in or necessary for the Company’s current or planned business or operations. All required filings and fees related to the Intellectual Property Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Intellectual Property Registrations are otherwise in good standing. The Company has provided Parent with true and complete copies of file histories, documents, certificates, office actions, correspondence and other materials related to all Intellectual Property Registrations.

 

(c) Except as set forth in Section 3.11(c) of the Disclosure Schedules, the Company owns, exclusively or jointly with other Persons, all right, title and interest in and to the Company Intellectual Property, free and clear of Encumbrances. Without limiting the generality of the foregoing, the Company has entered into binding (except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions), written agreements with every current and former employee of the Company, and with every current and former independent contractor, whereby such employees and independent contractors (i) assign to the Company any ownership interest and right they may have in the Company Intellectual Property; and (ii) acknowledge the Company’s exclusive ownership of all Company Intellectual Property. The Company has provided Parent with true and complete copies of all such agreements. To the Knowledge of the Company, the Company is in material compliance with all legal requirements applicable to the Company Intellectual Property and the Company’s ownership and use thereof.

 

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(d) Section 3.11(d) of the Disclosure Schedules lists all licenses, sublicenses and other agreements whereby the Company is granted rights, interests and authority, whether on an exclusive or non-exclusive basis, with respect to any Licensed Intellectual Property that is used in or necessary for the Company’s current or planned business or operations, excluding Licensed Intellectual Property which is or was offered to the general public on a non-exclusive basis and was not developed specifically for the Company. The Company has provided Parent with true and complete copies of all such agreements. All such agreements are valid, binding and enforceable between the Company and the other parties thereto, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions, and the Company and such other parties are in material compliance with the terms and conditions of such agreements.

 

(e) The Company Intellectual Property and Licensed Intellectual Property as currently or formerly owned, licensed or used by the Company or proposed to be used, and the Company’s conduct of its business as currently and formerly conducted and proposed to be conducted have not, do not and will not infringe, violate or misappropriate the Intellectual Property of any Person. Neither the Company Shareholder nor the Company has received any communication, and no Action has been instituted, settled or threatened that alleges any such infringement, violation or misappropriation, and none of the Company Intellectual Property are subject to any outstanding Governmental Order.

 

(f) Section 3.11(f) of the Disclosure Schedules lists all licenses, sublicenses and other agreements pursuant to which the Company grants rights or authority to any Person with respect to any Company Intellectual Property or Licensed Intellectual Property. The Company has provided Parent with true and complete copies of all such agreements. All such agreements are valid, binding and enforceable between the Company and the other parties thereto, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions, and the Company and such other parties are in material compliance with the terms and conditions of such agreements. No Person has infringed, violated or misappropriated, or is infringing, violating or misappropriating, any Company Intellectual Property.

 

(g) The Company has taken all reasonable measures to protect and preserve its rights in the Company Intellectual Property and the confidentiality of all trade secrets owned, exploited, held for exploitation, appropriated or otherwise obtained or possessed by the Company.

 

Section 3.12 Accounts Receivable. The accounts receivable reflected on the Interim Balance Sheet and the accounts receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by the Company involving the sale of goods or the rendering of services in the Ordinary Course of Business; (b) constitute only valid, undisputed claims of the Company not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the Ordinary Course of Business; and (c) subject to a reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company, are collectible in full within ninety (90) calendar days after billing.

 

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Section 3.13 Customers and Suppliers.

 

(a) Section 3.13(a) of the Disclosure Schedules sets forth (i) each customer which accounted for 10% or more of the Company’s revenue in each of the two most recent fiscal years (collectively, the “Material Customers”); and (ii) the amount of consideration paid by each Material Customer during such periods. Except as set forth in Section 3.13(a) of the Disclosure Schedules, the Company has not received any notice, and has no reason to believe, that any of its Material Customers has ceased, or intends to cease after the Closing, to use its goods or services or to otherwise terminate or materially reduce its relationship with the Company.

 

(b) Section 3.13(b) of the Disclosure Schedules sets forth (i) each supplier which accounted for 10% or more of the Company’s total purchases in each of the two most recent fiscal years (collectively, the “ Material Suppliers ”); and (ii) the amount of purchases from each Material Supplier during such periods. Except as set forth in Section 3.13(b) of the Disclosure Schedules, the Company has not received any notice, and has no reason to believe, that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to the Company or to otherwise terminate or materially reduce its relationship with the Company.

 

Section 3.14 Insurance. Section 3.14 of the Disclosure Schedules sets forth a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, directors’ and officers’ liability, fiduciary liability and other casualty and property insurance maintained by the Company or its Affiliates and relating to the assets, business, operations, employees, officers and directors of the Company (collectively, the “Insurance Policies”) and true and complete copies of such Insurance Policies have been made available to Parent. Such Insurance Policies are in full force and effect as of the Closing. Neither the Company nor any of its Affiliates has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. The Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company. All such Insurance Policies (a) are valid and binding in accordance with their terms; and (b) have not been subject to any lapse in coverage. Except as set forth on Section 3.14 of the Disclosure Schedules, there are no claims related to the business of the Company pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. Neither the Company nor any of its Affiliates is in default under or has otherwise failed to comply in any material respect with any provision contained in, any such Insurance Policy.

 

Section 3.15 Legal Proceedings; Governmental Orders.

 

(a) To the Knowledge of the Company, except as set forth in Section 3.15(a) of the Disclosure Schedules, there are no Actions pending or threatened (a) against or by the Company affecting any of its properties or assets (or by or against the Company Shareholder or any Affiliate thereof and relating to the Company); or (b) against or by the Company, the Company Shareholder or any Affiliate of the Company Shareholder that challenges or seeks to prevent, enjoin or otherwise delay the Contemplated Transactions. To the Knowledge of the Company, no event has occurred, or circumstances exist that may give rise to, or serve as a basis for, any such Action.

 

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(b) To the Knowledge of the Company, except as set forth in Section 3.15(b) of the Disclosure Schedules, there are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting the Company or any of its properties or assets. The Company is in compliance with the terms of each Governmental Order set forth in Section 3.15(b) of the Disclosure Schedules. To the Knowledge of the Company, no event has occurred, or circumstances exist that may constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.

 

Section 3.16 Compliance with Laws; Permits.

 

(a) Except as set forth in Section 3.16(a) of the Disclosure Schedules, the Company has complied in all material respects, and is now complying in all material respects, with all Laws applicable to it or its business, properties or assets.

 

(b) All material Permits required for the Company to conduct its business have been obtained by it and are valid and in full force and effect, except as would reasonably be expected to result in a Material Adverse Effect on the Company. All fees and charges with respect to such Permits as of the date hereof have been paid in full. Section 3.16(b) of the Disclosure Schedules lists all current Permits issued to the Company, including the names of the Permits and their respective dates of issuance and expiration. To the Knowledge of the Company, no event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Section 3.16(b) of the Disclosure Schedules.

 

Section 3.17 Employee Benefit Matters.

 

(a) Section 3.17(a) of the Disclosure Schedules contains a true and complete list of each pension, benefit, retirement, compensation, profit-sharing, deferred compensation, incentive, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by the Company for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Company or any spouse or dependent of such individual, or under which the Company has or may have any Liability, or with respect to which Parent or any of its Affiliates would reasonably be expected to have any Liability, contingent or otherwise (as listed on Section 3.17(a) of the Disclosure Schedules, each, a “ Benefit Plan ”).

 

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(b) With respect to each Benefit Plan, the Company has made available to Parent accurate, current and complete copies of each of the following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the Contemplated Transactions or otherwise; (iv) copies of any summary plan descriptions, summaries of modifications, employee handbooks and any other written communications (or a description of any oral communications) relating to any Benefit Plan; (v) in the case of any Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service; (vi) in the case of any Benefit Plan for which a Form 5500 is required to be filed, a copy of the most recently filed Form 5500, with schedules attached; (vii) actuarial valuations and reports related to any Benefit Plans with respect to the two most recently completed plan years; and (viii) copies of all notices, letters or other correspondence from the Internal Revenue Service, Department of Labor or Pension Benefit Guaranty Corporation relating to the Benefit Plan.

 

(c) Except as set forth in Section 3.17(c) of the Disclosure Schedules, each Benefit Plan (other than any multiemployer plan within the meaning of Section 3(37) of ERISA (each a “ Multiemployer Plan ”)) has been established, administered and maintained in accordance with its terms and in compliance with all applicable Laws (including ERISA and the Code) in all material respects. Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code (a “ Qualified Benefit Plan ”) is so qualified. To the Knowledge of the Company, nothing has occurred with respect to any Benefit Plan that has subjected or could reasonably be expected to subject the Company or, with respect to any period on or after the Closing Date, Parent or any of its Affiliates, to a penalty under Section 502 of ERISA or to tax or penalty under Section 4975 of the Code. Except as set forth in Section 3.17(c) of the Disclosure Schedules, all benefits, contributions and premiums relating to each Benefit Plan have been timely paid in accordance with the terms of such Benefit Plan and all applicable Laws and accounting principles.

 

(d) To the Knowledge of the Company, neither the Company nor any of its ERISA Affiliates has (i) incurred or reasonably expects to incur, either directly or indirectly, any Liability under Title I or Title IV of ERISA or related provisions of the Code or foreign Law relating to employee benefit plans; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; (iii) withdrawn from any Benefit Plan; or (iv) engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA.

 

(e) With respect to each Benefit Plan (i) no such plan is a Multiemployer Plan; (ii) no such plan is a “multiple employer plan” within the meaning of Section 413(c) of the Code or a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA); (iii) no Action has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a trustee for any such plan; (iv) no such plan is subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code; and (v) no “reportable event,” as defined in Section 4043 of ERISA, has occurred with respect to any such plan.

 

(f) The Company has no commitment or obligation and has not made any representations to any employee, officer, director, independent contractor or consultant, whether or not legally binding, to adopt, amend or modify any Benefit Plan or any collective bargaining agreement, in connection with the consummation of the Contemplated Transactions or otherwise.

 

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(g) Except as set forth in Section 3.17(g) of the Disclosure Schedules and other than as required under Section 601 et. seq. of ERISA or other applicable Law, no Benefit Plan provides post-termination or retiree welfare benefits to any individual for any reason, and neither the Company nor any of its ERISA Affiliates has any Liability to provide post-termination or retiree welfare benefits to any individual or ever represented, promised or contracted to any individual that such individual would be provided with post-termination or retiree welfare benefits.

 

(h) To the Knowledge of the Company, except as set forth in Section 3.17(h) of the Disclosure Schedules, there is no pending or threatened Action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the five (5) years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.

 

(i) There has been no amendment to, announcement by the Company Shareholder, the Company or any of their Affiliates relating to, or change in employee participation or coverage under, any Benefit Plan or collective bargaining agreement that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year with respect to any director, officer, employee, independent contractor or consultant, as applicable. To the Knowledge of the Company, none of the Company Shareholder, the Company, nor any of their Affiliates has any commitment or obligation or has made any representations to any director, officer, employee, independent contractor or consultant, whether or not legally binding, to adopt, amend or modify any Benefit Plan or any collective bargaining agreement.

 

(j) Each Benefit Plan that is subject to Section 409A of the Code has been operated in material compliance with such section and all applicable regulatory guidance (including notices, rulings and proposed and final regulations).

 

(k) Each individual who is classified by the Company as an independent contractor has been properly classified for purposes of participation and benefit accrual under each Benefit Plan.

 

(l) Except as set forth in Section 3.17(l) of the Disclosure Schedules, neither the execution of this Agreement nor any of the Contemplated Transactions at or prior to the Closing will (i) entitle any current or former director, officer, employee, independent contractor or consultant of the Company to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation due to any such individual; (iii) limit or restrict the right of the Company to merge, amend or terminate any Benefit Plan; (iv) increase the amount payable under or result in any other obligation pursuant to any Benefit Plan; or (v) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code.

 

Section 3.18 Employment Matters.

 

(a) Section 3.18(a) of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants of the Company as of the date hereof, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full or part time); (iii) hire date; (iv) current annual base compensation rate; (v) commission, bonus or other incentive-based compensation; and (vi) a description of the fringe benefits provided to each such individual as of the date hereof. Except as set forth in Section 3.18(a) of the Disclosure Schedules, as of the date hereof, all compensation, including wages, commissions and bonuses, payable to employees, independent contractors or consultants of the Company for services performed on or prior to the date hereof have been paid in full (or accrued in full on the balance sheet provided to Parent).

 

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(b) The Company is not, and has never been, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “ Union ”), and there is not, and has never been, any Union representing or purporting to represent any employee of the Company, and no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. Except as set forth in Section 3.18(b) of the Disclosure Schedules, there has never been, nor, to the Knowledge of the Company, has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting the Company or any of its employees. The Company has no duty to bargain with any Union.

 

(c) The Company is and has been in material compliance with all applicable Laws pertaining to employment and employment practices, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence and unemployment insurance. All individuals characterized and treated by the Company as independent contractors or consultants are properly treated as independent contractors under all applicable Laws. All employees classified as exempt under the Fair Labor Standards Act and state and local wage and hour laws are properly classified. To the Knowledge of the Company, there are no Actions against the Company pending or threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Company, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wage and hours or any other employment related matter arising under applicable Laws.

 

Section 3.19 Taxes. Except as set forth in Section 3.19 of the Disclosure Schedules:

 

(a) All Tax Returns required to be filed on or before the Closing Date by the Company have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all material respects. All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been, or will be, timely paid.

 

(b) The Company has withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder or other party, and complied with all information reporting and backup withholding provisions of applicable Law.

 

(c) No claim has been made by any taxing authority in any jurisdiction where the Company does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction.

 

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(d) No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of the Company.

 

(e) The amount of the Company’s Liability for unpaid Taxes for all periods ending on or before December 31, 2017 does not, in the aggregate, exceed the number of accruals for Taxes (excluding reserves for deferred Taxes) reflected on the Financial Statements. The amount of the Company’s Liability for unpaid Taxes for all periods following the end of the recent period covered by the Financial Statements shall not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) as adjusted for the passage of time in accordance with the past custom and practice of the Company (and which accruals shall not exceed comparable amounts incurred in similar periods in prior years).

 

(f) Section 3.19(f) of the Disclosure Schedules sets forth:

 

(i) the taxable years of the Company as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired;

 

(ii) those years for which examinations by the taxing authorities have been completed; and

 

(iii) those taxable years for which examinations by taxing authorities are presently being conducted.

 

(g) All deficiencies asserted, or assessments made, against the Company as a result of any examinations by any taxing authority have been fully paid.

 

(h) The Company is not a party to any Action by any taxing authority. To the Knowledge of the Company, there are no pending or threatened Actions by any taxing authority.

 

(i) The Company has delivered to Parent copies of all federal, state, local and foreign income, franchise and similar Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by, the Company for all Tax periods ending after 2010.

 

(j) There are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company.

 

(k) The Company is not a party to, or bound by, any Tax indemnity, Tax-sharing or Tax allocation agreement.

 

(l) The Company is not a party to, or bound by, any closing agreement or offer in compromise with any taxing authority.

 

(m) No private letter rulings, technical advice memoranda or similar agreement or rulings have been requested, entered into or issued by any taxing authority with respect to the Company.

 

(n) The Company has not been a member of an affiliated, combined, consolidated or unitary Tax group for Tax purposes. The Company has no Liability for Taxes of any Person (other than the Company) under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), as transferee or successor, by contract or otherwise.

 

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(o) The Company has not agreed to make, nor is it required to make, any adjustment under Sections 481(a) or 263A of the Code or any comparable provision of state, local or foreign Tax Laws by reason of a change in accounting method or otherwise. The Company has not taken any action that could defer a Liability for Taxes of the Company from any Pre-Closing Tax Period to any Post-Closing Tax Period.

 

(p) The Company is not a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2. The Company is not, nor has it been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(a) of the Code.

 

(q) The Company has not been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the Code.

 

(r) The Company is not, and has not been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).

 

(s) There is currently no limitation on the utilization of net operating losses, capital losses, built-in losses, tax credits or similar items of the Company under Sections 269, 382, 383, 384 or 1502 of the Code and the Treasury Regulations thereunder (and comparable provisions of state, local or foreign Law).

 

(t) Section 3.19(t) of the Disclosure Schedules sets forth all foreign jurisdictions in which the Company is subject to Tax, is engaged in business or has a permanent establishment. The Company has not entered into a gain recognition agreement pursuant to Treasury Regulations Section 1.367(a)-8. The Company has not transferred an intangible the transfer of which would be subject to the rules of Section 367(d) of the Code.

 

(u) None of the assets of the Company is property that the Company is required to treat as being owned by any other person pursuant to the so-called “safe harbor lease” provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended.

 

Section 3.20 Books and Records. The minute books and stock record books of the Company, all of which have been made available to Parent, are complete and correct in all material respects and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings, and actions taken by written consent of, the stockholders, the Company Board and any committees of the Company Board in all material respects, and no meeting, or action taken by written consent, of any such stockholders, Company Board or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.

 

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Section 3.21 Investment Purpose. The Company Shareholder is acquiring the Merger Consideration solely for his own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof. The Company Shareholder acknowledges that the shares of Parent Common Stock constituting the Merger Consideration are not registered under the Securities Act or any state securities laws, and that the Parent Common Stock constituting the Merger Consideration may not be transferred or sold except pursuant to the registration provisions of the Securities Act or pursuant to an applicable exemption therefrom and subject to state securities laws and regulations, as applicable.

 

Section 3.22 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Contemplated Transactions or any other Transaction Document based upon arrangements made by or on behalf of any the Company Shareholder.

 

Section 3.23 Full Disclosure. No representation or warranty by the Company or the Company Shareholder in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Parent pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

 

Article IV
Representations and Warranties of Parent

 

Parent represents and warrants to the Company and the Company Shareholder that the statements contained in this Article IV are true and correct.

 

Section 4.01 Organization and Authority of Parent and Merger Sub.

 

(a) Parent is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware except, in each case, where the failure to be so organized, existing and in good standing (or the equivalent thereof) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or reasonably be expected to prevent, materially impair or materially delay the Parent’s ability to consummate the Contemplated Transactions. Parent has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which Parent is a party, to carry out its obligations hereunder and thereunder and to consummate the Contemplated Transactions and thereby. The execution and delivery by Parent of this Agreement and any other Transaction Documents to which Parent is a party, the performance by Parent of its obligations hereunder and thereunder and the consummation by Parent of the Contemplated Transactions and thereby have been duly authorized by all requisite corporate action on the part of Parent. This Agreement has been duly executed and delivered by Parent, and (assuming due authorization, execution and delivery by the Company Shareholder) this Agreement constitutes a legal, valid and binding obligation of Parent enforceable against Parent in accordance with its terms, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions. When each other Transaction Document to which Parent is or will be a party has been duly executed and delivered by Parent (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of Parent enforceable against it in accordance with its terms, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions.

 

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(b) Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of the State of Florida except, in each case, where the failure to be so organized, existing and in good standing (or the equivalent thereof) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or reasonably be expected to prevent, materially impair or materially delay the Merger Sub’s ability to consummate the Contemplated Transactions. Merger Sub has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which Merger Sub is a party, to carry out its obligations hereunder and thereunder and to consummate the Contemplated Transactions and thereby. The execution and delivery by Merger Sub of this Agreement and any other Transaction Documents to which Merger Sub is a party, the performance by Merger Sub of its obligations hereunder and thereunder and the consummation by Merger Sub of the Contemplated Transactions and thereby have been duly authorized by all requisite corporate action on the part of Merger Sub. This Agreement has been duly executed and delivered by Merger Sub, and (assuming due authorization, execution and delivery by the Company Shareholder) this Agreement constitutes a legal, valid and binding obligation of Merger Sub enforceable against Merger Sub in accordance with its terms, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions. When each other Transaction Document to which Merger Sub is or will be a party has been duly executed and delivered by Merger Sub (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of Merger Sub enforceable against it in accordance with its terms, except to the extent that the enforceability thereof may be limited by the Enforceability Exceptions.

 

Section 4.02 No Conflicts; Consents. The execution, delivery and performance by Parent and Merger Sub of this Agreement and the other Transaction Documents to which it they are a party, and the consummation of the Contemplated Transactions and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of Parent or Merger Sub; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Parent or Merger Sub; or (c) require the consent, notice or other action by any Person under any Contract to which Parent or Merger Sub is a party. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Parent or Merger Sub in connection with the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the Contemplated Transactions. Parent has provided to the Company true and complete copies of the Organizational Document of Parent and Merger Sub as in effect as of the Effective Date. Neither Parent nor Merger Sub is in default or in violation of any of its Organizational Documents.

 

Section 4.03 Parent and Merger Sub Capitalization.

 

(a) As of the Effective Date, the authorized, issued and outstanding share capital of Parent consists of 100,000,000 shares of common stock, par value $0.0001 per share (the “Parent Common Stock”), of which 10,000,000 shares are issued and outstanding; and 5,000,000 shares of preferred stock, par value $0.0001 per share (the “Parent Preferred Stock”), of which no shares are issued and outstanding. As of the Effective Date, the Parent Preferred Stock consists of 10,000 shares of Parent Series A Preferred Stock, of which no shares are issued and outstanding. The capitalization of Parent as of the Effective Date is as set forth on the capitalization table of Parent dated the date hereof and delivered by Parent to the Company on the date hereof (the “Parent Capitalization Table”).

 

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(b) Immediately after the Closing the Merger Consideration and all other issued and outstanding share capital of Parent will be duly authorized, validly issued, fully paid and non-assessable and will have been issued in accordance with all applicable laws, including, but not limited to, the Securities Act.

 

(c) Upon consummation of the Contemplated Transactions, the Company Shareholder shall own all of the Merger Consideration, free and clear of all Encumbrances.

 

(d) The Parent Common Stock is Depository Trust Company (“DTC”) eligible and listed in transferable status and shall not be subject to any DTC “chills” or “locks.”

 

(e) All issued and outstanding shares of capital stock of Parent, immediately prior to the Closing Date, have been duly authorized, are validly issued, fully paid and non-assessable, and have been issued in accordance with all applicable laws, including, but not limited to, the Securities Act.

 

(f) As of the Closing Date, except for Parent Series A Preferred Stock as contemplated by Section 5.01(a) and any warrants or other securities that may be issued to the placement agent in connection with the Preferred Offering, Parent shall not have any outstanding options, warrants or other securities convertible into Parent Common Stock.

 

(g) Assuming that the Company Capitalization Table is true, correct and complete in all respects, the capitalization of the Parent as of immediately after the Closing will be as stated on the Closing Capitalization Table, provided that the Parties acknowledge and agree that the shareholders of Parent immediately prior to the Closing may transfer certain portions of their shares of Parent Common Stock to other parties prior to the Closing.

 

(h) The authorized, issued and outstanding share capital of Merger Sub consists of 1,000 shares of common stock, par value of $0.01 per share, of which one share is issued and outstanding and is owned by Parent, and 100 shares of preferred stock, par value of $0.01 per share, of which no shares are issued and outstanding.

 

The Parties acknowledge and agree that the representations and warranties set forth in this Section 4.03 shall be deemed automatically updated, if necessary, to reflect the completion of the matters contemplated in Section 5.01.

 

Section 4.04 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Contemplated Transactions based upon arrangements made by or on behalf of Parent or Merger Sub, other than as reflected in the Transaction Documents.

 

Section 4.05 Legal Proceedings. There are no Actions pending or, to Parent’s knowledge, threatened against or by Parent or Merger Sub or any Affiliate of Parent that challenge or seek to prevent, enjoin or otherwise delay the Contemplated Transactions. No event has occured or circumstances exist that may give rise or serve as a basis for any such Action.

 

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Section 4.06 Financial Statements and Liabilities. The financial statements regarding the Parent provided to the Company and the Company Shareholder are true and correct in all material respects and fairly present the financial condition of the Parent as of the respective dates they were prepared. Parent has no any Liabilities, including but not limited to contractual commitments, service agreements, notes payable and accounts payable, except (a) those which are adequately reflected or reserved against in the financial statements referenced herein and (b) those which have been incurred in the Ordinary Course of Business since the date of the financial statements referenced herein and which are not, individually or in the aggregate, material in amount.

 

Section 4.07 No Insolvency; Litigation. The Parent is not insolvent or unable to pay its debts as they become due or continue its business following the Closing. Neither Parent nor Merger Sub is or has been the subject of any voluntary or involuntary bankruptcy proceeding, nor is it or has it been a party to any material litigation or, within the past two years, the subject of any threat of material litigation. Litigation shall be deemed “material” if the amount at issue exceeds the lesser of $10,000 per matter or $25,000 in the aggregate.

 

Section 4.08 Compliance with Laws, Etc.

 

(a) Parent and Merger Sub have complied with all applicable federal and state securities laws and regulations, including being current in all of Parent’s reporting obligations under federal securities laws and regulations; and all prior issuances of securities have been either registered under the Securities Act, or exempt from registration; and neither Parent nor Merger Sub is in violation or breach of, conflict with, in default under (with or without the passage of time or the giving of notice or both) any provisions of (i) its Organizational Documents or (ii) any mortgage, indenture, lease, license or any other agreement or instrument.

 

(b) No order suspending the effectiveness of any registration statement of Parent under the Securities Act or the Exchange Act has been issued by the SEC and, to Parent’s knowledge, no proceedings for that purpose have been initiated or threatened by the SEC.

 

(c) Neither Parent nor Merger Sub is and has not been, and the past and present officers, directors and affiliates of Parent and Merger Sub are not and have not, been the subject of, nor does any officer or director of Parent or Merger Sub have any reason to believe that Parent or Merger Sub or any of their respective officers, directors or affiliates will be the subject of, any civil or criminal proceeding or investigation by any federal or state agency alleging a violation of securities laws.

 

(d) Neither Parent nor Merger Sub has, and the past and present officers, directors and affiliates of Parent and Merger Sub have not, been the subject of, nor does any officer or director of Parent or Merger Sub have any reason to believe that Parent or Merger Sub or any of their respective officers, directors or affiliates will be the subject of, any civil, criminal or administrative investigation or proceeding brought by any federal or state agency.

 

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Article V
Covenants

 

Section 5.01 Parent Actions Prior to the Closing . The Parties acknowledge and agree that, following the Effective Date and prior to the Closing, Parent shall undertake the following actions:

 

(a) The Parties acknowledge that Parent has amended its Certificate of Incorporation by filing a certificate of designation under the DGCL to provide for a new class of Parent Preferred Stock (the “Parent Series A Preferred Stock”) which is convertible preferred stock, par value $0.0001 per share, and which has the rights and preferences as set forth in the certificate of designations of the Parent Series A Preferred Stock as filed with the Secretary of State of the State of Delaware.

 

(b) Simultaneously with the Effective Date, Parent shall consummate an initial closing of the Preferred Offering of Parent Units. If the conditions stated in Section 6.01(h) and Section 6.02(f) have been met or have been waived by Parent and the Company, Parent will have the right to sell all unsold Parent Units after the Closing on the same terms as the sales that occurred before the Closing.

 

(c) Simultaneously with the Effective Date, the Parent will issue an aggregate of 688 Parent Units to the Settlement Parties in connection with the Company Settlement transaction.

 

(d) Simultaneously with the Effective Date, Parent shall adopt an equity incentive plan, in form and substance reasonably acceptable to Parent and the Company, reserving 7,500,000 shares of Parent Common Stock for issuance under the plan, either as restricted shares awarded by the Parent or as shares issued upon the exercise of options or other awards or agreements as provided in the plan, substantially in the form attached hereto as Exhibit B (the “2018 Equity Incentive Award Plan”), and shall issue non-qualified stock options to purchase 3,120,000 shares of Parent Common Stock to each of Carlos Faria and Christopher Constable.

 

Section 5.02 Books and Records.

 

(a) In order to facilitate the resolution of any claims made against or incurred by the Company or the Company Shareholder prior to the Closing, or for any other reasonable purpose, for a period of five (5) years after the Closing, Parent shall:

 

(i) retain the books and records (including personnel files) of the Company relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of the Company; and

 

(ii) upon reasonable notice, afford the Representatives of the Company Shareholder reasonable access (including the right to make, at the Company Shareholder’s expense, photocopies), during normal business hours, to such books and records;

 

provided, however, that any books and records related to Tax matters shall be retained pursuant to the periods set forth in Section 5.09.

 

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(b) In order to facilitate the resolution of any claims made by or against or incurred by Parent or the Company after the Closing, or for any other reasonable purpose, for a period of five (5) years following the Closing, the Company Shareholder shall:

 

(i) retain the books and records (including personnel files) of the Company Shareholder which relate to the Company and its operations for periods prior to the Closing; and

 

(ii) upon reasonable notice, afford the Representatives of Parent or the Company reasonable access (including the right to make, at Parent’s expense, photocopies), during normal business hours, to such books and records;

 

provided, however, that any books and records related to Tax matters shall be retained pursuant to the periods set forth in Section 5.09.

 

(c) Neither Parent nor the Company Shareholder shall be obligated to provide the other party with access to any books or records (including personnel files) pursuant to this Section 5.02 where such access would violate any Law.

 

Section 5.03 Company’s and Company Shareholder’s Affirmative Covenants. Between the date of this Agreement and the Closing Date, the Company shall, the Company Shareholder shall, and shall cause the Company to:

 

(a) conduct the business of the Company only in the Ordinary Course of Business and will use commercially reasonable best efforts to maintain and preserve the assets of the Company, preserve intact the current business organization of the Company, and maintain the relations and goodwill with customers, creditors, employees, agents, and others having business relationships with the Company; provided, however, that the Company’s payment of tax distributions in amounts sufficient to defray the income taxes of the Company Shareholder, consistent with past practices, will be deemed in the Ordinary Course of Business, provided that the amounts of such distributions must be approved in writing by the Parent prior to them being disbursed, which approval will not be unreasonably withheld, conditioned or delayed;

 

(b) provide Parent and its Representatives and agents reasonable access to the books and financial records of the Company at any time during normal business hours prior to the Closing Date, at Parent’s sole cost and expense, to perform any inspections or evaluations and, upon receiving from the Company reasonable advance notice, observe any meetings of management of the Company and its boards of directors which Parent reasonably deems necessary or appropriate, other than any such meetings or portions thereof which relate to this Agreement or Contemplated Transactions;

 

(c) furnish to Parent true, correct and complete copies of all records, documentation and other information in its possession as Parent may reasonably request concerning the Company or the Company Common Stock;

 

(d) permit Parent to, without any obligation to do so, contact any Governmental Authority about any Governmental Authorizations or Requirements of Law concerning the Company;

 

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(e) cause all Contracts to which the Company is a party to be performed to the extent required to be performed as of the Closing Date in full;

 

(f) cooperate with Parent with respect to all filings, permits or consents that Parent elects to make or obtain or is required by Requirements of Law or other Persons to make or obtain in connection with the Contemplated Transactions; and

 

(g) provide notice to Parent as promptly as reasonably practicable upon becoming aware of any event or occurrence capable of causing a material impact on the business of the Company;

 

(h) between the Effective Date and the Closing Date or the earlier termination of this Agreement in accordance with its terms, use commercially reasonable efforts to cause the conditions precedent in Article VI to be satisfied.

 

Section 5.04 Company’s and Company Shareholder’s Negative Covenants. Until the earlier of Closing and such time, if any, that this Agreement is terminated pursuant to the terms of Article VII, and except as otherwise contemplated by this Agreement or as Parent shall otherwise consent in writing in advance, the Company and the Company Shareholder will not, and the Company Shareholder shall cause the Company and each of their Representatives not to, directly or indirectly:

 

(a) Amend existing insurance coverage applicable to the Company so long as such insurance is available at commercially reasonable rates;

 

(b) dispose of any individual capital asset, and will not incur, create or assume any Lien on any individual capital asset, in each case with a value in excess of $20,000, and provided that such disposition will not materially impact the operation of the business of the Company or result in a Material Adverse Effect;

 

(c) take any action which could be reasonably expected to prevent or materially delay the consummation of the Contemplated Transactions;

 

(d) enter into any new material line of business or commit to any material capital expenditure outside of the Ordinary Course of Business;

 

(e) (1) issue, authorize or propose the issuance of any capital stock of the Company, (2) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or other reorganization, or (3) make any distribution of, or directly or indirectly repurchase, redeem or otherwise acquire, any capital stock of the Company;

 

(f) amend any of the Organizational Documents of the Company;

 

(g) (1) enter into, adopt, materially amend, terminate, freeze, increase benefits under or agree to or make any award or grant under any Benefit Plan (or any plan that would be a Benefit Plan if in effect on the date hereof), (2) take any action to accelerate any rights or benefits under any Benefit Plan, (3) make or announce any increase in salaries, bonuses or other compensation or fringe benefits payable or to become payable, or grant, announce, or increase any termination or severance, retention, change-of-control or similar payments, to any present or former employee, officer, director, agent or independent contractor of the Company, or (4) engage in any material reduction in force or promote any employee to or at or above the level of officer or senior management;

 

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(h) enter into any Contract that, if such contract had been in effect on the date hereof, would have been a Material Contract, amend or terminate any Material Contract or waive or cancel any material right thereunder, other than in the Ordinary Course of Business;

 

(i) sell, lease or otherwise transfer, or create or incur any lien on the assets, securities, property, interests or businesses of the Company other than in the Ordinary Course of Business;

 

(j) create, incur, or assume any Indebtedness or trade debt outside of the Ordinary Course of Business;

 

(k) change any method of accounting or accounting practice or accounting policy used by any Company, other than such changes required by GAAP or Requirements of Law;

 

(l) settle or compromise any material claims against the Company;

 

(m) make, revoke or change any Tax election, file any amended Tax Returns, settle or compromise any Tax liability or surrender any refund, waive any statute of limitations with respect to assessment of any Tax or incur any Tax liability outside of the Ordinary Course of Business in each case other than as required by any Requirements of Law;

 

(n) acquire any business or Person, by merger, consolidation or otherwise, in a single transaction or a series of related transactions; or

 

(o) agree to take any of the foregoing actions, except as expressly contemplated by this Agreement and the other agreements expressly contemplated hereby.

 

Section 5.05 Confidentiality.

 

(a) From and after the Closing, each the Company and the Company Shareholder shall, and shall cause each of their respective Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning the Company, except to the extent that the Company or the Company Shareholder, as applicable, can show that such information (a) is generally available to and known by the public through no fault of the Company or the Company Shareholder, any of its Affiliates or their respective Representatives; (b) is lawfully acquired by the Company or the Company Shareholder, any of its Affiliates or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation or (c) is disclosed without restriction by Parent or its Affiliates. If the Company, the Company Shareholder or any of their respective Affiliates or their respective Representatives are compelled to disclose any information referenced in this Section 5.05(a) by judicial or administrative process or by other requirements of Law, the Company or the Company Shareholder, as applicable, shall promptly notify Parent in writing and shall disclose only that portion of such information which the Company or the Company Shareholder, as applicable, is advised by its counsel in writing is legally required to be disclosed, provided that the Company or the Company Shareholder, as applicable, shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.

 

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(b) From and after the Closing, Parent shall, and shall cause its Affiliates to, hold, and shall use their reasonable best efforts to cause its or their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning the Company and the Company Shareholder, except to the extent that Parent can show that such information (a) is generally available to and known by the public through no fault of Parent, or any of its Affiliates or Representatives; (b) is lawfully acquired by Parent or any of its Affiliates or Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation or (c) is disclosed without restriction by the Company Shareholder or his Affiliates. If Parent or its Affiliates or Representatives are compelled to disclose any information referenced in this Section 5.05(b) by judicial or administrative process or by other requirements of Law, Parent shall promptly notify the Company in writing and shall disclose only that portion of such information which Parent is advised by its counsel in writing is legally required to be disclosed, provided that Parent shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.

 

Section 5.06 Registration. Following the Closing, Parent shall file a registration on Form S-1 pursuant to the Securities Act with the Securities and Exchange Commission to register for resale the Merger Consideration and the shares of Parent Common Stock to be retained by Leone, ACV and their respective designees as set forth in Section 2.12(d) and Section 2.12(e) (the “Registration Statement”). Upon effectiveness of the Registration Statement, Parent shall cause a market maker to file a 15c2-11 application with the Financial Industry Regulatory Authority to obtain a ticker symbol and quotation on the OTC Markets, alternative trading system for the Parent Common Stock, shall apply for listing on the OTCQB or OTCQX Tiers of the OTC Markets; and shall obtain DTC eligibility for the trading of its securities on the OTC Markets.

 

Section 5.07 Public Announcements. Unless otherwise required by applicable Law (based upon the reasonable advice of counsel), no Party shall make any public announcements in respect of this Agreement or the Contemplated Transactions or otherwise communicate with any news media without the prior written consent of the other Parties (which consent shall not be unreasonably withheld or delayed), and the Parties shall cooperate as to the timing and contents of any such announcement, provided, however, that the Parties acknowledge and agree that Parent may file a Form 8-K with the Securities and Exchange Commission regarding the Contemplated Transactions, and may attach this Agreement thereto.

 

Section 5.08 Tax Covenants.

 

(a) Without the prior written consent of Parent, the Company shall not make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Parent or the Company in respect of any Post-Closing Tax Period. The Company and the Company Shareholder agree that Parent is to have no liability for any Tax resulting from any action of the Company Shareholder, their Affiliates or any of their respective Representatives or, prior to the Closing, the Company, and agree to indemnify and hold harmless Parent (and, after the Closing Date, the Company) against any such Tax or reduction of any Tax asset.

 

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(b) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the other Transaction Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid by the Company Shareholder when due. The Company Shareholder shall, at their own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Parent shall cooperate with respect thereto as necessary).

 

(c) Parent shall prepare, or cause to be prepared, all Tax Returns required to be filed by the Company after the Closing Date with respect to a Pre-Closing Tax Period. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and without a change of any election or any accounting method and shall be submitted by Parent to the Company Shareholder (together with schedules, statements and, to the extent requested by the Company Shareholder, supporting documentation) at least forty-five (45) calendar days prior to the due date (including extensions) of such Tax Return. If the Company Shareholder objects to any item on any such Tax Return, the Company Shareholder shall, within ten (10) calendar days after delivery of such Tax Return, notify Parent in writing that the Company Shareholder so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If a notice of objection shall be duly delivered, Parent and the Company Shareholder shall negotiate in good faith and use their reasonable best efforts to resolve such items. If Parent and the Company Shareholder are unable to reach such agreement within ten (10) calendar days after receipt by Parent of such notice, the disputed items shall be resolved by a nationally recognized accounting firm jointly selected by Parent and the Company Shareholder (the “ Accounting Referee ”) and any determination by the Accounting Referee shall be final. In the event that Parent and the Company Shareholder cannot agree on the identity of an Accounting Referee within ten (10) days of the commencement on such efforts to agree, each of Parent and the Company Shareholder shall select one party meeting the requirements of an “Accounting Referee” above, and those two parties shall jointly select the party who shall act as the Accounting Referee. The Accounting Referee shall resolve any disputed items within twenty (20) calendar days of having the item referred to it pursuant to such procedures as it may require. If the Accounting Referee is unable to resolve any disputed items before the due date for such Tax Return, the Tax Return shall be filed as prepared by Parent and then amended to reflect the Accounting Referee’s resolution. The costs, fees and expenses of the Accounting Referee shall be borne equally by Parent and the Company Shareholder. The preparation and filing of any Tax Return of the Company that does not relate to a Pre-Closing Tax Period shall be exclusively within the control of Parent.

 

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Section 5.09 Cooperation and Exchange of Information. The Company Shareholder and Parent shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return pursuant to Section 5.08 or in connection with any audit or other proceeding in respect of Taxes of the Company. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by tax authorities. The Company Shareholder and Parent shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by the other Party in writing of such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for any taxable period beginning before the Closing Date, the Company Shareholder or Parent (as the case may be) shall provide the other Party with reasonable written notice and offer the other Party the opportunity to take custody of such materials.

 

Section 5.10 Further Assurances. Following the Effective Date and following the Closing, or until the earlier termination of this Agreement in accordance with its terms, each of the Parties shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the Contemplated Transactions.

 

Article VI
Conditions to Closing

 

Section 6.01 Conditions to Parent’s and Merger Sub’s Obligations to Close. The obligations of Parent and Merger Sub to consummate the Contemplated Transactions shall be subject to the fulfillment or written waiver by Parent, in its sole discretion, on or prior to the Closing Date, of each of the following conditions:

 

(a) All of the representations and warranties of the Company and the Company Shareholder contained in this Agreement shall be true and correct in all material respects, other than Section 3.02 (Capitalization), which shall be true and correct in its entirety in all respects, and other than any representations or warranties qualified as to materiality, which shall be true and correct in all respects, in each case when made and on and as of the Closing Date (with the same effect as though such representations and warranties had been made on and as of the Closing Date), except for such representations and warranties which are made as of a specified date, which shall be true and correct in all respects or in all material respects, as applicable, as of such date.

 

(b) Each of the Company Shareholder and the Company shall have performed and observed in all material respects all covenants and agreements required to be performed and observed by the Company Shareholder or the Company under this Agreement at or prior to the Closing Date.

 

(c) There shall not have been any Material Adverse Effect.

 

(d) No action, proceeding, claim or litigation shall have been commenced by or before any Governmental Authority against any Party seeking to restrain or materially and adversely alter the Contemplated Transactions.

 

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(e) The Company shall have delivered to Parent the executed certificates, instruments and items required by Section 2.12(a).

 

(f) There must not have been commenced by any Person any Proceeding asserting that such Person (a) is the holder or the beneficial owner of or has the right to acquire or to obtain beneficial ownership of, any of the Company Common Stock, or (b) is entitled to all or any portion of the Merger Consideration.

 

(g) The Parent shall have obtained all third-party approvals from all Governmental Authorities deemed necessary by the Parent in its commercially reasonable judgment in order to consummate the Contemplated Transactions.

 

(h) Parent shall have received binding commitments from third-party investors for a minimum of $700,000 in the Preferred Offering

 

(i) Company shall have obtained a binding commitment from ACF Finco I LP, a current lender to the Company, to provide additional funding.

 

Section 6.02 Conditions to Company’s and Company Shareholder’s Obligations to Close. The obligations of the Company and the Company Shareholder to consummate the Contemplated Transactions, shall be subject to the fulfillment or written waiver by the Company Shareholder, in its sole discretion, (which determination shall be binding on each of the Company Shareholder and the Company), on or prior to the Closing Date, of each of the following conditions:

 

(a) All of the representations and warranties of the Parent and Merger Sub contained in this Agreement shall be true and correct in all material respects, other than Section 4.03 (Parent and Merger Sub Capitalization), which shall be true and correct in its entirety in all respects, and other than any representations or warranties qualified as to materiality, which shall be true and correct in all respects, in each case when made and on and as of the Closing Date (with the same effect as though such representations and warranties had been made on and as of the Closing Date), except for such representations and warranties which are made as of a specified date, which shall be true and correct in all respects or in all material respects, as applicable, as of such date.

 

(b) The Parent and Merger Sub shall have performed and observed in all material respects all covenants and agreements required to be performed and observed by the Parent or Merger Sub under this Agreement at or prior to the Closing Date.

 

(c) No action, proceeding, claim or litigation shall have been commenced by or before any Governmental Authority against any Party seeking to restrain or materially and adversely alter the Contemplated Transactions.

 

(d) The Parent shall have delivered to the Company the items required by Section 2.12(b) and shall have delivered to the Company the items required by Section 2.12(c).

 

(e) The Company and the Company Shareholder shall have obtained all third-party approvals from all Governmental Authorities deemed necessary by the Company Shareholder in its commercially reasonable judgment in order to consummate the Contemplated Transactions.

 

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(f) Parent shall have received binding commitments from third-party investors for a minimum of $700,000 in the Preferred Offering

 

(g) Company shall have obtained a binding commitment from ACF Finco I LP, a current lender to the Company, to provide additional funding.

 

Article VII
Default and Termination

 

Section 7.01 Default by Parent. If Parent fails to perform any of its material obligations under this Agreement, or is in breach in any material respect of any representation, warranty, covenant or agreement on the part of Parent set forth in this Agreement, and, if such breach or failure is capable of being cured, such failure or breach has not been cured within 10 days after receipt of notice of such breach by Parent, then Parent shall be in default hereunder (such event, a “Parent Default”). In the event of a Parent Default, the Company, on behalf of the Company and the Company Shareholder, shall be entitled to elect either (1) to bring an action for specific performance of this Agreement pursuant to Section 9.12 or (2) to terminate this Agreement pursuant to Section 7.03(d). This provision shall be in addition to the Company’s and the Company Shareholder’s remedies under Section 8.03.

 

Section 7.02 Default by the Company or the Company Shareholder.

 

(a) If the Company, the Company Shareholder, or the Company Shareholder’s Representative, fails to perform any of their respective material obligations under this Agreement, or is in breach in any material respect of any representation, warranty, covenant or agreement on the part of the Company or the Company Shareholder set forth in this Agreement, and, if such breach or failure is capable of being cured, such failure or breach has not been cured within 10 days after receipt of notice of such breach by the Company Shareholder, then the Company and the Company Shareholder shall be in default hereunder (such event, subject to Section 7.02(b), a “Company Party Default”). In the event of a Company Party Default, Parent shall be entitled to elect either (1) to bring an action for specific performance of this Agreement pursuant to Section 9.12 or (2) to terminate this Agreement pursuant to Section 7.03(c). This provision shall be in addition to Parent’s remedies under Section 8.02.

 

(b) Any of the following events or circumstances, standing alone, will not constitute a Company Party Default:

 

(i) the failure of any of the Closing conditions stated in Section 6.01 to occur or to be satisfied;

 

(ii) the failure of the Company or the Company Shareholder to obtain any third-party consent required to render the representation and warranty in Section 3.04(c) true and correct; or

 

(iii) the failure of the Company to make the Closing deliveries described in Section 2.12(a)(iv).

 

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(c) For clarity, any state of facts that constitutes a Company Party Default under a provision of this Agreement other than the provisions referenced in Section 7.02(b)(i), Section 7.02(b)(ii) and Section 7.02(b)(iii) will constitute a Company Party Default notwithstanding Section 7.02(b).

 

Section 7.03 Termination. This Agreement may be terminated at any time before the Closing Date, as follows:

 

(a) by mutual written consent of the Company, the Company Shareholder and the Parent;

 

(b) by any of the Parent, the Company or the Company Shareholder, upon written notice to the other Parties, if there shall be in effect a final non-appealable order, judgment, injunction or decree entered by or with any Governmental Authority restraining, enjoining or otherwise prohibiting the consummation of the Contemplated Transactions;

 

(c) by Parent, upon written notice to the Company and the Company Shareholder, if there shall have been a Company Party Default;

 

(d) by the Company, upon written notice to Parent and the Company Shareholder, if there shall have been Parent Default;

 

(e) by Parent, upon written notice to the Company and the Company Shareholder, in the event that a Material Adverse Effect has occurred prior to the Closing;

 

(f) by either the Company or Parent if the Closing has not occurred by November 9, 2018, provided, however, that the right to terminate this Agreement under this Section 7.03(f) shall not be available to (i) the Company if, as of such time, Parent has the right to terminate this Agreement pursuant to Section 7.03(c) or in the event that the failure of the Closing to so occur was caused by the Company or the Company Shareholder; or (ii) Parent if, as of such time, the Company has the right to terminate this Agreement pursuant to Section 7.03(d) or in the event that the failure of the Closing to so occur was caused by Parent or Merger Sub.

 

Section 7.04 Termination Costs. If this Agreement is terminated by Parent, the Company or the Company Shareholder pursuant to Section 7.03(c), then all parties shall bear their own out of pocket costs incurred with respect to the Contemplated Transactions, other than as set forth in Section 8.02 and Section 8.03.

 

Section 7.05 Effect of Termination. In the event of termination of this Agreement pursuant to this Article VII, this Agreement (other than this Article VII, Article VIII and Article IX) shall become void and of no further force or effect with no liability on the part of any Party; provided, however, that any such termination shall not relieve any Party from liability for actual damages to the other Parties resulting from a material breach of this Agreement by such Party.

 

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Article VIII
Indemnification and Liability Limitations

 

Section 8.01 Survival; Limitations

 

(a) Representations and Warranties . Subject to the limitations and other provisions of this Agreement, the representations and warranties of Parent, Merger Sub, the Company and the Company Shareholder contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen (18) months after the Closing Date; provided, that the Company Surviving Representations and the Parent’s Surviving Representations, as defined below, shall survive the Closing for a period of five (5) years. Notwithstanding the preceding sentence, any indemnification claim commenced prior to any such expiration shall remain as a valid claim until finally resolved in accordance with the provisions herein. Any claim, for indemnification or otherwise, based upon or arising out of the breach or alleged breach of a representation or warranty must be brought before the expiration of the applicable survival period, or it will be deemed waived. The representations and warranties of the Company and the Company Shareholder contained in the following sections are “Company Surviving Representations”: Section 3.01 (Organization, Authority and Qualification of the Company), Section 3.02 (Capitalization), Section 3.03 (No Subsidiaries), Section 3.04 (Enforceability and Authority; No Conflicts; Consents), Section 3.16 (Compliance with Laws; Permits) Section 3.19 (Taxes) and Section 3.21 (Investment Purpose). The representations and warranties of Parent contained in the following sections are “Parent’s Surviving Representations”: Section 4.01 (Organization and Authority of Parent and Merger Sub), Section 4.02 (No Conflicts, Consents), Section 4.03 (Parent and Merger Sub Capitalization) and Section 4.08 (Compliance with Laws, Etc.) (collectively, the “Parent’s Surviving Representations”).

 

(b) Covenants . All covenants and agreements of the Parties contained herein shall survive the Closing for a period of five (5) years or for the period specified therein. Notwithstanding the preceding sentence, any claim commenced prior to any such expiration shall remain as a valid claim until finally resolved in accordance with the provisions herein.

 

(c) Limitations . Any claim arising out of or in connection with this Agreement must be brought, if at all, within five years after the Closing Date, or within such shorter period as may be specified with respect to a particular claim, or it will be deemed waived and released.

 

Section 8.02 Indemnification by the Company Shareholder. Subject to the other terms and conditions of this Article VIII, if the Closing occurs, the Company Shareholder hereby, agrees to indemnify Parent and Parent’s Affiliates and their respective Representatives (collectively, the “Parent Indemnitees”) against, and agrees to hold each of the Parent Indemnitees harmless from and against, and agree to pay and reimburse each of the Parent Indemnitees for, any and all Losses incurred or sustained by, or imposed upon, the Parent Indemnitees based upon, arising out of, with respect to or by reason of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of the Company or the Company Shareholder contained in this Agreement, any Transaction Document or in any certificate or instrument delivered by or on behalf of the Company or the Company Shareholder pursuant to this Agreement or pursuant to any Transaction Document, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

 

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(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Company Shareholder pursuant to this Agreement or pursuant to any Transaction Document;

 

(c) (i) all Taxes of the Company or relating to the business of the Company for all Pre-Closing Tax Periods; (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law; and (iii) any and all Taxes of any person imposed on the Company arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring before the Closing Date;

 

(d) any violation by the Company Shareholder or the Company of any applicable Laws or Governmental Orders in connection with the conduct of the Business prior to the Closing Date; or

 

(e) any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding made, or alleged to have been made, by any such Person with any of the Company Shareholder or the Company (or any Person acting on their behalf) in connection with any Contemplated Transaction.

 

Section 8.03 Indemnification by Parent. Subject to the other terms and conditions of this Article VIII, if the Closing occurs, Parent hereby agrees to indemnify the Company Shareholder and Company Shareholder’s Affiliates and their respective Representatives (collectively, the “Shareholder’s Indemnitees”) against, and agrees to hold each of the Shareholder’s Indemnitees harmless from and against, and agrees to pay and reimburse each of the Shareholder’s Indemnitees for, any and all Losses incurred or sustained by, or imposed upon, the Shareholder’s Indemnitees based upon, arising out of, with respect to or by reason of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of Parent or Merger Sub contained in this Agreement or in any certificate or instrument delivered by or on behalf of Parent or Merger Sub pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

 

(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Parent or Merger Sub pursuant to this Agreement;

 

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(c) (i) all Taxes of the Parent or relating to the business of the Parent for all Post-Closing Tax Periods; (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Parent (or any predecessor of the Parent) is or was a member following the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law; and (iii) any and all Taxes of any person imposed on the Parent arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring on or after the Closing Date. In each of the above cases, together with any out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) incurred in connection therewith;

 

(d) any violation by Parent or Merger Sub of any applicable Laws or Governmental Orders in connection with the conduct of the Business on or following the Closing Date; or

 

(e) any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding made, or alleged to have been made, by any such Person with any of the Parent or Merger Sub (or any Person acting on either of their behalf) in connection with any Contemplated Transaction.

 

Section 8.04 Indemnification Procedures. The Party making a claim under this Article VIII is referred to as the “Indemnified Party” and the Party against whom such claims are asserted under this Article VIII is referred to as the “Indemnifying Party.”

 

(a) Third-Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “ Third Party Claim ”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third-Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, that if the Indemnifying Party is the Company Shareholder, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that (x) is asserted directly by or on behalf of a Person that is a supplier or customer of the Indemnified Party, or (y) seeks an injunction or other equitable relief against the Indemnified Party. In the event that the Indemnifying Party assumes the defense of any Third-Party Claim, subject to Section 8.04(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third-Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third-Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 8.04(b), pay, compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. The Parties shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available (subject to the provisions of Section 5.01) records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending Party, management employees of the non-defending Party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.

 

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(b) Settlement of Third-Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third-Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8.04(b). If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third-Party Claim and, in such event, the maximum liability of the Indemnifying Party as to such Third-Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third-Party Claim, the Indemnifying Party may settle the Third-Party Claim upon the terms set forth in such firm offer to settle such Third-Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 8.04(a) , it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).

 

(c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third-Party Claim (a “ Direct Claim ”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) calendar days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Company’s premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such thirty (30) calendar day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

 

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(d) Cooperation. Upon a reasonable request made by the Indemnifying Party, each Indemnified Party seeking indemnification hereunder in respect of any Direct Claim, hereby agrees to consult with the Indemnifying Party and act reasonably to take actions reasonably requested by the Indemnifying Party in order to attempt to reduce the amount of Losses in respect of such Direct Claim. Any costs or expenses associated with taking such actions shall be included as Losses hereunder.

 

Section 8.05 Payments. Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Article VIII, the Indemnifying Party shall satisfy its indemnification obligations within fifteen (15) Business Days of such agreement or adjudication.

 

Section 8.06 Certain Limitations. The indemnification provided for in Section 8.02 and Section 8.03 shall be subject to the following limitations:

 

(a) The Company Shareholder shall not be liable to the Parent Indemnitees for indemnification under Section 8.02(a) (other than with respect to a claim for indemnification based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any of the Company Surviving Representations (the “ Parent’s Basket Exclusions ”)), until the aggregate amount of all Losses in respect of indemnification under Section 8.02(a) (other than those based upon, arising out of, with respect to or by reason of the Parent’s Basket Exclusions) exceeds $100,000, in which event the Company Shareholder shall be required to pay or be liable for all such Losses in excess of such amount.

 

(b) Parent shall not be liable to the Company Shareholder Indemnitees for indemnification under Section 8.03(a) (other than with respect to a claim for indemnification based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any of the Parent’s Surviving Representations (the “Company Shareholder’s Basket Exclusions ”)) until the aggregate amount of all Losses in respect of indemnification under Section 8.03(a) (other than those based upon, arising out of, with respect to or by reason of the Company Shareholder’s Basket Exclusions) exceeds $100,000, in which event Parent shall be required to pay or be liable for all such Losses in excess of such amount.

 

(c) The Parties acknowledge and agree that the maximum liability of the Company Shareholder, on the one hand, and the Parent, on the other hand, for indemnification pursuant to this Article VIII shall be the sum of $1,000,000 (the “Cap”), and neither the Parent, on the one hand, nor the Company Shareholder, on the other hand, shall have any liability to the other in excess of the Cap.

 

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(d) All liabilities and obligations of the Company Shareholder that may arise under Section 8.02(a) (“Parent Indemnification Liabilities”), if any, will be satisfied only out of Merger Consideration received by the Company Shareholder; and the Company Shareholder will be liable to return, transfer, and assign to Parent, irrevocably, that number of shares of Parent Common Stock included in the Merger Consideration, valued at the Assumed Parent Common Stock Value, as is equal in value to the Parent Indemnification Liabilities then being paid. Such return, transfer, and assignment will be deemed in full payment and satisfaction of the Parent Indemnification Liabilities with respect to which payment is being made.

 

(e) Subject to the notice, dispute and other procedures herein, Parties hereby agree that any amounts due to Parent as required to satisfy the Company Shareholder’s indemnification obligations with respect to any claim for Losses required to be paid by the Company Shareholder pursuant to this Article VIII shall be paid via the delivery by the Company Shareholder to the Parent of a number of shares of Parent Common Stock equal to (1) the amount owed divided by (2) the Assumed Buyer Common Stock Value, and the Company Shareholder agrees to return to Parent the Company Shareholder’s pro rata portion of any such required return of shares of Parent Common Stock.

 

Section 8.07 Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the Parties as an adjustment to the Merger Consideration for Tax purposes, unless otherwise required by Law.

 

Section 8.08 Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate.

 

Section 8.09 Exclusive Remedy. In the event that the Closing occurs, the indemnification provisions contained in this Article VIII shall be the sole and exclusive remedy of the Parties with respect to the Contemplated Transactions for any and all breaches or alleged breaches of any representations, warranties, covenants or agreements of the Parties hereto or any other provision of this Agreement or arising out of the Contemplated Transactions, except (i) with respect to any equitable remedy to which such Party may be entitled to with respect to any claims or causes of action arising from the breach of any covenants or agreement of a Party that is to be performed subsequent to the Closing Date, or (ii) with respect to a Party, an actual and intentional fraud with respect to this Agreement and the Contemplated Transactions. In furtherance of the foregoing, each Party hereto, for itself and on behalf of its Affiliates, hereby waives, from and after the Closing, to the fullest extent permitted under applicable law and except as otherwise specified in this Article VIII, any and all rights, claims and causes of action it may have against any other Party hereto relating to the subject matter of this Agreement or any other agreement, certificate or other document or instrument delivered pursuant to this Agreement, arising under or based upon any applicable law.

 

Section 8.10 Limitation on Damages. In no event will any Party be liable to any other Party under or in connection with this Agreement or in connection with the Contemplated Transactions for special, general, indirect, consequential, or punitive or exemplary damages, including damages for lost profits or lost opportunity, even if the Party sought to be held liable has been advised of the possibility of such damage.

 

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Article IX
Miscellaneous

 

Section 9.01 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the Contemplated Transactions shall be paid by the Party incurring such costs and expenses, whether or not the Closing shall have occurred.

 

Section 9.02 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by e-mail of a PDF document (with confirmation of transmission and receipt) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.02):

 

If to the Company or the Company Shareholder, to the Company Shareholder, at:

 

John Keeler & Co., Inc. d/b/a Blue Star Foods

3000 NW 109 th Ave.

Miami, FL 33172

Attention: John R. Keeler

Email: jkeeler@bluestarfoods.com

 

With a copy, which shall not constitute notice, to:

 

The Crone Law Group, P.C.

Attn: Eric C. Mendelson

830 Third Avenue, 5th Floor

New York, NY 10022

Email: emendelson@cronelawgroup.com

 

If to Parent or Merger Sub:

 

Blue Star Foods Corp.

Attn: Laura Anthony, Chief Financial Officer

330 Clematis Street, Suite 217

West Palm Beach, FL 33401

E-mail: Lanthony@anthonypllc.com

 

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With a copy, which shall not constitute notice, to:

 

Anthony L.G., PLLC

Attn: Laura Anthony

330 Clematis Street, Suite 217

West Palm Beach, FL 33401

E-mail: Lanthony@anthonypllc.com

 

Section 9.03 Construction; Incorporation. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be incorporated into, and construed with and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

 

Section 9.04 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

 

Section 9.05 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision herein is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Contemplated Transactions be consummated as originally contemplated to the greatest extent possible.

 

Section 9.06 Entire Agreement. This Agreement and the other Transaction Documents constitute the sole and entire agreement of the Parties with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the other Transaction Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.

 

Section 9.07 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns. No Party may assign its rights or obligations hereunder without the prior written consent of the other Parties, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning Party of any of its obligations hereunder.

 

Section 9.08 No Third-party Beneficiaries. Except as provided in Article VIII, this Agreement is for the sole benefit of the Parties and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

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Section 9.09 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by the Parent, Merger Sub, the Company and the Company Shareholder. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by such Party or the Company Shareholder. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

Section 9.10 Dispute Resolution.

 

(a) If there is any dispute or controversy relating to this Agreement or any of the Contemplated Transactions (each, a “Dispute”), such Dispute shall be resolved in accordance with this Section 9.10, provided that any Disputes relating to any tax Return shall be resolved as set forth in Section 5.08(c).

 

(b) The Party claiming a Dispute shall deliver to each of the other Parties a written notice (a “Notice of Dispute”) that will specify in reasonable detail the dispute that the claiming Party wishes to have resolved. In any such arbitration pursuant to this Section 9.10, the Company Shareholder shall have the power to act for and to bind the Company and Parent shall have the power to act for and to bind Merger Sub. If the Company, the Company Shareholder and the Parent are not able to resolve the Dispute within five (5) Business Days of a Party’s receipt of an applicable Notice of Dispute, then such Dispute shall be submitted to binding arbitration in accordance with this Section 9.10.

 

(c) Any arbitration hereunder shall be conducted in accordance with the rules of the American Arbitration Association then in effect. The Company and the Parent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator, and the three arbitrators shall resolve the Dispute. The arbitrators will be instructed to prepare in writing as promptly as practicable, and provide to the Parent and the Company Shareholder, such arbitrators’ determination, including factual findings and the reasons on which the determination was based. The decision of the arbitrators will be final, binding and conclusive and will not be subject to review or appeal and may be enforced in any court having jurisdiction over the Parties. Each party shall initially pay its own costs, fees and expenses (including, without limitation, for counsel, experts and presentation of proof) in connection with any arbitration or other action or proceeding brought under this Section 9.10, and the fees of the arbitrators shall be share equally, provided, however, that the arbitrators shall have the power to award costs and expenses in a different proportion.

 

(d) The arbitration shall be conducted in Miami, Florida.

 

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Section 9.11 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

 

(a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction).

 

(b) SUBJECT TO Section 9.10, ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE CONTEMPLATED TRANSACTIONS MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATES OF FLORIDA, IN EACH CASE LOCATED IN BROWARD COUNTY, FLORIDA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE CONTEMPLATED TRANSACTIONS. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.10(c).

 

Section 9.12 Specific Performance. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that (i) provided that Parent does not terminate this Agreement pursuant to Section 7.03(c), Parent shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which Parent is entitled at law or in equity; and (ii) provided that the Company does not terminate this Agreement pursuant to Section 7.03(d), the Company shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which the Company is entitled at law or in equity. In the event that specific performance is granted to a Party pursuant to the terms and conditions herein, such Party shall also be entitled to be awarded its costs and expenses (including reasonable attorneys’ fees and expenses) incurred solely in connection with obtaining such specific performance, together with interest on such amounts from the date of the commencement of such proceeding until the date of payment at the prime lending rate as published in The Wall Street Journal in effect on the date of the commencement of such proceeding. The preceding sentence will not limit the right or ability of a Party seeking specific performance to recover damages, costs or expenses, under another provision of this Agreement or of any other Transaction Document.

 

Section 9.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

[Signatures appear on following pages]

 

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

 

  BLUE STAR FOODS CORP.
   
  By: /s/ Laura Anthony
  Name: Laura Anthony
  Title: Chief Financial Officer
     
  BLUE STAR ACQUISITION, INC.
   
  By: /s/ Laura Anthony
  Name: Laura Anthony
  Title: Chief Executive Officer
     
  JOHN KEELER & CO., INC. D/B/A BLUE STAR FOODS
   
  By: /s/ John R. Keeler
  Name: John R. Keeler
  Title: Chief Executive Officer
     
  COMPANY SHAREHOLDER:
   
  By: /s/ John R. Keeler
  Name: John R. Keeler

 

     
 

 

 

 

     
 

 

 

     
 

 

 

     
 

 

 

     
 

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “ Agreement ”) has been executed by the purchaser set forth on the signature page hereof (the “ Purchaser ”) in connection with the private placement offering (the “ Offering ”) by Blue Star Foods Corp., a Delaware corporation (the “ Company ”), of a minimum of $1,000,000 (the “ Minimum Offering ”) and a maximum of $3,000,000 of Units (as defined below) of the Company’s securities, at a purchase price of $1,000 per Unit (the “ Purchase Price ”). Each “ Unit ” shall consist of (i) one share (each, a “ Share ” and, collectively, the “ Shares ”) of the Company’s Series A convertible preferred stock, par value $0.0001 per share (the “ Series A Preferred Stock ”), initially convertible into shares of the Company’s common stock, par value $0.0001 per share (the “ Common Stock ”), at a conversion rate of 500-for-1 (a total of 500 shares of Common Stock per Unit) (the “ Conversion Rate ”), and (ii) a warrant, substantially in the form of Exhibit A hereto (each, a “ Warrant ” and, collectively, the “ Warrants ”), representing the right to purchase one-half (½) of one share of the Company’s Common Stock for every share of Common Stock that would be received upon conversion of a Share of Series A Preferred Stock (a total of 250 Warrants per Unit), exercisable from issuance until three (3) years after the applicable Closing Date (as defined below), at an exercise price equal of$2.40 per each whole share.

 

This subscription is being submitted to you in accordance with and subject to the terms and conditions described in this Agreement.

 

The minimum subscription is $25,000 (25 Units). The Company may accept subscriptions for less than $25,000 in its sole discretion.

 

The form of the Certificate of Designations setting forth the voting powers, designations, preferences and rights, and qualifications, limitations or restrictions thereof, of the Series A Preferred Stock is attached hereto as Exhibit B (the “ Certificate of Designations ”).

 

The Units, the Shares of Series A Preferred Stock, the shares of Common Stock issuable upon conversion of the Shares of Series A Preferred Stock (each, a “ Conversion Share ” and, collectively, the “ Conversion Shares ”), the Warrants and the shares of Common Stock issuable upon exercise of the Warrants (each, a “ Warrant Share ” and, collectively, the “ Warrant Shares ”) (the Units, the Shares of Series A Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares are sometimes herein referred to as the “ Securities ”) being subscribed for pursuant to this Agreement have not been registered under the U.S. Securities Act of 1933, as amended (the “ Securities Act ”). The Offering is being made on a reasonable best efforts basis to “accredited investors,” as defined in Regulation D under the Securities Act, in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D.

 

The Units are being offered and sold in connection with a merger (the “ Merger ”) between the Company’s newly-formed, wholly-owned subsidiary (“ Merger Sub ”) and John Keeler & Co., Inc. d/b/a Blue Star Foods , a Florida corporation (the “ Blue Star ”), pursuant to which Merger Sub will merge with and into Blue Star, with Blue Star being the surviving entity. As a result of the Merger, Blue Star will become a wholly-owned subsidiary of the Company. Pursuant to the Merger, all of the outstanding capital stock of Blue Star will be exchanged for shares of the Company’s Common Stock (the “ Merger Shares ”). The Units issued in this Offering will be issued following completion of the Merger.

 

 
 

 

Each of the parties’ obligation to complete the Merger will be conditioned upon the completion of the audits referred to below, the accuracy of representations and warranties, normal and customary for a transaction of this type, in the definitive agreement (which will not survive the closing for any purposes) made by each party, and absence of material adverse changes to, or material additional liabilities of the Company or Blue Star, and such other closing conditions as are usual and customary for transactions of this type as the parties shall agree.

 

The undersigned acknowledges receipt of a copy of the Registration Rights Agreement, substantially in the form attached as Exhibit C hereto (the “ Registration Rights Agreement ”), pursuant to which, among other things, the Company agrees to register under the Securities Act for resale the Conversion Shares issuable upon conversion of the Shares of Series A Preferred Stock and the Warrant Shares issuable upon exercise of the Warrants purchased in the Offering.

 

Each closing of the Offering (a “ Closing ,” and the date on which such Closing occurs hereinafter referred to as the “ Closing Date ”) shall take place at the offices of Crone Law Group, P.C., at 830 Third Avenue, 5 th Floor, New York, New York 10022 (or such other place as is mutually agreed to by the Company and Blue Star).

 

The first Closing will not occur unless:

 

  a. funds deposited in escrow as described in Section 2b below are equal to at least the Minimum Offering, and corresponding documentation with respect to such amounts, have been delivered by the Purchaser and other Purchasers under Subscription Agreements of like tenor with this Agreement (collectively, the “ Purchasers ”) as described in Section 2a below;
     
  b. the Merger has been effected; and
     
  c. the other conditions set forth in Sections 7 and 8 shall have been satisfied.

 

Thereafter, the Company may conduct one or more additional Closings for the sale of the Units until the termination of the Offering. The Company anticipates consummating an initial closing of the Offering (the “ Initial Closing ”) on or before August 31, 2018 (the “ Target Closing Date ”). The Units will be offered through October 31, 2018 (the “ Initial Offering Period ”), which period may be extended by the Company in its sole discretion, without notice to any Purchaser or prospective Purchaser, to a date not later than (or if the Minimum Offering has closed within the Initial Offering Period will automatically be extended to) sixty (60) days after the Target Closing Date (any such additional period and the Initial Offering Period are referred to as the “ Offering Period ”). The final day of the Offering Period shall be referred to as the “ Termination Date .”

 

All funds received from prospective qualified Purchasers will be held in escrow in a non-interest-bearing account by Crone Law Group, P.C., as escrow agent (the “ Escrow Agent ”) at 830 Third Avenue, 5 th Floor, New York, New York 10022, pending release, as the case may be, on the initial Closing Date, a subsequent Closing Date, or the Termination Date, pursuant to the terms of an Escrow Agreement between the Company, the Escrow Agent and the Subscribers, substantially in the form attached as Exhibit D hereto (the “ Escrow Agreement ”).

 

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If at least the Minimum Offering has not been completed or if the Offering is otherwise unable to close by the Termination Date, none of the shares of Common Stock will be sold, and all funds of prospective Purchasers will be returned in full and without offset or interest thereon.

 

Affiliate ” means, with respect to any person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 144 under the Securities Act (“ Rule 144 ”). With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

 

Business Day ” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

 

  1. Subscription. The undersigned Purchaser hereby subscribes to purchase the number of Units set forth on the Omnibus Signature Page attached hereto, for the aggregate Purchase Price as set forth on such Omnibus Signature Page, subject to the terms and conditions of this Agreement, the Registration Rights Agreement, and the Escrow Agreement, and on the basis of the representations, warranties, covenants and agreements contained herein.
     
  2. Subscription Procedure. To complete a subscription for the Units, the Purchaser must fully comply with the subscription procedure provided in paragraphs a. through c. of this Section on or before the Closing Date.

 

  a. Subscription Documents . On or before the Closing Date, the Purchaser shall review, complete and execute the Omnibus Signature Page to this Agreement, the Registration Rights Agreement, and the Escrow Agreement, along with the Investor Profile, Anti-Money Laundering Form and Investor Certification, each attached hereto following the Omnibus Signature Page (collectively, the “ Subscription Documents ”), and deliver the Subscription Documents to the address set forth under the caption “ How to subscribe for Shares in the private offering of Blues Star Foods Corp. ” below. Executed documents may be delivered by facsimile or .pdf sent by electronic mail (e-mail), if the Purchaser delivers the original copies of the documents as soon as practicable thereafter.
     
  b. Purchase Price . Simultaneously with the delivery of the Subscription Documents as provided herein, and in any event on or prior to the Closing Date, the Purchaser shall deliver to the Escrow Agent, under the Escrow Agreement, the full Purchase Price by certified or other bank check or by wire transfer of immediately available funds, pursuant to the instructions set forth under the caption “ How to subscribe for Shares in the private offering of Blue Star Foods Corp. ” below. Such funds will be held for the Purchaser’s benefit in the escrow account established for the Offering (the Escrow Account ) and will be returned promptly, without interest or offset, if this Agreement is not accepted by the Company or the Offering is terminated pursuant to its terms prior to the Closing.
     
  c. Company Discretion . The Purchaser understands and agrees that the Company in its sole discretion reserves the right to accept or reject this or any other subscription for Units, in whole or in part, notwithstanding prior receipt by the Purchaser of notice of acceptance of this subscription. The Company shall have no obligation hereunder until the Company shall execute and deliver to the Purchaser an executed copy of this Agreement. If this subscription is rejected in whole, or the Offering is terminated, all funds received from the Purchaser will be returned without interest or offset, and this Agreement shall thereafter be of no further force or effect. If this subscription is rejected in part, the funds for the rejected portion of this subscription will be returned without interest or offset, and this Agreement will continue in full force and effect to the extent this subscription was accepted.

 

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  3. [Reserved]
     
  4. Representations and Warranties of the Company . The Company hereby represents and warrants to the Purchaser, as of the date hereof and on each Closing Date, the following:

 

  a. Organization and Qualification . The Company and each of its subsidiaries (the “ Subsidiaries ”) is a corporation or other business entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the assets, business, financial condition, results of operations or future prospects of the Company or its Subsidiaries (a “ Material Adverse Effect ”).
     
  b. Authorization, Enforcement, Compliance with Other Instruments . (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Escrow Agreement and each of the other agreements and documents that are exhibits hereto or thereto or are contemplated hereby or thereby or necessary or desirable to effect the transactions contemplated hereby or thereby (the “ Transaction Documents ”) and to issue the Securities in accordance with the terms hereof and thereof; (ii) the execution and delivery by the Company of each of the Transaction Documents and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Securities have been, or will be at the time of execution of such Transaction Document, duly authorized by the Company’s board of directors (the “ Board of Directors ”), and no further consent or authorization is, or will be at the time of execution of such Transaction Documents, required by the Company, its respective Board of Directors or its stockholders; (iii) each of the Transaction Documents will be duly executed and delivered by the Company; and (iv) the Transaction Documents when executed will constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies and, with respect to any rights to indemnity or contribution contained in the Registration Rights Agreement, as such rights may be limited by state or federal laws or public policy underlying such laws.

 

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  c. Capitalization . The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock and 5,000,000 shares of “blank check” preferred stock. Immediately before the Initial Closing of the Offering, the Company will have 10,000,000 shares of Common Stock and no preferred stock issued and outstanding. All of the outstanding shares of Common Stock have been duly authorized, validly issued and are fully paid and nonassessable. At the time of the Initial Closing, no shares of capital stock of the Company will be subject to preemptive rights or any other similar rights or any liens or encumbrances (other than as contemplated by Section 7f hereof) suffered or permitted by the Company. Prior to the Initial Closing and consummation of the Merger, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever created by the Company relating to, or securities or rights created by the Company convertible into, any shares of capital stock of the Company, and there are no contracts, commitments, understandings or arrangements by which the Company to issue additional shares of capital stock of the Company. At the time of the Initial Closing, any outstanding debt securities will be either cancelled or converted into shares of Common Stock upon completion of the Merger. Other than the Registration Rights Agreement being entered into in conjunction with this Agreement, there are no agreements or arrangements pursuant to which the Company is obligated to register the sale of any of its securities under the Securities Act. There is no outstanding registration statement of the Company with respect to its securities. There are no securities or instruments of the Company containing anti-dilution or similar provisions, including the right to adjust the exercise, exchange or reset price under such securities, that will be triggered by the issuance of the Shares as described in this Agreement. No co-sale right, right of first refusal or other similar right will exist with respect to the Shares or the issuance and sale thereof. Upon request, the Company will make available to the Purchaser true and correct copies of the Company’s Articles of Incorporation and Bylaws, as will be in effect as of the Closing Date.
     
  d. Issuance of Shares . The Units, Shares and Warrants are duly authorized and, when issued and paid for in accordance with the terms hereof, shall be duly issued, fully paid and nonassessable, and are free and clear of all taxes, liens and charges with respect to the issue thereof. The Conversion Shares have been duly authorized and reserved for issuance, and upon conversion of the Shares in accordance with their terms, will be validly issued, fully paid and nonassessable, and are free and clear from all taxes, liens and charges with respect to the issue thereof. The Warrant Shares have been duly authorized and reserved for issuance, and upon exercise of the Warrants in accordance with their terms, including payment of the exercise price therefor, will be validly issued, fully paid and nonassessable, and are free and clear from all taxes, liens and charges with respect to the issue thereof.

 

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  e. No Conflicts . The execution, delivery and performance of each of the Transaction Documents by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Articles of Incorporation or the By-laws of the Company, as such documents will be in effect as of the Initial Closing, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party, except for those which would not reasonably be expected to have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including U.S. federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected, except for those which would not reasonably be expected to have a Material Adverse Effect. The Company is not in violation of any term of or in default under its articles of incorporation, as amended to date, and bylaws or any other constitutive documents. Except for those violations or defaults which would not reasonably be expected to have a Material Adverse Effect, the Company is not in violation of any term of or in default under any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company. The business of the Company is not being conducted in violation of any law, ordinance, or regulation of any governmental entity, except for any violation which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the other Transaction Documents in accordance with the terms hereof or thereof. Neither the execution and delivery by the Company of the Transaction Documents, nor the consummation by the Company of the transactions contemplated hereby or thereby, will require any notice, consent or waiver under any contract or instrument to which the Company is a party or by which the Company is bound or to which any of its assets is subject, except for any notice, consent or waiver the absence of which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding two sentences have been or will be obtained or effected on or prior to the Closing.
     
  f. Absence of Litigation . There is no action, suit, claim, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation before or by any court, public board, governmental or administrative agency, self-regulatory organization, arbitrator, regulatory authority, stock market, stock exchange or trading facility (an “ Action ”) now pending or, to the knowledge of the Company, threatened, against or affecting the Company or any of its officers or directors, which would be reasonably likely to (i) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the other Transaction Documents, or (ii) have a Material Adverse Effect. For the purpose of this Agreement, the knowledge of the Company means the actual knowledge of the officers of the Company.
     
  g. Acknowledgment Regarding Purchaser’s Purchase of the Units . The Company acknowledges and agrees that each Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchaser’s purchase of the Units.

 

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  h. No General Solicitation . Neither the Company, nor any of its Affiliates, nor, to the knowledge of the Company, any person acting on their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Units.
     
  i. No Integrated Offering . Neither the Company, nor any of its Affiliates, nor to the knowledge of the Company, any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Units, Shares, Warrants, Conversion Units or Warrant Shares under the Securities Act or cause this Offering to be integrated with prior offerings by the Company for purposes of the Securities Act.
     
  j. Employee Relations . The Company is not involved in any labor dispute nor, to the knowledge of the Company, is any such dispute threatened. The Company is not party to any collective bargaining agreement. The Company’s employees are not members of any union, and the Company believes that its relationship with its employees is good.
     
  k. Authorizations; Regulatory Compliance . The Company holds, and is operating in compliance with, all authorizations, licenses, permits, approvals, clearances, registrations, exemptions, consents, certificates and orders of any governmental authority and supplements and amendments thereto (collectively, “ Authorizations ”) required for the conduct of its business, and all such Authorizations are valid and in full force and effect and the Company is not in material violation of any terms of any such Authorizations, except, in each case, such as would not reasonably be expected to have a Material Adverse Effect; and the Company has not received written notice of any revocation or modification of any such Authorization, except to the extent that any such revocation or modification would not be reasonably expected to have a Material Adverse Effect. The Company is in compliance with all applicable federal, state, local and foreign laws, regulations, orders and decrees, including such laws and regulations applicable to import and export , except as would not reasonably be expected to have a Material Adverse Effect.
     
  n. Title . The Company does not own any real property. The Company has good and marketable title to all of its personal property and assets, free and clear of any restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance which would have a Material Adverse Effect.
     
  o. Tax Status . The Company has made and filed (taking into account any valid extensions) all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (except in any case in which the failure to so file would not have a Material Adverse Effect) and (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply or as would not have a Material Adverse Effect. To the knowledge of the Company, there are no unpaid taxes in any material amount claimed to be due from the Company by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

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  p. Certain Transactions . Except for arm’s-length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than it could obtain from third parties, none of the officers, directors or employees of the Company is a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
     
  q. Financial Statements . The financial statements of the Company, comply in all material respects with applicable accounting requirements and relevant rules and regulations with respect thereto as in effect at the time of the initial Closing. Such financial statements have been prepared in accordance with generally accepted accounting principles of the United States (“ GAAP ”) applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries taken as a whole as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments.
     
  v. Undisclosed Liabilities . The Company has no material liabilities (contingent or otherwise) other than (i) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (ii) liabilities not required to be reflected in financial statements if they were to be prepared as of the date of this Agreement or the Closing Date pursuant to GAAP.
     
  w. Dividends . The Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock.
     
  x. Foreign Corrupt Practices . Neither the Company, nor to the Company’s knowledge, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

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  y. Brokers’ Fees . The Company has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.
     
  z. Investment Company . The Company is not required to be registered as, and is not an Affiliate of, and immediately following the Closing will not be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
     
  aa. Reliance . The Company acknowledges that the Purchaser is relying on the representations and warranties made by the Company hereunder and that such representations and warranties are a material inducement to the Purchaser purchasing the Shares. The Company further acknowledges that without such representations and warranties of the Company made hereunder, the Purchaser would not enter into this Agreement.
     
  bb. Use of Proceeds . The Company intends to use the net proceeds from the Offering for general working capital purposes.

 

  5. Representations, Warranties and Agreements of the Purchaser. The Purchaser, severally and not jointly with any other Purchaser, represents and warrants to, and agrees with, the Company the following:

 

  a. The Purchaser has the knowledge and experience in financial and business matters necessary to evaluate the merits and risks of its prospective investment in the Company, and has carefully reviewed and understands the risks of, and other considerations relating to, the purchase of Shares and the tax consequences of the investment, and has the ability to bear the economic risks of the investment. The Purchaser can afford the loss of his/her/its entire investment.
     
  b. The Purchaser is acquiring the Securities for investment for his/her/its own account and not with the view to, or for resale in connection with, any distribution thereof. The Purchaser understands and acknowledges that the Offering and sale of the Securities have not been registered under the Securities Act or any state securities laws, by reason of a specific exemption from the registration provisions of the Securities Act and applicable state securities laws, which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. The Purchaser further represents that he/she/it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any of the Securities. The Purchaser understands and acknowledges that the Offering of the Securities will not be registered under the Securities Act nor under the state securities laws on the ground that the sale of the Securities to the Purchaser as provided for in this Agreement and the issuance of Shares hereunder is exempt from the registration requirements of the Securities Act and any applicable state securities laws. The Purchaser is an “accredited investor” as defined in Rule 501 of Regulation D as promulgated by the Securities and Exchange Commission (the “ SEC ”) under the Securities Act, for the reason(s) specified on the Accredited Investor Certification attached hereto, as completed by Purchaser, and Purchaser shall submit to the Company such further assurances of such status as may be reasonably requested by the Company. The Purchaser resides in the jurisdiction set forth on the Purchaser’s Omnibus Signature Page affixed hereto. The Purchaser has not taken any of the actions set forth in, and is not subject to, the disqualification provisions of Rule 506(d)(1) of the Securities Act.

 

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  c. The Purchaser acknowledges that the Securities purchased hereunder will not be registered under the Securities Act until the Company files a registration statement on Form S-1 (the “ Registration Statement ”) with the SEC, completes SEC review and comment, and the SEC declares the Registration Statement effective. The Registration Statement filing and effectiveness requirements are set forth in more detail in the Registration Rights Agreement, which will be entered into between the Company and the Purchaser in conjunction with this Agreement.
     
  d. The Purchaser (i) if a natural person, represents that he or she is the greater of (A) 21 years of age or (B) the age of legal majority in his or her jurisdiction of residence, and has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, limited liability company, association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Units, such entity is duly organized, validly existing and in good standing under the laws of the state or jurisdiction of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Securities, the execution and delivery of this Agreement has been duly authorized by all necessary action, this Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Purchaser is executing this Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Agreement and make an investment in the Company, and represents that this Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Purchaser is a party or by which it is bound.
     
  e. The Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire such securities. The Purchaser further acknowledges and understands that the Company is relying on the representations and warranties made by the Purchaser hereunder and that such representations and warranties are a material inducement to the Company to sell the Securities to the Purchaser. The Purchaser further acknowledges that without such representations and warranties of the Purchaser made hereunder, the Company would not enter into this Agreement with the Purchaser.

 

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  f. The Purchaser understands that no public market exists for the Series A Preferred Stock or Common Stock and that there can be no assurance that any public market for the Series A Preferred Stock or Common Stock will exist or continue to exist. The Company’s Common Stock is not approved for quotation on the OTC Markets or any other quotation system or listed on any exchange. The Company intends to file the Registration Statement with the SEC as soon as practicable following the final Closing of the Offering and, upon the SEC declaring the Registration Statement effective, cause the Common Stock to be quoted on OTC Markets QB or QX tier as soon as practicable thereafter, in accordance with the terms of the Registration Rights Agreement; provided, however, that the Company makes no representation, warranty or covenant with respect to the initiation of or continued quotation of the Common Stock on the OTC Markets or the listing of the Common Stock on any other market or exchange.
     
  g. The Purchaser has received, reviewed and understood such information about the Company and Blue Star as the Purchaser has requested, and has had an opportunity to discuss the Company’s business, management and financial affairs, and the business, management and financial affairs of Blue Star, with the Company’s and Blue Star’s management. The Purchaser understands that such discussions were intended to describe the aspects of the Company’s business and prospects and the Offering which the Company believes to be material, but were not necessarily a thorough or exhaustive description, and except as expressly set forth in this Agreement, the Company makes no representation or warranty with respect to the completeness of such information and makes no representation or warranty of any kind with respect to any information provided by any entity other than the Company. Some of such information may include projections as to the future performance of the Company, which projections may not be realized, may be based on assumptions which may not be correct and may be subject to numerous factors beyond the Company’s control. Additionally, the Purchaser understands and represents that it is purchasing the Securities notwithstanding the fact that the Company may disclose in the future certain material information the Purchaser has not received, including (without limitation) financial statements of the Company for the current or prior or subsequent fiscal periods, that it is not relying on any such information in connection with its purchase of the Securities and that it waives any right of action with respect to the nondisclosure to it prior to its purchase of the Securities of any such information. Each Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.
     
  h. The Purchaser acknowledges that the Company nor Blue Star is acting as a financial advisor or fiduciary of the Purchaser (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and no investment advice has been given by the Company, Blue Star, or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby. The Purchaser further represents to the Company that the Purchaser’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Purchaser and its representatives.

 

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  i. As of each Closing, all actions on the part of Purchaser, and its officers, directors and partners, if applicable, necessary for the authorization, execution and delivery of this Agreement, the Registration Rights Agreement and the Escrow Agreement, and the performance of all obligations of the Purchaser hereunder and thereunder shall have been taken, and this Agreement, the Registration Rights Agreement and the Escrow Agreement, assuming due execution by the parties hereto and thereto, constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their respective terms, subject to: (i) judicial principles limiting the availability of specific performance, injunctive relief, and other equitable remedies and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors’ rights.
     
  j. The Purchaser represents that neither it nor, to its knowledge, any person or entity controlling, controlled by or under common control with it, nor any person having a beneficial interest in it, nor any person on whose behalf the Purchaser is acting: (i) is a person listed in the Annex to Executive Order No. 13224 (2001) issued by the President of the United States (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism); (ii) is named on the List of Specially Designated Nationals and Blocked Persons maintained by the U.S. Office of Foreign Assets Control; (iii) is a non-U.S. shell bank or is providing banking services indirectly to a non-U.S. shell bank; (iv) is a senior non-U.S. political figure or an immediate family member or close associate of such figure; or (v) is otherwise prohibited from investing in the Company pursuant to applicable U.S. anti-money laundering, anti-terrorist and asset control laws, regulations, rules or orders (categories (i) through (v), each a “ Prohibited Purchaser ”). The Purchaser agrees to provide the Company, promptly upon request, all information that the Company reasonably deems necessary or appropriate to comply with applicable U.S. anti-money laundering, anti-terrorist and asset control laws, regulations, rules and orders. The Purchaser consents to the disclosure to U.S. regulators and law enforcement authorities by the Company and its Affiliates and agents of such information about the Purchaser as the Company reasonably deems necessary or appropriate to comply with applicable U.S. anti-money laundering, anti-terrorist and asset control laws, regulations, rules and orders. If the Purchaser is a financial institution that is subject to the USA Patriot Act, the Purchaser represents that it has met all of its obligations under the USA Patriot Act. The Purchaser acknowledges that if, following its investment in the Company, the Company reasonably believes that the Purchaser is a Prohibited Purchaser or is otherwise engaged in suspicious activity or refuses to promptly provide information that the Company requests, the Company has the right or may be obligated to prohibit additional investments, segregate the assets constituting the investment in accordance with applicable regulations or immediately require the Purchaser to transfer the Securities. The Purchaser further acknowledges that the Purchaser will have no claim against the Company or any of its Affiliates or agents for any form of damages as a result of any of the foregoing actions.

 

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    If the Purchaser is Affiliated with a non-U.S. banking institution (a “ Foreign Bank ”), or if the Purchaser receives deposits from, makes payments on behalf of, or handles other financial transactions related to a Foreign Bank, the Purchaser represents and warrants to the Company that: (1) the Foreign Bank has a fixed address, other than solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank maintains operating records related to its banking activities; (3) the Foreign Bank is subject to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities; and (4) the Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that is not a regulated Affiliate.
     
  k. The Purchaser or its duly authorized representative realizes that because of the inherently speculative nature of businesses of the kind conducted and contemplated by the Company, the Company’s financial results may be expected to fluctuate from month to month and from period to period and will, generally, involve a high degree of financial and market risk that could result in substantial or, at times, even total losses for investors in securities of the Company. The Purchaser has carefully considered such risks, and has carefully reviewed the risk factors disclosed in the Offering Memorandum, before deciding to invest in the Units.
     
  l. The Purchaser has adequate means of providing for its current and anticipated financial needs and contingencies, is able to bear the economic risk for an indefinite period of time and has no need for liquidity of the investment in the Units and could afford complete loss of such investment.
     
  m. The Purchaser is not subscribing for Units as a result of or subsequent to any advertisement, article, notice or other communication, published in any newspaper, magazine or similar media or broadcast over television, radio, or the internet, or presented at any seminar or meeting, or any solicitation of a subscription by a person not previously known to the Purchaser in connection with investments in securities generally.
     
  n. The Purchaser acknowledges that no U.S. federal or state agency or any other government or governmental agency has passed upon the Units, Shares, Warrants, Conversion Shares, or Warrant Shares or made any finding or determination as to the fairness, suitability or wisdom of any investments therein.
     
  o. The Purchaser agrees to be bound by all of the terms and conditions of the Registration Rights Agreement and to perform all obligations thereby imposed upon it.
     
  p. The Purchaser is aware that the anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), may apply to sales of the Shares and other activities with respect to the Shares by the Purchaser.
     
  q. All of the information concerning the Purchaser set forth herein, and any other information furnished by the Purchaser in writing to the Company for use in connection with the transactions contemplated by this Agreement, is true, correct and complete in all material respects as of the date of this Agreement, and, if there should be any material change in such information prior to the admission of the undersigned to the Company, the Purchaser will promptly furnish revised or corrected information to the Company.

 

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  r. (For ERISA plans only) The fiduciary of the Employee Retirement Income Security Act of 1974 (“ ERISA ”) plan (the “ Plan ”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Purchaser fiduciary or Plan (a) is responsible for the decision to invest in the Company; (b) is independent of the Company or any of its Affiliates; (c) is qualified to make such investment decision; and (d) in making such decision, the Purchaser fiduciary or Plan has not relied primarily on any advice or recommendation of the Company or any of its Affiliates.

 

  6. Transfer Restrictions . The Purchaser acknowledges and agrees as follows:

 

  a. The Securities have not been registered for sale under the Securities Act, in reliance on the private offering exemption in Section 4(a)(2) thereof and Rule 506 thereunder; other than as expressly provided in the Registration Rights Agreement and as discussed in paragraph d. below, the Company does not currently intend to register the Units, Shares, Warrants, Conversion Shares, or Warrant Shares, under the Securities Act at any time in the future; and the undersigned will not immediately be entitled to the benefits of Rule 144 with respect to the Securities.
     
  b. The Purchaser understands that there are substantial restrictions on the transferability of the Units, Shares, Warrants, Conversion Shares, or Warrant Shares, and that the certificates representing the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such certificates or other instruments):
     
    THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

 

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    In addition, if any Purchaser is an Affiliate of the Company, certificates evidencing the Securities issued to such Purchaser may bear a customary “Affiliates” legend.
     
    The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if (a) such Securities are sold pursuant to a registration statement under the Securities Act, or (b) such holder delivers to the Company an opinion of counsel, reasonably acceptable to the Company, that a disposition of the Securities is being made pursuant to an exemption from such registration and that the Securities, after such transfer, shall no longer be “restricted securities” within the meaning of Rule 144.
     
  c. Subject to the Company’s right to request an opinion of counsel as set forth in Section 6b , the legend set forth in Section 6b above shall be removable and the Company shall issue or cause to be issued a certificate without such legend or any other legend (except for any “Affiliates” legend as set forth in Section 6(b)) to the holder of the applicable Securities upon which it is stamped as provided in this Section 6c , if (i) such Securities are registered for resale under the Securities Act (provided that, if the Purchaser is selling pursuant to an effective registration statement registering the Securities for resale, the Purchaser agrees to only sell such Securities during such time that such registration statement is effective and not withdrawn or suspended, and only as permitted by such registration statement), or (ii) such Securities are sold or transferred in compliance with Rule 144, including without limitation in compliance with the current public information requirements and volume and manner-of-sale restrictions of Rule 144, if applicable at the time of such sale or transfer, and the holder and its broker have delivered customary documents reasonably requested by the Company’s transfer agent and/or Company counsel in connection with such sale or transfer. All costs and expenses related to the removal of the legends and the reissuance of any Securities, including but not limited to costs and expenses with respect to the transfer agent, Company counsel or otherwise, shall be borne by the Company. Following the date on which the Registration Statement (as defined in the Registration Rights Agreement) is first declared effective by the SEC, or at such other time as a legend is no longer required for certain Securities, the Company will no later than three (3) Trading Days (as defined below) following the delivery by a Purchaser to the Company or the transfer agent (with concurrent notice and delivery of copies to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, and together with such other customary documents as the transfer agent and/or Company counsel shall reasonably request), deliver or cause to be delivered to the transferee of such Purchaser or such Purchaser, as applicable, a book entry position or a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the transfer agent that enlarge the restrictions on transfer set forth in this Section 6. Certificates for Securities subject to legend removal hereunder shall be transmitted by the transfer agent to the Purchaser by crediting the account of the Purchaser’s prime broker with DTC. “ Trading Day ” means (i) a day on which the Common Stock is listed or quoted and traded on its principal trading market (unless the principal trading market is the OTC Bulletin Board or the OTC Pink tier of the OTC Markets Group, Inc.), or (ii) if the Common Stock is not listed on a trading market (other than the OTC Bulletin Board or the OTC QB, OTC QX or OTC Pink tier of the OTC Markets Group, Inc.), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any trading market (other than the OTC QB, OTC QX or OTC Pink tier of the OTC Markets Group, Inc.), a day on which the Common Stock is quoted in the over-the-counter market as reported by the OTC QB, OTC QX or OTC Pink tier of the OTC Markets Group, Inc. (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

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  d. The Company covenants and agrees that it will grant to the Purchasers, with respect to the Securities, the same rights to registration under the Securities Act, if any, as the Company agrees with investors in its next offering of equity securities (or securities convertible into equity securities of the Company) for purposes of raising capital, if any.

 

  7. Conditions to Company’s Obligations at Closing. The Company’s obligation to complete the sale and issuance of the Units and deliver the Shares and Warrants to each Purchaser, individually, at each Closing shall be subject to the following conditions to the extent not waived by the Company:

 

  a. Receipt of Payment . The Company shall have received payment, by wire transfer of immediately available funds, in the full amount of the purchase price for the number of Units being purchased by such Purchaser at such Closing.
     
  b. Representations and Warranties . The representations and warranties made by the Purchaser in Section 5 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on such Closing Date with the same force and effect as if they had been made on and as of said date (except in each case to the extent any such representation and warranty is qualified by materiality, in which case, such representation and warranty shall be true and correct in all respects as so qualified). The Purchaser shall have performed in all material respects all obligations and covenants herein required to be performed by it on or prior to such Closing Date.
     
  c. Receipt of Executed Documents . Such Purchaser shall have executed and delivered to the Company the Omnibus Signature Page to this Agreement, the Registration Rights Agreement and the Escrow Agreement, as well as the Accredited Investor Certification , the Investor Profile and the Anti-Money Laundering Information Form , in the forms following the Omnibus Signature Page of this Agreement.
     
  d. Minimum Offering . The Initial Closing shall be at least for the number of Units in the Minimum Offering at the Purchase Price.
     
  e. Effectiveness of the Merger . The Merger shall have been effected (or is simultaneously effected, in the case of the Initial Closing).

 

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  8. Conditions to Purchasers’ Obligations at Closing. Each Purchaser’s obligation to accept delivery of the Units and to pay for the Units shall be subject to the following conditions to the extent not waived by the Purchaser:

 

  a. Representations and Warranties Correct . The representations and warranties made by the Company in Section 4 hereof shall be true and correct in all material respects (except to the extent any such representation and warranty is qualified by materiality or reference to Material Adverse Effect, in which case, such representation and warranty shall be true and correct in all respects as so qualified) as of, and as if made on, the date of this Agreement and as of such Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects correct as of such earlier date (except in each case to the extent any such representation and warranty is qualified by materiality or reference to Material Adverse Effect, in which case, such representation and warranty shall be true and correct in all respects as so qualified). The Company shall have performed in all material respects all obligations and covenants herein required to be performed by it on or prior to such Closing Date.
     
  b. Receipt of Agreements . The Company shall have executed and delivered counterparts of this Agreement, the Registration Rights Agreement and of the Escrow Agreement.
     
  c. Minimum Offering . The Initial Closing shall be at least for the number of shares of Units in the Minimum Offering at the Purchase Price.
     
  d. Certificate of Designations . The Certificate of Designations shall have been filed with the Secretary of State of the State of Delaware.
     
  e. Certificate . The Chief Executive Officer of the Company shall execute and deliver to the Purchasers a certificate addressed to the Purchasers to the effect that the representations and warranties of the Company in Section 4 hereof are true and correct in all material respects (except to the extent any such representation and warranty is qualified by materiality or reference to Material Adverse Effect, in which case, such representation and warranty shall be true and correct in all respects as so qualified) as of, and as if made on, the date of this Agreement and as of such Closing Date and that the Company has satisfied in all material respects all of the conditions set forth in this Section 8.
     
  f. Judgments . No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby.

 

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  9. Indemnification.

 

  a. The Purchaser agrees to indemnify and hold harmless the Company, Blue Star and any other broker, agent or finder engaged by the Company for the Offering, and their respective directors, officers, shareholders, members, partners, employees and agents (and any other persons with a functionally equivalent role of a person holding such titles notwithstanding a lack of such title or any other title), each person who controls such indemnified person (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other persons with a functionally equivalent role of a person holding such titles notwithstanding a lack of such title or any other title) of such controlling person, from and against all losses, liabilities, claims, damages, costs, fees and expenses whatsoever (including, but not limited to, any and all expenses incurred in investigating, preparing or defending against any litigation commenced or threatened) based upon or arising out of the Purchaser’s actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a material fact, or breach by the Purchaser of any covenant or agreement made by the Purchaser, contained herein or in any other document delivered by the Purchaser in connection with this Agreement. The liability of the Purchaser under this paragraph shall not exceed the aggregate Purchase Price paid by the Purchaser for Units hereunder.
     
  b. The Company agrees to indemnify and hold harmless the Purchaser, and its directors, officers, shareholders, members, partners, employees and agents (and any other persons with a functionally equivalent role of a person holding such titles notwithstanding a lack of such title or any other title), each person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other persons with a functionally equivalent role of a person holding such titles notwithstanding a lack of such title or any other title) of such controlling person, from and against all losses, liabilities, claims, damages, costs, fees and expenses whatsoever (including, but not limited to, any and all expenses incurred in investigating, preparing or defending against any litigation commenced or threatened) based upon or arising out of the Company’s actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a material fact, or breach by the Company of any covenant or agreement made by the Company contained herein; provided, however, that the Company will not be liable in any such case to the extent and only to the extent that any such loss, liability, claim, damage, cost, fee or expense arises out of or is based upon the inaccuracy of any representations made by such indemnified party in this Agreement, or the failure of such indemnified party to comply with the covenants and agreements contained herein. The liability of the Company under this paragraph shall not exceed the total Purchase Price paid by the Purchaser hereunder, except in the case of fraud.

 

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  c. Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any Action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 9. In case any such Action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any such Action include both the indemnified party and the indemnifying party and either (i) the indemnifying party or parties and the indemnified party or parties mutually agree or (ii) representation of both the indemnifying party or parties and the indemnified party or parties by the same counsel is inappropriate under applicable standards of professional conduct due to actual or potential differing interests between them, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such Action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such Action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 9 for any reasonable legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed counsel in connection with the assumption of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel in such circumstance), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the Action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened Action in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such Action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such Action, or (ii) be liable for any settlement of any such Action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such Action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment.

 

  10. Participation in Future Financing .

 

  a. Each Purchaser shall have the right to participate in any subsequent offering by the Company of equity securities or securities convertible into or exercisable for equity securities (a “Subsequent Financing”) in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing amount (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing, for a period of twenty-four (24) months following the date of the Initial Closing.
     
  b. At least fourteen (14) calendar days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“ Pre-Notice ”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “ Subsequent Financing Notice ”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than two (2) Business Days after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, and the person or persons through or with whom such Subsequent Financing is proposed to be effected, and shall include a term sheet or similar document relating thereto as an attachment,

 

19
 

 

  c. Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fourth (4th) Business day after all of the Purchasers have received the Pre-Notice that such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from a Purchaser as of such fourth (4th) Business Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.
     
  d. If by 5:30 p.m. (New York City time) on the fourth (4th) Business Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the persons set forth in the Subsequent Financing Notice.
     
  e. If by 5:30 p.m. (New York City time) on the fourth (4 th ) Business Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum. “Pro Rata Portion” means the ratio of (x) the subscription amount of securities of the Company purchased by a Purchaser participating under this Section and (y) the sum of the aggregate subscription amounts of securities purchased on the by all Purchasers participating under this Section.

 

  11. Revocability; Binding Effect. The subscription hereunder may be revoked prior to the Closing thereon, provided that written notice of revocation is sent and is received by the Company at least three (3) Business Days prior to the Closing on such subscription. The Purchaser hereby acknowledges and agrees that this Agreement shall survive the death or disability of the Purchaser and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and permitted assigns. If the Purchaser is more than one person, the obligations of the Purchaser hereunder shall be joint and several and the agreements, representations, warranties and acknowledgments herein shall be deemed to be made by and be binding upon each such person and such person’s heirs, executors, administrators, successors, legal representatives and permitted assigns. Notwithstanding the foregoing revocation provisions, in no case may a Purchaser revoke its purchase of Shares after the Purchaser’s funds have been closed upon.
     
  12. Modification. This Agreement shall not be amended, modified or waived except by an instrument in writing signed by the Company and the holders of at least a majority of the then held Units. Any amendment, modification or waiver effected in accordance with this Section 11 shall be binding upon the Company and all Purchasers and each transferee of the Shares, Warrants, Conversion Shares or Warrant Shares.

 

20
 

 

  13. Immaterial Modifications to the Certificate of Designations or Registration Rights Agreement. The Company may, at any time prior to the Initial Closing, amend the Certificate of Designations or the Registration Rights Agreement, if necessary, in its reasonable judgment, to clarify any provision therein, but not inconsistent with the terms of this Agreement or the intent of such documents, without first providing notice or obtaining prior consent of the Purchaser.
     
  14. Third-Party Beneficiary. The Placement Agent shall be an express third-party beneficiary of the representations and warranties included in this Agreement. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 9 and this Section.
     
  15. Notices. Any notice, consents, waivers or other communication required or permitted to be given hereunder shall be in writing and will be deemed to have been delivered: (i) upon receipt, when personally delivered; (ii) upon receipt when sent by certified mail, return receipt requested, postage prepaid; (iii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iv) when sent, if by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such recipient); or (v) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and email addresses for such communications shall be:

 

  (a) if to the Company or Blue Star, at

 

Blue Star Foods Corp.

c/o Blue Star Foods

3000 NW 109 th Ave.

Miami, Florida 33172

Attention: Carlos Faria, CEO

Telephone: (305) 836-6858

Facsimile: (305) 836-6859

Email: cfaria@bluestarfoods.com

 

with copies (which shall not constitute notice) to:

 

Crone Law Group, P.C.

830 Third Avenue, 5th Floor

New York, New York 10022

Attention: Eric C. Mendelson, Esq.

Telephone: (646) 278-0886

Facsimile: (212) 840-8560

Email: emendelson@cronelawgroup.com

 

21
 

 

  (b) if to the Purchaser, at the address set forth on the Omnibus Signature Page hereof

 

    (or, in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section). Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party’s address which shall be deemed given at the time of receipt thereof.
     
  16. Assignability. This Agreement and the rights, interests and obligations hereunder are not transferable or assignable by the Purchaser or the Company.
     
  17. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to the principles thereof relating to the conflict of laws. Any judicial proceeding brought against either of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto shall be brought in the state or federal courts located in the County of New York in the State of New York and, by its execution and delivery of this Agreement, each party to this Agreement accepts the jurisdiction of such courts. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the parties to this Agreement.
     
  18. Arbitration. The parties agree to submit all controversies to arbitration in accordance with the provisions set forth below and understand that:

 

  a. Arbitration shall be final and binding on the parties.
     
  b. The parties are waiving their right to seek remedies in court, including the right to a jury trial.
     
  c. Pre-arbitration discovery is generally more limited and different from court proceedings.
     
  d. The arbitrator’s award is not required to include factual findings or legal reasoning and any party’s right to appeal or to seek modification of rulings by arbitrators is strictly limited.
     
  e. The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
     
  f. All controversies which may arise between the parties concerning this Agreement shall be determined by arbitration pursuant to the rules then pertaining to the Financial Industry Regulatory Authority in New York, New York. Judgment on any award of any such arbitration may be entered in the Supreme Court of the State of New York or in any other court having jurisdiction of the person or persons against whom such award is rendered. Any notice of such arbitration or for the confirmation of any award in any arbitration shall be sufficient if given in accordance with the provisions of this Agreement. The parties agree that the determination of the arbitrators shall be binding and conclusive upon them. The prevailing party, as determined by such arbitrators, in a legal proceeding shall be entitled to collect any costs, disbursements and reasonable attorney’s fees from the other party. Prior to filing an arbitration, the parties hereby agree that they will attempt to resolve their differences first by submitting the matter for resolution to a mediator, acceptable to all parties, and whose expenses will be borne equally by all parties. The mediation will be held in the County of New York, State of New York, on an expedited basis. If the parties cannot successfully resolve their differences through mediation within sixty (60) days from the receipt of the written notice of a matter from the notifying party, the matter will be resolved by arbitration. The arbitration shall take place in the County of New York, State of New York, on an expedited basis.

 

22
 

 

  19. Form D; Blue Sky Qualification . The Company agrees to timely file a Form D with respect to the Shares and Warrants and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Shares and Warrants for sale to the Purchaser at such Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.
     
  20. Use of Pronouns. All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons referred to may require.
     
  21. Miscellaneous.

 

  a. This Agreement, together with any confidentiality agreement between the Purchaser and the Company, constitute the entire agreement between the Purchaser and the Company with respect to the Offering and supersede all prior oral or written agreements and understandings, if any, relating to the subject matter hereof.
     
  b. If the Securities are certificated and any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company and, if applicable, the Company’s transfer agent of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company and, if applicable, the Company’s transfer agent for any losses in connection therewith or, if required by the transfer agent, a bond in such form and amount as is required by the transfer agent. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.
     
  c. Each of the parties hereto shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement, the Registration Rights Agreement, and the transactions contemplated hereby, whether or not the transactions contemplated hereby are consummated.
     
  d. This Agreement may be executed in one or more original or facsimile or by an e-mail which contains a portable document format (.pdf) file of an executed signature page counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument and which shall be enforceable against the parties actually executing such counterparts. The exchange of copies of this Agreement and of signature pages by facsimile transmission or in .pdf format shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile or by e-mail of a document in pdf format shall be deemed to be their original signatures for all purposes.

 

23
 

 

  e. Each provision of this Agreement shall be considered separable and, if for any reason any provision or provisions hereof are determined to be invalid or contrary to applicable law, such invalidity or illegality shall not impair the operation of or affect the remaining portions of this Agreement.
     
  f. Paragraph titles are for descriptive purposes only and shall not control or alter the meaning of this Agreement as set forth in the text.
     
  g. The Purchaser understands and acknowledges that there may be multiple Closings for the Offering.
     
  h. The Purchaser hereby agrees to furnish the Company such other information as the Company may request prior to the Closing with respect to its subscription hereunder.
     
  i. The representations and warranties of the Company and the Purchaser made in this Agreement shall survive the execution and delivery hereof and the delivery of the Shares.

 

  22. Public Disclosure. Neither the Purchaser nor any officer, manager, director, member, partner, stockholder, employee, Affiliate, Affiliated person or entity of the Purchaser shall make or issue any press releases or otherwise make any public statements or make any disclosures to any third person or entity with respect to the transactions contemplated herein and will not make or issue any press releases or otherwise make any public statements of any nature whatsoever with respect to the Offering or the Company without the Company’s express prior written approval (which may be withheld in the Company’s sole discretion), except to the extent such disclosure is required by law or applicable governmental or principal trading market regulation.
     
  23. Potential Conflicts. Legal counsel to the Company and its Affiliates, principals, representatives or employees may now or hereafter own shares of the Company.
     
  24. Independent Nature of Each Purchaser’s Obligations and Rights . For avoidance of doubt, the obligations of the Purchaser under this Agreement are several and not joint with the obligations of any other Purchaser, and the Purchaser shall not be responsible in any way for the performance of the obligations of any other Purchaser under any other Subscription Agreement. Nothing contained herein and no action taken by the Purchaser shall be deemed to constitute the Purchaser as a partnership, an association, a joint venture, or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement and any other Subscription Agreements. The Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

 

[Signature page follows.]

 

24
 

 

IN WITNESS WHEREOF, the Company has duly executed this Agreement as of the 8th day of November, 2018.

 

  BLUE STAR FOODS CORP.
     
  By:
  Name: John Keeler
  Title: Executive Chairman

 

[Signature Page to Subscription Agreement]

 

 
 

 

How to subscribe for Units in the private offering of Blue Star Foods Corp.

 

1. Complete, Sign and Date the Omnibus Signature Page for the Securities Purchase Agreement, the Registration Rights Agreement and the Escrow Agreement.
   
2. Initial the Accredited Investor Certification in the appropriate place or places.
   
3. Complete and sign the Investor Profile .
   
4. Complete and sign the Anti-Money Laundering Information Form .
   
5. Email all completed forms to Eric C. Mendelson at emendelson@cronelawgroup.com, copied to Courtney Truesdell at ctruesdell@cronelawgroup.com, and then send all signed original documents to:

 

Crone Law Group, P.C.

830 Third Avenue, 5 th Floor

New York, NY 10022

Attention: Eric C. Mendelson

Telephone: (646) 278-0886

Facsimile: (212) 840-8560

 

6. If you are paying the Purchase Price by check , a certified or other bank check for the exact dollar amount of the Purchase Price for the number of Units you are purchasing should be made payable to the order of “Crone Law Group, P.C., as Escrow Agent for Blue Star Foods Corp., Acct. # 157802262 ” and should be sent directly to Crone Law Group, P.C., 830 Third Avenue, 5 th Floor, New York, NY 10022, Attn: Eric C. Mendelson, Ref.: Acquisition Group II, Inc. (to be renamed Blue Star Foods Corp.) [INSERT PURCHASER’S NAME] .
   
  Checks take up to 5 business days to clear. A check must be received by the Escrow Agent at least 6 business days before the closing date.
   
7. If you are paying the Purchase Price by wire transfer , you should send a wire transfer for the exact dollar amount of the Purchase Price for the number of Units you are purchasing according to the following instructions :

 

Bank: JPMorgan Chase Bank, N.A
1333 4th Street, Santa Monica CA 90401
ABA Routing #: 322271627
SWIFT CODE: CHASUS33
Account Name: Crone Law Group, P. C. IOLTA Trust Account
Account #: 157802262
Reference: “Ref.: Blue Star Foods Corp. - [INSERT PURCHASER’S NAME]
Escrow Account Contact: Eric C. Mendelson – (646) 278-0886

 

Thank you for your interest.

 

 
 

 

Blue Star Foods Corp.

OMNIBUS SIGNATURE PAGE TO

SUBSCRIPTION AGREEMENT, REGISTRATION RIGHTS AGREEMENT AND ESCROW AGREEMENT

 

The undersigned, desiring to: (i) enter into the Subscription Agreement, dated as of ____________ ___, [1] 2018 (the “ Subscription Agreement ”), between the undersigned, Blue Star Foods Corp., a Delaware corporation (the “ Company ”), and the other parties thereto, in or substantially in the form furnished to the undersigned, (ii) enter into the Registration Rights Agreement (the “ Registration Rights Agreement ”), among the undersigned, the Company and the other parties thereto, in or substantially in the form furnished to the undersigned, (iii) enter into the Escrow Agreement (the “ Escrow Agreement ”), among the undersigned, the Company and the other parties thereto, in or substantially in the form furnished to the undersigned, and (iii) purchase the Securities of the Company as set forth in the Subscription Agreement set forth below, hereby agrees to purchase such Securities from the Company and further agrees to join the Subscription Agreement, the Registration Rights Agreement and the Escrow Agreement as a party thereto, with all the rights and privileges appertaining thereto, and to be bound in all respects by the terms and conditions thereof. The undersigned specifically acknowledges having read the representations section in the Subscription Agreement entitled “Representations and Warranties of the Purchaser” and hereby represents that the statements contained therein are complete and accurate with respect to the undersigned as a Purchaser.

 

IN WITNESS WHEREOF, the Purchaser hereby executes this Agreement.

 

Dated: __________, 2018

 

  X $1,000 = $
Number of Units   Purchase Price per Unit   Total Purchase Price

 

PURCHASER (individual)     PURCHASER (entity)
       
Signature   Name of Entity
    By:   
Print Name     Signature
       
    Print Name:
Signature (if Joint Tenants or Tenants in Common)   Title:
       
Address of Principal Residence:   Address of Executive Offices:
     
       
       
Social Security Number(s):   IRS Tax Identification Number:
     
     
Telephone Number:   Telephone Number:
     
       
Facsimile Number:   Facsimile Number:
     
       
E-mail Address:   E-mail Address:
     

 

1 Will reflect the Closing Date. Not to be completed by Purchaser.

 

 
 

 

Blue Star Foods Corp.

 

ACCREDITED INVESTOR CERTIFICATION

 

For Individual Investors Only

(all Individual Investors must INITIAL where appropriate):

 

Initial _______ I have a net worth of at least US$1 million either individually or through aggregating my individual holdings and those in which I have a joint, community property or other similar shared ownership interest with my spouse. (For purposes of calculating your net worth under this paragraph, (a) your primary residence shall not be included as an asset ; (b) indebtedness secured by your primary residence, up to the estimated fair market value of your primary residence at the time of your purchase of the Securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of your purchase of the Securities exceeds the amount outstanding sixty (60) days before such time, other than as a result of the acquisition of your primary residence, the amount of such excess shall be included as a liability); and (c) indebtedness that is secured by your primary residence in excess of the estimated fair market value of your primary residence at the time of your purchase of the Securities shall be included as a liability.)
   
Initial _______ I have had an annual gross income for the past two (2) years of at least US$200,000 (or US$300,000 jointly with my spouse) and expect my income (or joint income, as appropriate) to reach the same level in the current year.
   
Initial _______ I am a member, director or executive officer of Blue Star Foods Corp.

 

For Non-Individual Investors (Entities)

(all Non-Individual Investors must INITIAL where appropriate):

 

Initial _______ The investor certifies that it is a partnership, corporation, limited liability company or business trust that is 100% owned by persons who meet at least one of the criteria for Individual Investors set forth above (in which case each such person must complete the Accreditor Investor Certification for Individuals above as well the remainder of this questionnaire).
   
Initial _______ The investor certifies that it is a partnership, corporation, limited liability company or business trust that has total assets of at least US$5,000,000 and was not formed for the purpose of investing the Company.
   
Initial _______ The investor certifies that it is an employee benefit plan whose investment decision is made by a plan fiduciary (as defined in Section 3(21) of the Employee Retirement Income Security Act of 1974) that is a bank, savings and loan association, insurance company or registered investment advisor.
   
Initial _______ The investor certifies that it is an employee benefit plan whose total assets exceed US$5,000,000 as of the date of this Agreement.
   
Initial _______ The undersigned certifies that it is a self-directed employee benefit plan whose investment decisions are made solely by persons who meet at least one of the criteria for Individual Investors.
   
Initial _______ The investor certifies that it is a U.S. bank as defined in Section 3(a)(2) of the Securities Act, or any U.S. savings and loan association or other similar U.S. institution as defined in Section 3(a)(5) of the Securities Act acting in its individual or fiduciary capacity.
   
Initial _______ The undersigned certifies that it is a broker-dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934.
   
Initial _______ The investor certifies that it is an organization described in Section 501(c)(3) of the Internal Revenue Code with total assets exceeding US$5,000,000 and not formed for the specific purpose of investing in the Company.
   
Initial _______ The investor certifies that it is a trust with total assets of at least US$5,000,000, not formed for the specific purpose of investing in the Company, and whose purchase is directed by a person with such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of the prospective investment.
   
Initial _______ The investor certifies that it is a plan established and maintained by a state or its political subdivisions, or any agency or instrumentality thereof, for the benefit of its employees, and which has total assets in excess of US$5,000,000.
   
Initial _______ The investor certifies that it is an insurance company as defined in Section 2(13) of the Securities Act of 1933.
   
Initial _______ The investor certifies that it is an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act.
   
Initial _______ The investor certifies that it is a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958.
   
Initial _______ The investor certifies that it is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.

 

 
 

 

Blue Star Foods Corp.

 

Investor Profile
(Must be completed by Investor)

 

Section A - Personal Investor Information

 

Investor Name(s): _____________________________________________________________________________

 

Individual executing Profile or Trustee: _____________________________________________________________

 

Social Security Numbers / Federal I.D. Number: _______________________________________________________

 

Date of Birth: __________________________   Marital Status: ___________________________________
Joint Party Date of Birth: _________________   Investment Experience (Years): _______________________
Annual Income: ________________________   Liquid Net Worth: __________________________________

 

Net Worth*: ________________________

 

Tax Bracket: _____ 15% or below _____ 25% - 27.5% _____ Over 27.5%

 

Home Street Address: __________________________________________________________________________

Home City, State & Zip Code: ____________________________________________________________________

Home Phone: _______________   Home Fax: _____________   Home Email: ________________

Employer: ____________________________________________________________________________________

Employer Street Address: ________________________________________________________________________

Employer City, State & Zip Code: __________________________________________________________________

Bus. Phone: _______________   Bus. Fax: _____________   Bus. Email: _________________

Type of Business: ______________________________________________________________________________

Outside Broker/Dealer: __________________________________________________________________________

 

Section B – Certificate Delivery Instructions

 

____ Please deliver certificate to the Employer Address listed in Section A.

____ Please deliver certificate to the Home Address listed in Section A.

____ Please deliver certificate to the following address: _________________________________________________

 

Section C – Form of Payment – Check or Wire Transfer

 

____ Check payable to Crone Law Group, P.C., as Escrow Agent for Blue Star Foods Corp., ACCT# 157802262

____ Wire funds from my outside account according to Section 2(b) of the Subscription Agreement.

____ The funds for this investment are rolled over, tax deferred from __________ within the allowed 60-day window.

Please check if you are a FINRA member or Affiliate of a FINRA member firm: ____

 

     
Investor Signature   Date

 

* For purposes of calculating your net worth in this form, (a) your primary residence shall not be included as an asset ; (b) indebtedness secured by your primary residence, up to the estimated fair market value of your primary residence at the time of your purchase of the Securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of your purchase of the Securities exceeds the amount outstanding sixty (60) days before such time, other than as a result of the acquisition of your primary residence, the amount of such excess shall be included as a liability); and (c) indebtedness that is secured by your primary residence in excess of the estimated fair market value of your primary residence at the time of your purchase of the Securities shall be included as a liability.

 

 
 

 

ANTI MONEY LAUNDERING REQUIREMENTS

 

The USA PATRIOT Act

 

The USA PATRIOT Act is designed to detect, deter, and punish terrorists in the United States and abroad. The Act imposes new anti-money laundering requirements on brokerage firms and financial institutions. Since April 24, 2002, all brokerage firms have been required to have new, comprehensive anti-money laundering programs.

 

To help you understand these efforts, we want to provide you with some information about money laundering and our steps to implement the USA PATRIOT Act.

 

What is money laundering?

 

Money laundering is the process of disguising illegally obtained money so that the funds appear to come from legitimate sources or activities. Money laundering occurs in connection with a wide variety of crimes, including illegal arms sales, drug trafficking, robbery, fraud, racketeering, and terrorism.

 

How big is the problem and why is it important?

 

The use of the U.S. financial system by criminals to facilitate terrorism or other crimes could well taint our financial markets. According to the U.S. State Department, one recent estimate puts the amount of worldwide money laundering activity at $1 trillion a year.

 

What are we required to do to eliminate money laundering?

 

Under rules required by the USA PATRIOT Act, our anti-money laundering program must designate a special compliance officer, set up employee training, conduct independent audits, and establish policies and procedures to detect and report suspicious transaction and ensure compliance with such laws. As part of our required program, we may ask you to provide various identification documents or other information. Until you provide the information or documents we need, we may not be able to effect any transactions for you.

 

 
 

 

ANTI-MONEY LAUNDERING INFORMATION FORM

The following is required in accordance with the AML provision of the USA PATRIOT ACT.

(Please fill out and return with requested documentation.)

 

INVESTOR NAME: ______________________________________________________________________________

 

LEGAL ADDRESS: ___________________________________________________________________________ ___

 

___________________________________________________________________________ __

 

SSN# or TAX ID#

OF INVESTOR: _____________________________________________________________________________ ___

 

YEARLY INCOME: _________________________________________________________________________ ____

 

NET WORTH: _________________________________________________________________________________*

 

* For purposes of calculating your net worth in this form, (a) your primary residence shall not be included as an asset ; (b) indebtedness secured by your primary residence, up to the estimated fair market value of your primary residence at the time of your purchase of the Securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of your purchase of the Securities exceeds the amount outstanding sixty (60) days before such time, other than as a result of the acquisition of your primary residence, the amount of such excess shall be included as a liability); and (c) indebtedness that is secured by your primary residence in excess of the estimated fair market value of your primary residence at the time of your purchase of the Securities shall be included as a liability.

 

INVESTMENT OBJECTIVE(S) (FOR ALL INVESTORS): ________________________________________________ _

 

ADDRESS OF BUSINESS OR OF EMPLOYER: __________________________________________________ ______

 

FOR INVESTORS WHO ARE INDIVIDUALS : AGE: ______________________________________________ _______

 

FOR INVESTORS WHO ARE INDIVIDUALS : OCCUPATION: ____________________________________ _________

 

FOR INVESTORS WHO ARE ENTITIES : NATURE OF BUSINESS: ________________________________ __________

 

IDENTIFICATION & DOCUMENTATION AND SOURCE OF FUNDS:

 

1. Please submit a copy of non-expired identification for the authorized signatory(ies) on the investment documents, showing name, date of birth, address and signature. The address shown on the identification document MUST match the Investor’s address shown on the Investor Signature Page.

 

Current Driver’s License or Valid Passport or Identity Card

( Circle one or more)

 

2. If the Investor is a corporation, limited liability company, trust or other type of entity, please submit the following requisite documents: (i) Articles of Incorporation, By-Laws, Certificate of Formation, Operating Agreement, Trust or other similar documents for the type of entity; and (ii) Corporate Resolution or power of attorney or other similar document granting authority to signatory(ies) and designating that they are permitted to make the proposed investment.
3. Please advise where the funds were derived from to make the proposed investment:

 

Investments Savings Proceeds of Sale Other ____________

(Circle one or more)

 

Signature: _______________________________________

 

Print Name: _____________________________________

 

Title (if applicable): _______________________________

 

Date: _________________________________________

 

 
 

 

AMENDMENT NO. 1 TO

 

SUBSCRIPTION AGREEMENT

 

THIS AMENDMENT (this “ Amendment ”) is made as of November 18, 2018, by and between Blue Star Foods Corp. , a Delaware corporation (the “ Company ”), and the Purchasers set forth on the signature pages affixed hereto (individually, a “ Purchaser ” or collectively, the “ Purchasers ”).

 

W I T N E S S E T H

 

WHEREAS , each of the Purchasers subscribed to purchase or intends to subscribe to purchase Units from the Company in the Offering;

 

WHEREAS , the Initial Closing of the Offering has not yet occurred; and

 

WHEREAS, the Company and the Purchasers wish to amend the Agreement on the terms set forth herein.

 

NOW, THEREFORE , the parties hereto, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby agree to amend the Agreement as follows:

 

1. Definitions; References; Continuation of Agreement . Unless otherwise specified herein, each term used herein that is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to “hereof,” “hereto,” “hereunder,” “herein” and “hereby” and each other similar reference, and each reference to “this Agreement” and each other similar reference, contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. Except as amended hereby, all terms and provisions of the Agreement shall continue unmodified and remain in full force and effect.

 

2. Change to Offering Amounts . The parties hereto hereby agree that the terms “Minimum Offering” and “Maximum Offering,” as defined in the first preamble of the Agreement, shall be amended to mean a minimum of $700,000 and a maximum of $3,200,000, respectively.

 

3. Extension of Offering Period . The parties hereto hereby agree that the eleventh preamble of the Agreement shall be deleted and replaced in its entirety by the following:

 

“Thereafter, the Company may conduct one or more additional Closings for the sale of the Units until the termination of the Offering. The Company anticipates consummating an initial closing of the Offering (the “ Initial Closing ”) on or before November 14, 2018. The Units will be offered through November 30, 2018 (the “ Initial Offering Period ”), which period may be extended by the Company in its sole discretion, without notice to any Purchaser or prospective Purchaser, to a date not later than ninety (90) days after the final day of the Initial Offering Period (any such additional period and the Initial Offering Period are referred to collectively as the “ Offering Period ”). The final day of the Offering Period shall be referred to as the “ Termination Date .””

 

4. Miscellaneous .

 

4.1 Except as specifically amended or modified as set forth herein, all other terms of the Agreement are ratified and confirmed and remain in full force and effect, to the extent they are in full force and effect as of the date of this Amendment.

 

4.2 This Amendment may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

4.3 This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

 

(Signature page to follow)

 

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on the date first above written.

 

  BLUE STAR FOODS CORP.
     
  By: /s/ John Keeler
  Name: John Keeler
  Title: Executive Chairman

 

Acknowledged and Agreed to:

 

BUYER (individual)   BUYER (entity)
     
     
Signature   Name of Entity
     
     
Print Name   Signature
     
     
Signature (if Joint Tenants or Tenants in Common)   Print Name
     
    Title

 

[Signature Page to Amendment No. 1 to Subscription Agreement]

 

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No. 2018-[___]

 

BLUE STAR FOODS CORP.

 

COMMON STOCK PURCHASE WARRANT

 

THE WARRANT REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND IS SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THIS WARRANT MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT.

 

WARRANT CERTIFICATE

 

THIS WARRANT CERTIFICATE (the “ Warrant Certificate ”) certifies that, for value received, ___________________ ( the “ Holder ”), is the owner of this warrant (the “Warrant”), which entitles the Holder to purchase at any time on or before the Expiration Date (as defined below) ________________________ (__________) shares (the “ Warrant Shares ”) of fully paid non-assessable shares of the common stock (the “ Common Stock ”) of Blue Star Foods Corp., a Delaware corporation (the “ Company ”), at a purchase price per Warrant Share of Two Dollars and Forty Cents ($2.40) (the “ Exercise Price ”), in lawful money of the United States of America by bank or certified check, subject to adjustment as hereinafter provided.

 

1. WARRANT; EXERCISE PRICE .

 

This Warrant shall entitle the Holder to purchase the Warrant Shares at the Exercise Price. The Exercise Price and the number of Warrant Shares evidenced by this Warrant Certificate are subject to adjustment as provided in Article 6.

 

2. EXERCISE; EXPIRATION DATE .

 

(a) This Warrant is exercisable, at the option of the Holder, at any time after the date of issuance and on or before the Expiration Date (as defined below) by delivering to the Company written notice of exercise (the “ Exercise Notice ”), stating the number of Warrant Shares to be purchased thereby, accompanied by bank or certified check payable to the order of the Company for the Warrant Shares being purchased. Within ten (10) business days of the Company’s receipt of the Exercise Notice accompanied by the consideration for the Warrant Shares being purchased, the Company shall instruct its transfer agent to issue and deliver to the Holder a certificate representing the Warrant Shares being purchased. In the case of exercise for less than all of the Warrant Shares represented by this Warrant Certificate, the Company shall cancel this Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate for the balance of such Warrant Shares.

 

 
 

 

(b) Expiration . The term “ Expiration Date ” shall mean 5:00 p.m., New York time, on the third (3rd) anniversary of the date set forth in the signature block of this Warrant or if such date in the State of New York shall be a holiday or a day on which banks are authorized to close, then 5:00 p.m., New York time, the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close.

 

3. RESTRICTIONS ON TRANSFER .

 

(a) Restrictions . This Warrant, and the Warrant Shares or any other security issuable upon exercise of this Warrant may not be assigned, transferred, sold, or otherwise disposed of unless (i) there is in effect a registration statement under the Act covering such sale, transfer, or other disposition or (ii) the Holder furnishes to the Company an opinion of counsel, reasonably acceptable to counsel for the Company, to the effect that the proposed sale, transfer, or other disposition may be effected without registration under the Act, as well as such other documentation incident to such sale, transfer, or other disposition as the Company’s counsel shall reasonably request.

 

(b) Legend . Any Warrant Shares issued upon the exercise of this Warrant shall bear substantially the following legend:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AND WITH RESPECT TO THE SHARES OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SAID ACT THAT IS THEN APPLICABLE TO THE SHARES, AS TO WHICH A PRIOR OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER OR TRANSFER AGENT MAY BE REQUIRED.”

 

4. RESERVATION OF SHARES .

 

The Company covenants that it will at all time reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon exercise of this Warrant, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of this Warrant shall be duly and validly issued and fully paid and non-assessable and free from all taxes, liens, and charges with respect to the issue thereof.

 

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5. LOSS OR MUTILATION .

 

If the Holder loses this Warrant, or if this Warrant is stolen, destroyed or mutilated, the Company shall issue an identical replacement Warrant upon the Holder’s delivery to the Company of a customary agreement to indemnify the Company for any losses resulting from the issuance of the replacement Warrant.

 

6. PROVISIONS REGARDING ADJUSTMENTS TO STOCK .

 

(a) Stock Dividends, Subdivisions and Combinations . If at any time the Company shall:

 

(i) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, additional shares of Common Stock,

 

(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

 

(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,

 

then (A) the number of shares of Common Stock for which this Warrant is exercisable into immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable into immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (B) the Exercise Price shall be adjusted to equal (x) the current Exercise Price immediately prior to the adjustment multiplied by the number of shares of Common Stock for which this Warrant is exercisable into immediately prior to the adjustment divided by (y) the number of shares of Common Stock for which this Warrant is exercisable into immediately after such adjustment.

 

(b) Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Exercise Price, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Exercise Price at the time in effect for this Warrant and (iii) the number of shares of Common Stock and the amount, if any, or other property which at the time would be received upon the exercise of this Warrant.

 

(c) Notices of Record Date . In the event of any fixing by the Company of a record date for 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) or other distribution, any shares of Common Stock or other securities, or any right to subscribe for, purchase or otherwise acquire, or any option for the purchase of, any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to the Holder at least thirty (30) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or rights, and the amount and character of such dividend, distribution or right.

 

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(d) Merger, Consolidation, etc . In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with another corporation (or in the case of any sale, transfer, or other disposition to another corporation of all or substantially all the property, assets, business, and goodwill of the Company), the Holder of this Warrant shall thereafter be entitled to purchase the kind and amount of shares of capital stock which this Warrant entitled the Holder to purchase immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, transfer, or other disposition; and in any such case appropriate adjustments shall be made in the application of the provisions of this Section 6 with respect to rights and interests thereafter of the Holder of this Warrant to the end that the provisions of this Section 6 shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter purchasable upon the exercise of this Warrant.

 

(e) Fractional Shares . No certificate for fractional shares shall be issued upon the exercise of this Warrant, but in lieu thereof the Company shall purchase any such fractional shares calculated to the nearest cent or round up the fraction to the next whole share.

 

(f) Rights of the Holder . The Holder of this Warrant shall not be entitled to any rights of a shareholder of the Company in respect of any Warrant Shares purchasable upon the exercise hereof until such Warrant Shares have been paid for in full and issued to it. As soon as practicable after such exercise, the Company shall deliver a certificate or certificates for the number of full shares of Common Stock issuable upon such exercise, to the person or persons entitled to receive the same.

 

7. RepResentations and Warranties .

 

The Holder, by acceptance of this Warrant, represents and warrants to, and covenants and agrees with, the Company as follows:

 

(a) The Warrant is being acquired for the Holder’s own account for investment and not with a view toward resale or distribution of any part thereof, and the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same.

 

(b) The Holder is aware that the Warrant is not registered under the Securities Act of 1933, as amended (the “ Act ”) or any state securities or blue sky laws and, as a result, substantial restrictions exist with respect to the transferability of the Warrant and the Warrant Shares to be acquired upon exercise of the Warrant.

 

(c ) The Holder is an accredited investor as defined in Rule 501(a) of Regulation D under the Act and is a sophisticated investor familiar with the type of risks inherent in the acquisition of securities such as the Warrant, and its financial position is such that it can afford to retain the Warrant and the Warrant Shares for an indefinite period of time without realizing any direct or indirect cash return on this investment.

 

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8. NO IMPAIRMENT.

 

The Company shall not by any action including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefore upon such exercise immediately prior to such increase in par value, (b) take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non assessable shares of Common Stock upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder.

 

9. REGISTRATION RIGHTS.

 

For the term of this Warrant, the Holder shall have registration rights related to the Warrant Shares as provided for in the Registration Rights Agreement executed by the Company.

 

10. SUPPLYING INFORMATION.

 

The Company shall cooperate with Holder and each holder of Warrant Shares in supplying such information pertaining to the Company as may be reasonable necessary for such Holder and each holder of Warrant Shares to complete and file any information reporting forms presently or hereafter required by the Securities and Exchange Commission as a condition to the availability of an exemption from the Act for the sale of Warrant Shares.

 

11 LIMITATION OF LIABILITY.

 

No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

12 MISCELLANEOUS .

 

(a) Transfer Taxes; Expenses . The Holder shall pay any and all underwriters’ discounts, brokerage fees, and transfer taxes incident to the sale or exercise of this Warrant or the sale of the underlying shares issuable hereunder, and shall pay the fees and expenses of any special attorneys or accountants retained by it.

 

(b) Successors and Assigns . Subject to compliance with the provisions of Section 3, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder.

 

(c) Notice . Any notice or other communication required or permitted to be given to the Company shall be in writing and shall be delivered by certified mail with return receipt or delivered in person against receipt, addressed to the Company at Blue Star Foods Corp., 3000 NW 109 th Ave., Miami, Florida 33172, Attention: Carlos Faria, CEO, Email: cfaria@bluestarfoods.com.

 

(d) Governing Law . This Warrant Certificate shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without reference to the conflicts of laws provisions thereof.

 

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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed as of the date set forth below.

 

  BLUE STAR FOODS CORP.
     
  By: /s/ John Keeler
  Name: John Keeler
  Title: Executive Chairman

 

Issuance Date: ________, 2018

 

[Signature Page to Warrant]

 

6
 

 

BLUE STAR FOODS CORP.

 

FORM OF EXERCISE OF WARRANT

 

The undersigned hereby elects to exercise this Warrant as to _____________ shares of the Common Stock of Blue Star Foods Corp., a Delaware corporation, covered thereby. Enclosed herewith is a bank or certified check in the amount of $_____________ payable to the Company.

 

Delivery of exercise notice requiring a payment by check must be by national courier (FedEx, UPS, etc.) to:

 

     
     
     
  Attn:  

 

The shares should be sent to me at the address provided below.

 

Date:_______________
  (Signature)

 

  Name (Printed) :  
     
  Address:  
     
     

 

  Social Security Number (for individual holder) or
Employer Identification Number (Tax ID) (for entity) :
   
 

 

7
 

 

Registration Rights Agreement

 

THIS REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is made and entered into effective as of November 8, 2018, among Blue Star Foods Corp., a Delaware corporation (the “ Company ”) and the persons or entities who have executed counterpart signature page(s) hereto, consisting of the persons or entities identified on Schedule 1 hereto purchasing Series A Convertible Preferred Stock and Warrants (the “ Investors ”).

 

RECITALS:

 

WHEREAS , the Company has offered and sold to the Investors, in a private placement offering (the “ Offering ”), units of securities of the Company (the “ Units ”), each Unit consisting of (i) one (1) share (each, a “ Unit Share ” and. Collectively, the “ Unit Shares ”) of Series A Convertible Preferred Stock of the Company (“ Series A Preferred Stock ”), which is convertible into shares of Common Stock of the Company (each, a “ Conversion Share ” and, collectively, the “ Conversion Shares ”) and (ii) a warrant (each, a “ Warrant ” and, collectively, the “ Warrants ”) to purchase shares of Common Stock of the Company (each, a “ Warrant Share ” and, collectively, the “ Warrant Shares ”), pursuant to that certain Subscription Agreement entered into by and between the Company and each of the subscribers for the shares of Units set forth on the signature pages affixed thereto; and

 

WHEREAS , in connection with the Offering the Company has agreed to enter into a registration rights agreement with each of Investors to register the Conversion Shares and the Warrant Shares upon the terms and provisions provided for in this Agreement.

 

Now, Therefore , in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth herein, the parties mutually agree as follows:

 

1. Certain Definitions . As used in this Agreement, the following terms shall have the following respective meanings:

 

Approved Market ” means the OTC Markets Group, the Nasdaq Stock Market, the New York Stock Exchange or the NYSE Amex.

 

Blackout Period ” means, with respect to a registration, a period during which the Company, in the good faith judgment of its board of directors, determines (because of the existence of, or in anticipation of, any acquisition, financing activity, or other transaction involving the Company, or the unavailability for reasons beyond the Company’s control of any required financial statements, disclosure of information which is in its best interest not to publicly disclose, or any other event or condition of similar significance to the Company) that the registration and distribution of the Registrable Securities to be covered by such registration statement, if any, would be seriously detrimental to the Company and its stockholders, in each case commencing on the day the Company notifies the Holders that they are required, because of the determination described above, to suspend offers and sales of Registrable Securities and ending on the earlier of (1) the date upon which the material non-public information resulting in the Blackout Period is disclosed to the public or ceases to be material and (2) such time as the Company notifies the selling Holders that sales pursuant to such Registration Statement or a new or amended Registration Statement may resume.

 

 
 

 

Business Day ” means any day of the year, other than a Saturday, Sunday, or other day on which banks in the State of New York are required or authorized to close.

 

Commission ” means the U. S. Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

 

Common Stock ” means the common stock, par value $0.0001 per share, of the Company and any and all shares of capital stock or other equity securities of: (i) the Company which are added to or exchanged or substituted for the Common Stock by reason of the declaration of any stock dividend or stock split, the issuance of any distribution or the reclassification, readjustment, recapitalization or other such modification of the capital structure of the Company; and (ii) any other corporation, now or hereafter organized under the laws of any state or other governmental authority, with which the Company is merged, which results from any consolidation or reorganization to which the Company is a party, or to which is sold all or substantially all of the shares or assets of the Company, if immediately after such merger, consolidation, reorganization or sale, the Company or the stockholders of the Company own equity securities having in the aggregate more than 50% of the total voting power of such other corporation.

 

Conversion Shares ” means the shares of Common Stock underlying the Series A Preferred Stock issued to the Investors pursuant to the Purchase Agreement, and any shares of Common Stock issued or issuable with respect to such shares upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

 

Effective Date ” means the date of the initial closing of the Offering.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

 

Family Member ” means (a) with respect to any individual, such individual’s spouse, any descendants (whether natural or adopted), any trust all of the beneficial interests of which are owned by any of such individuals or by any of such individuals together with any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, the estate of any such individual, and any corporation, association, partnership or limited liability company all of the equity interests of which are owned by those above described individuals, trusts or organizations and (b) with respect to any trust, the owners of the beneficial interests of such trust.

 

Holder ” means each Investor or any of such Investor’s respective successors and Permitted Assignees who acquire rights in accordance with this Agreement with respect to any Registrable Securities directly or indirectly from an Investor or from any Permitted Assignee.

 

Majority Holders ” means, at any time, Holders of a majority of the Registrable Securities then outstanding.

 

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Permitted Assignee ” means (a) with respect to a partnership, its partners or former partners in accordance with their partnership interests, (b) with respect to a corporation, its stockholders in accordance with their interest in the corporation, (c) with respect to a limited liability company, its members or former members in accordance with their interest in the limited liability company, (d) with respect to an individual party, any Family Member of such party, (e) an entity that is controlled by, controls, or is under common control with a transferor, or (f) a party to this Agreement.

 

Piggyback Registration ” means, in any registration of Common Stock referenced in Section 3(b), the right of each Holder to include the Registrable Securities of such Holder in such registration.

 

The terms “ register ,” “ registered ,” and “ registration ” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

 

Registrable Securities ” means (a) the Conversion Shares and (b) the Warrant Shares; but, in each case, excluding any otherwise Registrable Securities that (i) have been sold or otherwise transferred other than to a Permitted Assignee, (ii) may be sold under the Securities Act without volume limitations either pursuant to Rule 144 of the Securities Act or otherwise during any ninety (90) day period, or (iii) are at the time subject to an effective registration statement under the Securities Act.

 

Registration Statement ” means the registration statement that the Company is required to file pursuant to Section 3(a) of this Agreement to register the Registrable Securities.

 

Restricted Holders ” means the officers and directors and certain key employees of the Company and certain stockholders of the Company who have entered into lock-up agreements with the Company pursuant to which such they agree to certain restrictions on the sale or disposition (including pledge) of the Common Stock held by (or issuable to) them.

 

Rule 144 ” means Rule 144 promulgated by the Commission under the Securities Act, as such rule may be amended or supplemented from time to time, or any similar successor rule that may be promulgated by the Commission.

 

Rule 145 ” means Rule 145 promulgated by the Commission under the Securities Act, as such rule may be amended or supplemented from time to time, or any similar successor rule that may be promulgated by the Commission.

 

Rule 415 ” means Rule 415 promulgated by the Commission under the Securities Act, as such rule may be amended or supplemented from time to time, or any similar successor rule that may be promulgated by the Commission.

 

Securities Act ” means the Securities Act of 1933, as amended, or any similar federal statute promulgated in replacement thereof, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

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SEC Effective Date ” means the date the Registration Statement is declared effective by the Commission.

 

Trading Day ” means any day on which such national securities exchange, the OTC Markets Group or such other securities market or quotation system, which at the time constitutes the principal securities market for the Common Stock, is open for general trading of securities.

 

Warrant Shares ” means the shares of Common Stock issued to the Investors upon exercise of the Warrants, and any shares of Common Stock issued or issuable with respect to such shares upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

 

2. Term . This Agreement shall terminate with respect to each Holder on the earlier of: (i) the date that is the later of (x) one year from the SEC Effective Date and (y) the date on which all Registrable Securities held by such Holder are transferred other than to a Permitted Transferee or may be sold under Rule 144 without volume limitations during any ninety (90) day period; or (ii) the date otherwise terminated as provided herein.

 

3. Registration .

 

(a) Registration on Form S-1 . No later than the one hundred twentieth (120) Business Day after the closing of the Offering, the Company shall file with the Commission a Registration Statement on Form S-1, or any other form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the resale by the Holders of all of the Registrable Securities, and the Company shall use its commercially reasonable efforts to cause such Registration Statement to be declared effective and to keep such Registration Statement effective for a period of twelve months (12) months or for such shorter period ending on the earlier to occur of (x) the sale of all Registrable Securities and (y) the availability of Rule 144 for the Holder to sell all of the Registrable Securities without volume limitations within a 90 day period (the “ Effectiveness Period ”); provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section, or keep such registration effective pursuant to the terms hereunder, in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or as a dealer in securities under the securities laws of such jurisdiction or to execute a general consent to service of process in effecting such registration, qualification or compliance, in each case where it has not already done so. Notwithstanding the foregoing, in the event that the staff (the “ Staff ”) of the Commission should limit the number of Registrable Securities that may be sold pursuant to the Registration Statement, the Company may remove from the Registration Statement such number of Registrable Securities as specified by the Commission on behalf of all of the holders of Registrable Securities on a pro-rata basis.

 

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(b) Piggyback Registration . If at any time after the date hereof, the Company shall determine to register for sale for cash any of its Common Stock, for its own account or for the account of others (other than the Holders), other than (i) a registration relating solely to employee benefit plans or securities issued or issuable to employees, consultants (to the extent the securities owned or to be owned by such consultants could be registered on Form S-8 (or its then equivalent form) or any of their Family Members (including a registration on Form S-8 (or its then equivalent form)), (ii) a registration relating solely to a Securities Act Rule 145 transaction or a registration on Form S-4 (or its then equivalent form) in connection with a merger, acquisition, divestiture, reorganization or similar event, or (iii) a transaction relating solely to the sale of equity, debt or convertible debt instruments, then the Company shall promptly give to each Holder written notice thereof (the “ Registration Rights Notice ”) (and in no event shall such notice be given less than twenty (20) calendar days prior to the filing of such registration statement), and shall, subject to Section 3(c), include as a Piggyback Registration all of the Registrable Securities (including any Registrable Securities that are removed from the Registration Statement as a result of a requirement by the Staff) specified in a written request delivered by the Holder thereof within ten (10) calendar days after delivery to the Holder of such written notice from the Company. However, the Company may, without the consent of such Holders, withdraw such registration statement prior to its becoming effective if the Company or such other selling stockholders have elected to abandon the proposal to register the securities proposed to be registered thereby. The right contained in this paragraph may be exercised by each Holder only with respect to two (2) qualifying registrations.

 

(c) Underwriting . If a Piggyback Registration is for a registered public offering that is to be made by an underwriting, the Company shall so advise the Holders as part of the Registration Rights Notice. In that event, the right of any Holder to Piggyback Registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to sell any of their Registrable Securities through such underwriting shall (together with the Company and any other stockholders of the Company selling their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter selected for such underwriting by the Company or such other selling stockholders, as applicable. Notwithstanding any other provision of this Section 3(c), if the underwriter or the Company determines that marketing factors require a limitation on the number of shares of Common Stock or the amount of other securities to be underwritten, the underwriter may exclude some or all Registrable Securities from such registration and underwriting. The Company shall so advise all Holders (except those Holders who failed to timely elect to include their Registrable Securities through such underwriting or have indicated to the Company their decision not to do so) and indicate to each such Holder the number of shares of Registrable Securities that may be included in the registration and underwriting, if any. The number of shares of Registrable Securities to be included in such registration and underwriting shall be allocated among such Holders as follows:

 

(i) If the Piggyback Registration was initiated by the Company, the number of shares that may be included in the registration and underwriting shall be allocated first to the Company and then, subject to obligations and commitments existing as of the date hereof, to all persons exercising piggyback registration rights (including the Holders) who have requested to sell in the registration on a pro rata basis according to the number of shares requested to be included therein; and

 

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(ii) If the Piggyback Registration was initiated by the exercise of demand registration rights by a stockholder or stockholders of the Company, then the number of shares that may be included in the registration and underwriting shall be allocated first to such selling stockholders who exercised such demand to the extent of their demand registration rights, and then, subject to obligations and commitments existing as of the date hereof, to the Company and then, subject to obligations and commitments existing as of the date hereof, to all persons exercising piggyback registration rights (including the Holders) who have requested to sell in the registration on a pro rata basis according to the number of shares requested to be included therein.

 

No Registrable Securities excluded from the underwriting by reason of the underwriter’s marketing limitation shall be included in such registration. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw such Holder’s Registrable Securities therefrom by delivering a written notice to the Company and the underwriter. The Registrable Securities so withdrawn from such underwriting shall also be withdrawn from such registration; provided , however , that, if by the withdrawal of such Registrable Securities, a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities pursuant to the terms and limitations set forth herein in the same proportion used above in determining the underwriter limitation.

 

(d) Other Limitations . Notwithstanding the provisions of Section 3(d) above, if (i) the Commission does not declare the Registration Statement effective on or before the Registration Effectiveness Date, or (ii) the Commission allows the Registration Statement to be declared effective at any time before or after the Registration Effectiveness Date, subject to the withdrawal of certain Registrable Securities from the Registration Statement, and the reason for (i) or (ii) is the Commission’s determination that (x) the offering of any of the Registrable Securities constitutes a primary offering of securities by the Company, (y) Rule 415 may not be relied upon for the registration of the resale of any or all of the Registrable Securities, and/or (z) a Holder of any Registrable Securities must be named as an underwriter, the Holders understand and agree that in the case of the Company may (notwithstanding anything to the contrary contained herein) reduce, on a pro rata basis, the total number of Registrable Securities to be registered on behalf of each such Holder.

 

4. Registration Procedures . The Company will keep each Holder reasonably advised as to the filing and effectiveness of the Registration Statement. At its expense with respect to the Registration Statement, the Company will:

 

(a) prepare and file with the Commission with respect to the Registrable Securities, a Registration Statement in accordance with Section 3(a) hereof, and use its commercially reasonable efforts to cause such Registration Statement to become effective and to remain effective for the Effectiveness Period;

 

(b) if the Registration Statement is subject to review by the Commission, promptly respond to all comments and diligently pursue resolution of any comments to the satisfaction of the Commission;

 

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(c) prepare and file with the Commission such amendments and supplements to such Registration Statement as may be necessary to keep such Registration Statement effective during the Effectiveness Period;

 

(d) furnish, without charge, to each Holder of Registrable Securities covered by such Registration Statement (i) a reasonable number of copies of such Registration Statement (including any exhibits thereto other than exhibits incorporated by reference), each amendment and supplement thereto as such Holder may reasonably request, (ii) such number of copies of the prospectus included in such Registration Statement (including each preliminary prospectus and any other prospectus filed under Rule 424 of the Securities Act) as such Holders may reasonably request, in conformity with the requirements of the Securities Act, and (iii) such other documents as such Holder may reasonably require to consummate the disposition of the Registrable Securities owned by such Holder, but only during the Effectiveness Period;

 

(e) use its commercially reasonable efforts to register or qualify such registration under such other applicable securities laws of such jurisdictions within the United States as any Holder of Registrable Securities covered by such Registration Statement reasonably requests and as may be necessary for the marketability of the Registrable Securities (such request to be made by the time the applicable Registration Statement is deemed effective by the Commission) and do any and all other acts and things necessary to enable such Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder; provided , that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph, (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction.

 

(f) as promptly as practicable after becoming aware of such event, notify each Holder of Registrable Securities, the disposition of which requires delivery of a prospectus relating thereto under the Securities Act, of the happening of any event, which comes to the Company’s attention, that will after the occurrence of such event cause the prospectus included in such Registration Statement, if not amended or supplemented, to contain an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading and the Company shall promptly thereafter prepare and furnish to such Holder a supplement or amendment to such prospectus (or prepare and file appropriate reports under the Exchange Act) so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, unless suspension of the use of such prospectus otherwise is authorized herein or in the event of a Blackout Period, in which case no supplement or amendment need be furnished (or Exchange Act filing made) until the termination of such suspension or Blackout Period;

 

(g) comply, and continue to comply during the Effectiveness Period, in all material respects with the Securities Act and the Exchange Act and with all applicable rules and regulations of the Commission with respect to the disposition of all securities covered by such Registration Statement;

 

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(h) as promptly as practicable after becoming aware of such event, notify each Holder of Registrable Securities being offered or sold pursuant to the Registration Statement of the issuance by the Commission of any stop order or other suspension of effectiveness of the Registration Statement;

 

(i) use its commercially reasonable efforts to cause all the Registrable Securities covered by the Registration Statement to be quoted on the OTC Markets Group or such other principal securities market or quotation system on which securities of the same class or series issued by the Company are then listed or traded or quoted;

 

(j) provide a transfer agent and registrar, which may be a single entity, for the shares of Common Stock at all times;

 

(k) cooperate with the Holders of Registrable Securities being offered pursuant to the Registration Statement to issue and deliver, or cause its transfer agent to issue and deliver, certificates representing Registrable Securities to be offered pursuant to the Registration Statement within a reasonable time after the delivery of certificates representing the Registrable Securities to the transfer agent or the Company, as applicable, and enable such certificates to be in such denominations or amounts as the Holders may reasonably request and registered in such names as the Holders may request;

 

(l) during the Effectiveness Period, refrain from bidding for or purchasing any Common Stock or any right to purchase Common Stock or attempting to induce any person to purchase any such security or right if such bid, purchase or attempt would in any way limit the right of the Holders to sell Registrable Securities by reason of the limitations set forth in Regulation M of the Exchange Act; and

 

(m) take all other commercially reasonable actions necessary to expedite and facilitate the disposition by the Holders of the Registrable Securities pursuant to the Registration Statement during the term of this Agreement.

 

5. Obligations of the Holders .

 

(a) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(f) hereof or of the commencement of a Blackout Period, such Holder shall discontinue the disposition of Registrable Securities included in the Registration Statement until such Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 4(f) hereof or notice of the end of the Blackout Period, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies (including, without limitation, any and all drafts), other than permanent file copies, then in such Holder’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

 

(b) The holders of the Registrable Securities shall provide such information as may reasonably be requested by the Company, or the managing underwriter, if any, in connection with the preparation of any registration statement, including amendments and supplements thereto, in order to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 3(a) and/or 3(b) of this Agreement and in connection with the Company’s obligation to comply with federal and applicable state securities laws, including a completed questionnaire in the form attached to this Agreement as Annex A (a “ Selling Securityholder Questionnaire ”) or any update thereto not later than three (3) Business Days following a request therefore from the Company.

 

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(c) Each Holder, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Holder has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

 

6. Registration Expenses . The Company shall pay all expenses in connection with any registration obligation provided herein, including, without limitation, all registration, filing, stock exchange fees, printing expenses, all fees and expenses of complying with applicable securities laws, and the fees and disbursements of counsel for the Company and of its independent accountants; provided , that, in any underwritten registration, the Company shall have no obligation to pay any underwriting discounts, selling commissions or transfer taxes attributable to the Registrable Securities being sold by the Holders thereof, which underwriting discounts, selling commissions and transfer taxes shall be borne by such Holders. Additionally, in an underwritten offering, all selling stockholders and the Company shall bear the expenses of the underwriter pro rata in proportion to the respective amount of shares each is selling in such offering. Except as provided in this Section 6 and Section 8 of this Agreement, the Company shall not be responsible for the expenses of any attorney or other advisor employed by a Holder.

 

7. Assignment of Rights . No Holder may assign its rights under this Agreement to any party without the prior written consent of the Company; provided , however , that any Holder may assign its rights under this Agreement without such consent to a Permitted Assignee as long as (a) such transfer or assignment is effected in accordance with applicable securities laws; (b) such transferee or assignee agrees in writing to become bound by and subject to the terms of this Agreement; and (c) such Holder notifies the Company in writing of such transfer or assignment, stating the name and address of the transferee or assignee and identifying the Registrable Securities with respect to which such rights are being transferred or assigned. The Company may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto.

 

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8. Indemnification .

 

(a) In the event of the offer and sale of Registrable Securities under the Securities Act, the Company shall, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, each Holder, its directors, officers, partners, and each other person, if any, who controls or is under common control with such Holder within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, and expenses to which the Holder or any such director, officer, partner or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement of any material fact contained in any registration statement prepared and filed by the Company under which Registrable Securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission to state therein a material fact required to be stated or necessary to make the statements therein in light of the circumstances in which they were made not misleading, and the Company shall reimburse the Holder, and each such director, officer, partner and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating, defending or settling any such loss, claim, damage, liability, action or proceeding; provided , however , that such indemnity agreement found in this Section 8(a) shall in no event exceed the net proceeds from the Offering received by the Company; and provided further , that the Company shall not be liable in any such case (i) to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (x) an untrue statement in or omission from such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished by a Holder to the Company for use in the preparation thereof or (y) the failure of a Holder to comply with the covenants and agreements contained in Section 5 hereof respecting the sale of Registrable Securities; or (ii) if the person asserting any such loss, claim, damage, liability (or action or proceeding in respect thereof) who purchased the Registrable Securities that are the subject thereof did not receive a copy of an amended preliminary prospectus or the final prospectus (or the final prospectus as amended or supplemented) at or prior to the written confirmation of the sale of such Registrable Securities to such person because of the failure of such Holder to so provide such amended preliminary or final prospectus and the untrue statement or omission of a material fact made in such preliminary prospectus was corrected in the amended preliminary or final prospectus (or the final prospectus as amended or supplemented). Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holders, or any such director, officer, partner or controlling person and shall survive the transfer of such shares by the Holder.

 

(b) As a condition to including Registrable Securities in any registration statement filed pursuant to this Agreement, each Holder agrees to be bound by the terms of this Section 8 and to indemnify and hold harmless, to the fullest extent permitted by law, the Company, each of its directors, officers, partners, legal counsel and accountants and each underwriter, if any, and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement of a material fact or any omission of a material fact required to be stated in any registration statement, any preliminary prospectus, final prospectus, summary prospectus, amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent that such untrue statement or omission is included or omitted in reliance upon and in conformity with written information furnished by the Holder to the Company for use in the preparation thereof, and such Holder shall reimburse the Company, and such Holders, directors, officers, partners, legal counsel and accountants, persons, underwriters, or control persons, each such director, officer, and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating, defending, or settling any such loss, claim, damage, liability, action, or proceeding; provided , however , that indemnity obligation contained in this Section 8(b) shall in no event exceed the amount of the net proceeds received by such Holder as a result of the sale of such Holder’s Registrable Securities pursuant to such registration statement, except in the case of fraud or willful misconduct. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer by any Holder of such shares.

 

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(c) Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in this Section 8 (including any governmental action), such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the indemnifying party of the commencement of such action; provided , that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in the reasonable judgment of counsel to such indemnified party a conflict of interest between such indemnified and indemnifying parties may exist or the indemnified party may have defenses not available to the indemnifying party in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defenses thereof or the indemnifying party fails to defend such claim in a diligent manner, other than reasonable costs of investigation. Neither an indemnified nor an indemnifying party shall be liable for any settlement of any action or proceeding effected without its consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement, which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights set forth above, in any event any party shall have the right to retain, at its own expense, counsel with respect to the defense of a claim. Each indemnified party shall furnish such information regarding itself or the claim in question as an indemnifying party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.

 

(d) If an indemnifying party does not or is not permitted to assume the defense of an action pursuant to Sections 8(c) or in the case of the expense reimbursement obligation set forth in Sections 8(a) and 8(b), the indemnification required by Sections 8(a) and 8(b) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expenses, losses, damages, or liabilities are incurred.

 

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(e) If the indemnification provided for in Section 8(a) or 8(b) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense (i) in such proportion as is appropriate to reflect the proportionate relative fault of the indemnifying party on the one hand and the indemnified party on the other (determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission relates to information supplied by the indemnifying party or the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission), or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or provides a lesser sum to the indemnified party than the amount hereinafter calculated, then in such proportion as is appropriate to reflect not only the proportionate relative fault of the indemnifying party and the indemnified party, but also the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, as well as any other relevant equitable considerations. No indemnified party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any indemnifying party who was not guilty of such fraudulent misrepresentation.

 

(f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

(g) Other Indemnification . Indemnification similar to that specified in this Section (with appropriate modifications) shall be given by the Company and each Holder of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act.

 

9. Rule 144 . With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the Commission that may at any time permit the Holders to sell the Registrable Securities to the public without registration, the Company agrees: (i) to make and keep public information available as those terms are understood in Rule 144, (ii) to file with the Commission in a timely manner all reports and other documents required to be filed by an issuer of securities registered under the Securities Act or the Exchange Act pursuant to Rule 144, (iii) as long as any Holder owns any Registrable Securities, to furnish in writing upon such Holder’s request a written statement by the Company that it has complied with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, and to furnish to such Holder a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as may be reasonably requested in availing such Holder of any rule or regulation of the Commission permitting the selling of any such Registrable Securities without registration and (iv) undertake any additional actions commercially reasonably necessary to maintain the availability of the use of Rule 144..

 

10. Independent Nature of Each Purchaser’s Obligations and Rights . The obligations of each Investor are several and not joint with the obligations of any other Investor, and each Investor shall not be responsible in any way for the performance of the obligations of any other Investor under this Agreement. Nothing contained herein, and no action taken by any Investor pursuant hereto, shall be deemed to constitute such Investor as a partnership, an association, a joint venture, or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.

 

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11. Miscellaneous .

 

(a) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the United States of America and the State of New York, both substantive and remedial, without regard to New York conflicts of law principles. Any judicial proceeding brought against either of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto shall be brought in the courts of the State of New York, or in the United States District Court for the Southern District of State of New York and, by its execution and delivery of this Agreement, each party to this Agreement accepts the jurisdiction of such courts. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the parties to this Agreement.

 

(b) Successors and Assigns . Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, Permitted Assignees, executors and administrators of the parties hereto.

 

(c) No Inconsistent Agreements . The Company has not entered, as of the date hereof, and shall not enter, on or after the date of this Agreement, into any agreement with respect to its securities that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.

 

(d) Entire Agreement . This Agreement and the documents, instruments and other agreements specifically referred to herein or delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof.

 

(e) Notices, etc . All notices, consents, waivers, and other communications which are required or permitted under this Agreement shall be in writing will be deemed given to a party (a) on the date of delivery, if delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) the date of transmission if sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment if such notice or communication is delivered prior to 5:00 P.M., New York City time, on a Trading Day, or the next Trading Day after the date of transmission, if such notice or communication is delivered on a day that is not a Trading Day or later than 5:00 P.M., New York City time, on any Trading Day; (c) the date received or rejected by the addressee, if sent by certified mail, return receipt requested; or (d) seven days after the placement of the notice into the mails (first class postage prepaid), to the party at the address, facsimile number, or e-mail address furnished by the such party,

 

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If to the Company, to:

 

Blue Star Foods Corp.

c/o Blue Star Foods

3000 NW 109 th Ave.

Miami, Florida 33172

Attention: Carlos Faria, CEO

Telephone: (305) 836-6858

Facsimile: (305) 836-6859

Email: cfaria@bluestarfoods.com

 

if to an Investor, to such Investor at the address set forth on the signature page hereto;

 

or at such other address as any party shall have furnished to the other parties in writing in accordance with this Section 11(f).

 

(f) Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any Holder, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Agreement, or any waiver on the part of any Holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative.

 

(g) Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. In the event that any signature is delivered by facsimile transmission or by e-mail, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

(h) Severability . In the case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

(i) Amendments . Except as otherwise provided herein, the provisions of this Agreement may be amended at any time and from time to time, and particular provisions of this Agreement may be waived, with and only with an agreement or consent in writing signed by the Company and the Majority Holders. The Investors acknowledge that by the operation of this Section, the Majority Holders may have the right and power to diminish or eliminate all rights of the Investors under this Agreement.

 

[COMPANY SIGNATURE PAGE FOLLOWS]

 

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This Registration Rights Agreement is hereby executed as of the date first above written.

 

  BLUE STAR FOODS CORP.
     
  By: /s/John Keeler
  Name: John Keeler
  Title: Executive Chairman
     
  INVESTOR
   
  Each Subscriber’s signature to the Subscription Agreement shall constitute the Subscriber’s Signature to this Registration Rights Agreement

 

[Signature Page to Registration Rights Agreement]

 

15
 

 

Annex A

 

BLUE STAR FOODS CORP.

 

Selling Securityholder Notice and Questionnaire

 

The undersigned beneficial owner of Registrable Securities of Blue Star Foods Corp., a Delaware corporation (the “ Company ”), understands that the Company has filed or intends to file with the U.S. Securities and Exchange Commission a registration statement (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended, of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “ Registration Rights Agreement ”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling security holder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling security holder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “ Selling Securityholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name:

 

  (a) Full Legal Name of Selling Securityholder
     
     
     
     
  (b) Full Legal Name of Registered Holder (holder of record) (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
     
  (c) If you are not a natural person, full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
     
     

 

 
 

 

2. Address for Notices to Selling Securityholder:

 

 
 
 
Telephone: __________________________________ Fax: _________________________________________________
Email:                                                                                                                                                                                                                     
Contact Person: __________________________________________________________________________________

 

3. Broker-Dealer Status:

 

  (a) Are you a broker-dealer?

 

Yes [  ] No [  ]

 

  (b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes [  ] No [  ]

 

  Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
     
  (c) Are you an affiliate of a broker-dealer?

 

Yes [  ] No [  ]

 

  (d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes [  ] No [  ]

 

  Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

2
 

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Securityholder:

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company.

 

(a) Please list the type (common stock, warrants, etc.) and amount of all securities of the Company (including any Registrable Securities) beneficially owned 1 by the Selling Securityholder:

 

 
 

 

5. Relationships with the Company:

 

Except as set forth below, neither you nor (if you are a natural person) any member of your immediate family, nor (if you are not a natural person) any of your affiliates 2 , officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:

 

 
 

 

 

1 Beneficially Owned : A “beneficial owner” of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares (i) voting power , including the power to direct the voting of such security, or (ii) investment power , including the power to dispose of, or direct the disposition of, such security. In addition, a person is deemed to have “beneficial ownership” of a security of which such person has the right to acquire beneficial ownership at any time within 60 days, including, but not limited to, any right to acquire such security: (i) through the exercise of any option, warrant or right, (ii) through the conversion of any security or (iii) pursuant to the power to revoke, or the automatic termination of, a trust, discretionary account or similar arrangement.
   
  It is possible that a security may have more than one “beneficial owner,” such as a trust, with two co-trustees sharing voting power, and the settlor or another third party having investment power, in which case each of the three would be the “beneficial owner” of the securities in the trust. The power to vote or direct the voting, or to invest or dispose of, or direct the investment or disposition of, a security may be indirect and arise from legal, economic, contractual or other rights, and the determination of beneficial ownership depends upon who ultimately possesses or shares the power to direct the voting or the disposition of the security.
   
  The final determination of the existence of beneficial ownership depends upon the facts of each case. You may, if you believe the facts warrant it, disclaim beneficial ownership of securities that might otherwise be considered “beneficially owned” by you.
   
2 Affiliate : An “affiliate” is a company or person that directly, or indirectly through one or more intermediaries, controls you, or is controlled by you, or is under common control with you.

 

3
 

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Selling Securityholder Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

BENEFICIAL OWNER (individual)   BENEFICIAL OWNER (entity)
     
     
Signature   Name of Entity
     
     
Print Name   Signature
     
    Print Name:                                           
Signature (if Joint Tenants or Tenants in Common)    
    Title: __________________________________________

 

PLEASE E-MAIL OR FAX A COPY OF THE COMPLETED AND EXECUTED SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

Crone Law Group, P.C.

830 Third Avenue, 5th Floor

New York, NY 10022

Attention: Eric C. Mendelson

Telephone: (646) 278-0886

Facsimile: (212) 840-8560

E-Mail: emendelson@cronelawgroup.com

 

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SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE

 

THIS SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE (“ Settlement Agreement ”) is made as of ______ _________ , 2018, by and among John Keeler & Co., Inc. d/b/a Blue Star Foods , a Florida corporation with an address at 3000 NW 109 th Ave., Miami, Florida 33172 (the “ Company ”), and ____________________________ _, with an address at _____________________ ___________________ (“the “ Investor ”). The foregoing parties are sometimes referred to hereinafter collectively as the “ Parties ” and each, individually, as a “ Party ”.

 

RECITALS

 

A. On August 3, 2015, the Investor purchased $ ___________ _____ dollars of capital stock (the “ Share Purchase ”) of Global Seafood International, Inc., which was later acquired by Steele Oceanic Corporation, an Oklahoma corporation (formerly known as Steele Resources Corporation) (“ SELR ”).

 

B. The Investor has notified the Company that it believes it has certain potential claims against the Company and/or SELR related to the Share Purchase.

 

C. In an effort to resolve the disputes between them, the Company and the Investor have engaged in good faith settlement negotiations and have reached a settlement.

 

D. Accordingly, the Investor is willing to agree to forbear from exercising certain of its rights and remedies, solely on the terms and conditions specified herein.

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual promises, covenants and conditions herein contained, the Parties agree as follows:

 

1. Recitals Incorporated . The Recitals listed above are incorporated into and made a part of this Agreement.

 

2. Issuance of Shares . In consideration for the Investor’s agreement to forbear from exercising certain of its rights and remedies, simultaneously with the closing of a business combination transaction the Company is currently negotiating with A.G. Acquisition Group II, Inc., a Delaware corporation (to be renamed Blue Star Foods Corp.) (the “ Pubco ”), the Company will cause the Pubco to issue to the Investor, without further consideration, other than the general release set forth in Section 4 below, ____ _____ units of Pubco’s securities (each, a “ Unit ” and, collectively, the “ Units ”), each Unit consisting of (a) one share (each, a “ Share ” and, collectively, the “ Shares ”) of Pubco’s Series A convertible preferred stock, par value $0.0001 per share (the “ Series A Preferred Stock ”), initially convertible into shares of Pubco’s common stock, par value $0.0001 per share (the “ Common Stock ”), at a conversion rate of 500-for-1 (a total of 500 shares of Common Stock per Unit) (the “ Conversion Price ”), and (b) 3-year warrants (each, a “ Warrant ” and, collectively, the “ Warrant s”) to purchase one-half (½) of one share of Pubco’s Common Stock for every share of Common Stock that would be received upon conversion of a share of Series A Preferred Stock (a total of 250 Warrants per Unit), in full and complete satisfaction (together with the general release set forth in Section 3 below) of any and all Investor Released Claims (as defined below) related to the Share Purchase the Investor may have against the Company Parties (as defined below). The certificates representing the Shares of Series A Preferred Stock, the shares of Common Stock issuable upon conversion of the Shares of Series A Preferred Stock (the “ Conversion Shares ”), the Warrants, and the shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”) (the Units, the Shares of Series A Stock, the Conversion Shares, the Warrants and the Warrant Shares are sometimes herein referred to as the “ Securities ”) shall bear appropriate and customary legends restricting their transfer absent registration under the securities laws or available exemption therefrom. The Investor makes the representations and warranties to the Company set forth in Appendix A hereto (which are incorporated by reference herein), as of the date hereof and as of the date of the delivery to the Investor of the Units.

 

 
 

 

3. Release by the Company and the Company Parties . The Company and the Company Parties (as defined below) hereby fully and forever waive, release, acquit and discharge the Investor, together with all of his/her/its past and present predecessors-in-interest, successors-in-interest, assigns, and affiliates, and all of their officers, directors, shareholders, principals, managers, members, partners, employees, agents, servants, attorneys and legal representatives (hereinafter collectively referred to as the (“ Investor Parties ”), from any and all actions, suits, arbitrations, proceedings, controversies, disputes, causes of action, claims, rights, obligations, demands, agreements, covenants, promises, responsibilities, liabilities, indemnifications, contributions, damages, costs, expenses and fees, of whatever kind and nature, related to the Share Purchase, whether contractual, extra-contractual, tort or otherwise, which the Company or any of the Company Parties may now have, ever had, or will ever have against the Investor or the Investor Parties related to the Share Purchase, whether known or unknown, matured or unmatured, foreseeable or unforeseeable, fixed, contingent, class, individual, derivative or otherwise (the “ Company Released Claims ”). The Company and the Company Parties (as defined below) understand that they may later discover facts relating to the Company Released Claims in addition to or different from the facts now known or believed by them to be true and accept and assume such risk. Notwithstanding anything to the contrary herein, it is further understood and agreed by the parties hereto that this release shall not apply to acts of fraud or gross negligence by the Investor or the Investor Parties or release the Investor or the Investor Parties from any claims arising out of or related to this Settlement Agreement.

 

4. Release by the Investor and the Investor Parties . The Investor and the Investor Parties do hereby fully and forever waive, release, acquit and discharge the Company and SELR, together with all of their past and present predecessors-in-interest, successors-in-interest, assigns, and affiliates, and all of their officers, directors, shareholders, principals, managers, members, partners, employees, agents, servants, attorneys and legal representatives (hereinafter collectively referred to as the “ Company Parties ”), from any and all actions, suits, arbitrations, proceedings, controversies, disputes, causes of action, claims, rights, obligations, demands, agreements, covenants, promises, responsibilities, liabilities, indemnifications, contributions, damages, costs, expenses and fees, of whatever kind and nature related to the Share Purchase, whether contractual, extra-contractual, tort or otherwise, which Investor or any of the Investor Parties may now have, ever had, or will ever have against the Company or the Company Parties related to the Share Purchase, whether known or unknown, matured or unmatured, foreseeable or unforeseeable, fixed, contingent, class, individual, derivative or otherwise (the “ Investor Released Claims ”). The Investor and the Investor Parties understand that they may later discover facts relating to the Investor Released Claims in addition to or different from the facts now known or believed by them to be true and accept and assume such risk. Notwithstanding anything to the contrary herein, it is further understood and agreed by the parties hereto that this release shall not apply to acts of fraud or gross negligence by the Company or the Company Parties or release the Company or the Company Parties from any claims arising out of or related to this Settlement Agreement.

 

2
 

 

5. Final Disposition . This Agreement is acknowledged to be a final and binding disposition of any and all Company Released Claims and Investor Released Claims by the Parties, as applicable, arising from or in any way related to the Share Purchase. Neither the negotiations preliminary to the signing of this Agreement nor its acceptance shall be considered as an admission of wrongdoing or liability by any Party hereto.

 

6. Confidentiality . The Parties agree that the terms and conditions of this Settlement Agreement shall remain confidential and shall not be disclosed to any entity or person unless disclosure is: (i) ordered by a court of competent jurisdiction; (ii) required by federal or state securities laws; or (iii) necessary for the enforcement of this Settlement Agreement, in which case the Settlement Agreement shall be filed with the applicable court and/or judicial body under seal.

 

7. Entire Agreement . This Settlement Agreement contains the sole, complete and entire agreement and understanding of the Parties concerning the matters contained herein and may not be altered, modified, or changed in any manner except by a writing duly executed by the Parties. No Party is relying on any representations other than those expressly set forth herein. No conditions precedent to the effectiveness of this Settlement Agreement exists, other than as expressly provided for herein. There are no oral or written collateral agreements hereto. All prior discussions and negotiations have been and are merged, integrated into and superseded by this Settlement Agreement.

 

8. Voluntary Agreement . The Parties agree that they have read and understand this Settlement Agreement, and that they are entering into this Settlement Agreement voluntarily and without coercion, that they have had the opportunity to consult with an attorney of their own choosing concerning the release contained in and the terms of this Settlement Agreement, and that the release they have made and the terms they have agreed to herein are knowing, conscious and with full appreciation that they are forever foreclosed from pursuing any of the rights so waived.

 

9. Covenant of Non-disparagement . Each of the Parties covenants never to disparage or speak ill of the other or any of their products, services, affiliates, subsidiaries, officers, directors, employees or shareholders, and will take reasonable steps to prevent, and will not knowingly permit, any of their respective employees or agents from disparaging or speaking ill of such persons.

 

10. Waiver . The delay or failure of a Party to exercise any right, power or privilege hereunder, or failure to strictly enforce any breach or default shall not constitute a waiver with respect thereto, and no waiver of any such right, power, privilege, breach or default on any one occasion shall constitute a waiver thereof on subsequent occasion unless clear and express notice thereof in writing is provided.

 

11. Applicable Law; Venue . This Agreement shall be governed by the laws of the State of Florida, without regard to the conflicts of laws principles thereof. Each Party: (a) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement and/or the transactions contemplated hereby shall be instituted only in either the courts of the State of Florida, County of Dade, or in the United States District Court for the Southern District of Florida, (b) waives any objection which it may have or hereafter to the venue of any such suit, action or proceeding, and (c) irrevocably consents to the jurisdiction of the courts of the State of Florida, County of Dade, and the United States District Court for the Southern District of Florida in any such suit, action or proceeding. Each Party further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the courts of the State of Florida, County of Dade, or in the United States District Court for the Southern District of Florida and agrees that service of process pursuant to the laws of the State of Florida shall be deemed in every respect effective service of process upon such Party.

 

12. Warranties . The Parties, and each of them, warrant: (a) that they, and each of them, have the sole right and exclusive authority to execute this Settlement Agreement; and (b) that they have not sold, assigned, transferred, conveyed or otherwise disposed of any claim, demand, cause of action, obligation, damage or liability covered in this Settlement Agreement.

 

13. Due Authorization . The execution, delivery and performance of this Settlement Agreement and Release has been duly authorized by all necessary actions of the Parties hereto. This Settlement Agreement and Release constitutes a valid and binding agreement of the Parties enforceable against them in accordance with its terms.

 

14. Recitals Incorporated . The Recitals of this Settlement Agreement are incorporated herein and made a part hereof.

 

15. Counterparts . This Settlement Agreement may be executed in one or more counterparts, all of which together constitute one single document.

 

16. Electronic Signatures . This Settlement Agreement and any documents relating to it may be executed and transmitted to any other party electronically, which electronic version shall be deemed to be, and utilized in all respects as, an original, wet-inked document.

 

[The remainder of this page is left blank intentionally. Signature page follows.]

 

3
 

 

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

 

  JOHN KEELER & CO., INC. D/B/A BLUE STAR FOODS
     
  By:  
  Name: Carlos Faria
  Title: Chief Executive Officer

 

INVESTOR (individual)         INVESTOR (entity)
           
           
Signature         Name of Entity
           
           
Print Name         Signature of Authorized Person
         
          Print Name:                                                                                       
           
          Title:___________________________________________

 

4
 

 

Appendix A

 

Representations and Warranties Relating to the Securities

 

(a) The Investor is acquiring the Securities for investment for its own account and not with the view to, or for resale in connection with, any distribution thereof. Investor understands and acknowledges that the Securities have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), or any state or foreign securities laws, by reason of a specific exemption from the registration provisions of the Securities Act and applicable state and foreign securities laws, which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participation to any third person with respect to any of the Securities.

 

(b) The Investor understands that an active public market for the Company’s Common Stock may not now exist and that there may never be an active public market for the Securities acquired under this Settlement Agreement.

 

(c) The Investor is an “accredited investor” as defined in Rule 501 of Regulation D as promulgated by the Securities and Exchange Commission (the “ SEC ”) under the Securities Act and shall submit to the Company such further assurances of such status as may be reasonably requested by the Company.

 

(d) Neither the Investor nor, to its knowledge, any person or entity controlling, controlled by or under common control with it, nor any person or entity having a beneficial interest in it, nor any person on whose behalf Investor is acting: (i) is a person listed in the Annex to Executive Order No. 13224 (2001) issued by the President of the United States (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism); (ii) is named on the List of Specially Designated Nationals and Blocked Persons maintained by the U.S. Office of Foreign Assets Control; (iii) is a non-U.S. shell bank or is providing banking services indirectly to a non-U.S. shell bank; (iv) is a senior non-U.S. political figure or an immediate family member or close associate of such figure; or (v) is otherwise prohibited from investing in the Company pursuant to applicable U.S. anti-money laundering, anti-terrorist and asset control laws, regulations, rules or orders (categories (i) through (v), each a “ Prohibited Seller ”). The Investor agrees to provide the Company, promptly upon request, all information that is reasonably necessary or appropriate to comply with applicable U.S. anti-money laundering, anti-terrorist and asset control laws, regulations, rules and orders. The Investor consents to the disclosure to U.S. regulators and law enforcement authorities by the Company and its affiliates and agents of such information about such member as is reasonably necessary or appropriate to comply with applicable U.S. anti-money-laundering, anti-terrorist and asset control laws, regulations, rules and orders. The Investor acknowledges that if, following its investment in the Securities, the Company reasonably believes that such member is a Prohibited Seller or is otherwise engaged in suspicious activity or refuses to promptly provide information that the Company requests, the Company has the right or may be obligated to prohibit additional investments, segregate the assets constituting the investment in accordance with applicable regulations or immediately require such member to transfer the Securities. The Investor further acknowledges that such member will have no claim against the Company or any of its affiliates or agents for any form of damages as a result of any of the foregoing actions.

 

(e) The Investor or its duly authorized representative realizes that because of the inherently speculative nature of business activities of the kind contemplated by the Company, the Company’s financial position and results of operations may be expected to fluctuate from period to period and will, generally, involve a high degree of financial and market risk that can result in substantial or, at times, even total loss of the value of the Securities.

 

5
 

 

LOCK-UP AGREEMENT

 

 

Ladies and Gentlemen:

 

The undersigned is a beneficial owner of shares of capital stock, or securities convertible into or exercisable or exchangeable for the capital stock as more fully described on Schedule A hereto (each, a “ Company Security ”) of Blue Star Foods Corp., a Delaware corporation (the “ Company ”). Except as set forth on Schedule A hereto, the undersigned does not control, or own, beneficially or otherwise nor have the right to acquire any other Company Security. Beneficial ownership includes but shall not be limited to the manner same is calculated pursuant to Section 13(d) under the Securities Exchange Act of 1934 (the “ Exchange Act ”). The undersigned understands that the Company is undertaking a merger transaction (the “Merger”) with John Keeler & Co. Inc. d/b/a Blue Star Foods, a Florida corporation (“Blue Star”), pursuant to a Merger Agreement, by and between the Company, Blue Star Acquisition, Inc. a Florida corporation and a wholly owned subsidiary of the Company, and the shareholders of Blue Star, dated as of November 8, 2018 (the “Merger Agreement”) and that the execution and delivery of this Letter Agreement (this “Agreement”) by the undersigned are required as a condition to the Closing (as defined in the Merger Agreement) and the undersigned agrees that it shall benefit from the successful completion of the transactions contemplated in the Merger Agreement.

 

1. In recognition of the benefit that the Merger will confer upon the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees that during the period beginning on the date hereof and ending twelve (12) months from the date hereof (the “ Lockup Period ”), the undersigned will not, directly or indirectly, (i) offer, sell, offer to sell, contract to sell, hedge, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or sell (or announce any offer, sale, offer of sale, contract of sale, hedge, pledge, sale of any option or contract to purchase, purchase of any option or contract of sale, grant of any option, right or warrant to purchase or other sale or disposition), or otherwise transfer or dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future) (each of the foregoing, a “ Transfer ”), in excess of 50% of any Company Securities, beneficially owned, within the meaning of Rule 13d under the Exchange Act, by the undersigned on the date hereof, and any such permitted sales shall not be complete at a price per share less than $2.20, or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Company Security, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of any Company Security.

 

2. Notwithstanding the foregoing, the undersigned (and any transferee of the undersigned) may transfer up to 10% of Company Securities beneficially owned by the undersigned to a third party provided that prior to such transfer the donee or donees agree to be bound by the restrictions set forth herein.

 

3. From and after the Lockup Period, the undersigned may not effect a Transfer of more than one-third of the Company Securities held by the undersigned in any two-month period, and, for the avoidance of doubt, any such transfers shall not be subject to any minimum price restrictions.

 

     
 

 

4. At any time, and from time to time, after the signing of this Agreement, the undersigned will execute such additional instruments and take such action as may be reasonably requested by the Company to carry out the intent and purposes of this Agreement.

 

5. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws.

 

6. The restrictions on transfer described in this Agreement are in addition to and cumulative with any other restrictions on transfer otherwise agreed to by undersigned or to which the Holder is subject to by applicable law.

 

7. This Agreement shall be binding upon undersigned, its legal representatives, successors and assigns.

 

8. This Agreement may be signed and delivered by facsimile or electronically and such facsimile or electronically signed and delivered Agreement shall be enforceable. Signature pages from separate identical counterparts may be combined with the same effect as if the parties signing such signature page had signed the same counterpart.

 

9. This Agreement may be modified or waived only by a separate writing signed by each of the parties hereto expressly so modifying or waiving such agreement.

 

[Signatures appear on following page]

 

     
 

 

IN WITNESS WHEREOF, and intending to be legally bound hereby, the undersigned has executed this Agreement as of November 8, 2018.

 

 

Blue Star Foods Corp.

 

 

By: _________________________________

Name: Laura Anthony

Title: Chief Financial Officer

 

 

 

Holder:

 

Holder’s Name: [_____________]

 

 

By: __________________________

Name: [_____________]

 

Address for notices:

 

[_____________]

[_____________]

[_____________]

Attn: [_____________]

Email: [_____________]

 

     
 

 

SCHEDULE A

 

Number of Shares of Common Stock directly owned by Undersigned: [__________]

 

     
 

 

LOCK-UP AGREEMENT

 

 

Ladies and Gentlemen:

 

The undersigned is a beneficial owner of shares of capital stock, or securities convertible into or exercisable or exchangeable for the capital stock as more fully described on Schedule A hereto (each, a “ Company Security ”) of Blue Star Foods Corp., a Delaware corporation (the “ Company ”). Except as set forth on Schedule A hereto, the undersigned does not control, or own, beneficially or otherwise nor have the right to acquire any other Company Security. Beneficial ownership includes but shall not be limited to the manner same is calculated pursuant to Section 13(d) under the Securities Exchange Act of 1934 (the “ Exchange Act ”). The undersigned understands that the Company is undertaking a merger transaction (the “Merger”) with John Keeler & Co. Inc. d/b/a Blue Star Foods, a Florida corporation (“Blue Star”), pursuant to a Merger Agreement, by and between the Company, Blue Star Acquisition, Inc. a Florida corporation and a wholly owned subsidiary of the Company, and the shareholders of Blue Star, dated as of November 8, 2018 (the “Merger Agreement”) and that the execution and delivery of this Letter Agreement (this “Agreement”) by the undersigned are required as a condition to the Closing (as defined in the Merger Agreement) and the undersigned agrees that it shall benefit from the successful completion of the transactions contemplated in the Merger Agreement.

 

1. In recognition of the benefit that the Merger will confer upon the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees that during the period beginning on the date hereof and ending eighteen (18) months from the date hereof (the “ Lockup Period ”), the undersigned will not, directly or indirectly, (i) offer, sell, offer to sell, contract to sell, hedge, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or sell (or announce any offer, sale, offer of sale, contract of sale, hedge, pledge, sale of any option or contract to purchase, purchase of any option or contract of sale, grant of any option, right or warrant to purchase or other sale or disposition), or otherwise transfer or dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future) (each of the foregoing, a “ Transfer ”), in excess of 50% of any Company Securities, beneficially owned, within the meaning of Rule 13d under the Exchange Act, by the undersigned on the date hereof and any such permitted sales shall not be complete at a price per share less than $2.20, or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Company Security, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of any Company Security.

 

2. Notwithstanding the foregoing, the undersigned (and any transferee of the undersigned) may transfer up to 10% of Company Securities beneficially owned by the undersigned to non-profit organizations qualified as charitable organizations under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, provided that prior to such transfer the donee or donees agree to be bound by the restrictions set forth herein.

 

3. From and after the Lockup Period, the undersigned may not effect a Transfer of more than one-third of the Company Securities held by the undersigned in any two-month period and, for the avoidance of doubt, any such transfers shall not be subject to any minimum price restrictions.

 

4. At any time, and from time to time, after the signing of this Agreement, the undersigned will execute such additional instruments and take such action as may be reasonably requested by the Company to carry out the intent and purposes of this Agreement.

 

5. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws.

 

6. The restrictions on transfer described in this Agreement are in addition to and cumulative with any other restrictions on transfer otherwise agreed to by undersigned or to which the Holder is subject to by applicable law.

 

7. This Agreement shall be binding upon undersigned, its legal representatives, successors and assigns.

 

8. This Agreement may be signed and delivered by facsimile or electronically and such facsimile or electronically signed and delivered Agreement shall be enforceable. Signature pages from separate identical counterparts may be combined with the same effect as if the parties signing such signature page had signed the same counterpart.

 

9. This Agreement may be modified or waived only by a separate writing signed by each of the parties hereto expressly so modifying or waiving such agreement.

 

[Signatures appear on following page]

 

     
 

 

IN WITNESS WHEREOF, and intending to be legally bound hereby, the undersigned has executed this Agreement as of November 8, 2018.

 

Blue Star Foods Corp.

 

By: _________________________________

Name: Laura Anthony

Title: Chief Financial Officer

 

Holder:

 

Holder’s Name: [_____________]

 

By: __________________________

Name: [_____________]

 

Address for notices:

 

[_____________]

[_____________]

[_____________]

Attn: [_____________]

Email: [_____________]

 

     
 

 

SCHEDULE A

 

Number of Shares of Common Stock directly owned by Undersigned: [__________]

  

     
 

 

 

 

 

 

 

STOCK REDEMPTION AGREEMENT

Blue Star Foods Corp. (formerly known as AG Acquisition Group II, Inc.) - __________________ – _________ shares)

Dated as of November 4, 2018

 

This Stock Redemption Agreement (this “Agreement”), dated as of the date first set forth above (the “Effective Date”), is entered into by and between Blue Star Foods Corp. (formerly known as AG Acquisition Group II, Inc.), a Delaware corporation (“AGAG”) and _____________________________(“Shareholder”).

RECITALS

WHEREAS, Shareholder is the owner of ___________ shares of common stock, par value $0.0001 per share, of AGAG (the “Common Stock”); and

WHEREAS, pursuant to the terms and conditions of this Agreement, Shareholder desires to sell, and AGAG desires to purchase, all of the Shareholder’s rights, title, and interest in and to ___________ shares of Common Stock (the “Shares”) as further described herein; and

WHEREAS, in connection with the redemption of the Shares, the parties hereto shall undertake such further actions as set forth herein.

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

 

1. Agreement to Purchase and Sell. Subject to the terms and conditions of this Agreement, Shareholder shall sell, assign, transfer, convey, and deliver to AGAG, and AGAG shall accept and purchase, the Shares and any and all rights in the Shares to which Shareholder is entitled, and by doing so Shareholder shall be deemed to have assigned all of Shareholder’s rights, titles and interest in and to the Shares to AGAG.

 

2. Consideration. The consideration for the acquisition of the Shares is the transactions being consummated between AGAG and John Keeler & Co., Inc. d/b/a Blue Star Foods, a Florida corporation (“Blue Star”), pursuant to which AGAG is acquiring all of the issued and outstanding shares of stock of Blue Star, and the resulting potential increase in the value of the remaining shares of Common Stock that Shareholder will continue to hold following such transaction.

 

  3. Closing; Deliveries; Additional Actions.

 

  3.2. Deliveries at Closing . At the Closing, Shareholder shall deliver to AGAG one or more stock certificates evidencing the Shares, duly endorsed in blank or accompanied by stock powers duly executed in blank in the form as attached hereto as Exhibit A, or other instruments of transfer in form and substance reasonably satisfactory to AGAG and such other documents as may be required under applicable law or reasonably requested by AGAG.

 

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4.

Representations and Warranties of the Shareholder . Shareholder represents and warrants to AGAG as set forth below.
  4.1. Right and Title to Shares . Shareholder legally and beneficially owns the Shares and no other party has any rights therein or thereto. There are no liens or other encumbrances of any kind on the Shares and Shareholder has the sole right to dispose of the Shares. There are no outstanding options, warrants or other similar agreements with respect to the Shares.
  4.2. Organization and Standing . Shareholder is corporation, duly organized, validly existing, and in good standing under the laws of the State of Florida and has all requisite power and authority to own its properties and conduct its business as it is now being conducted. The nature of the business and the character of the properties Shareholder owns or leases do not make licensing or qualification of such party as a foreign entity necessary under the laws of any other jurisdiction, except to the extent such licensing or qualification have already been obtained.
  4.3. Due Authority; No Violation . Shareholder has all requisite rights and authority or the capacity to execute, deliver and perform its obligations under this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of Shareholder, and no other proceedings on the part of such party are necessary to authorize the execution, delivery and performance of this Agreement or the transactions contemplated hereby or thereby on the part of Shareholder. The execution, delivery and performance of this Agreement will not (x) violate, conflict with, or result in the breach, acceleration, default or termination of, or otherwise give any other contracting party the right to terminate, accelerate, modify or cancel any of the terms, provisions, or conditions of any material agreement or instrument to which Shareholder is a party or by which it or its assets may be bound or (y) constitute a violation of any material applicable law, rule or regulation, or of any judgment, order, injunctive award or decree of any governmental authority applicable to Shareholder or (z) conflict with, result in the breach or termination of any provision of, or constitute a default under (in each case whether with or without the giving of notice or the lapse of time, or both) Shareholder’s organizational or operating documents or any order, judgment, arbitration award, or decree to which such Shareholder is a party or by which it or any of its assets or properties are bound.
  4.4. Approvals . No approval, authority, or consent of or filing by Shareholder with, or notification to, any governmental authority, is necessary to authorize the execution and delivery of this Agreement or the consummation of the transactions contemplated herein.
  4.5. Enforceability . This Agreement has been duly executed and delivered by Shareholder and, assuming that this Agreement constitutes the legal, valid and binding obligation of AGAG, constitutes the legal, valid, and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally.

 

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5. Representations and Warranties of AGAG . AGAG represents and warrants to Shareholder as set forth below.
   
  5.1. Organization and Standing . AGAG is duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite power and authority to own its properties and conduct its business as it is now being conducted. The nature of the business and the character of the properties AGAG owns or leases do not make licensing or qualification of such party as a foreign entity necessary under the laws of any other jurisdiction, except to the extent such licensing or qualification have already been obtained.
     
  5.2. Due Authority; No Violation . AGAG has all requisite rights and authority or the capacity to execute, deliver and perform its obligations under this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of AGAG, and no other proceedings on the part of such party are necessary to authorize the execution, delivery and performance of this Agreement or the transactions contemplated hereby or thereby on the part of AGAG. The execution, delivery and performance of this Agreement will not (x) violate, conflict with, or result in the breach, acceleration, default or termination of, or otherwise give any other contracting party the right to terminate, accelerate, modify or cancel any of the terms, provisions, or conditions of any material agreement or instrument to which AGAG is a party or by which it or its assets may be bound or (y) constitute a violation of any material applicable law, rule or regulation, or of any judgment, order, injunctive award or decree of any governmental authority applicable to AGAG or (z) conflict with, result in the breach or termination of any provision of, or constitute a default under (in each case whether with or without the giving of notice or the lapse of time, or both) AGAG’s organizational documents, or any order, judgment, arbitration award, or decree to which such AGAG is a party or by which it or any of its assets or properties are bound.
     
  5.3. Approvals . No approval, authority, or consent of or filing by AGAG with, or notification to, any governmental authority, is necessary to authorize the execution and delivery of this Agreement or the consummation of the transactions contemplated herein.
     
  5.4. Enforceability . This Agreement has been duly executed and delivered by AGAG and, assuming that this Agreement constitutes the legal, valid and binding obligation of Shareholder, constitutes the legal, valid, and binding obligation of AGAG, enforceable against AGAG in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally.
     
6 . Covenants and Agreements .
   
  6.1. Each of the parties hereto, as promptly as practicable, shall make, or cause to be made, all filings and submissions under laws applicable to it and its affiliates, as may be required for it to consummate the transactions contemplated hereby and shall use its commercially reasonable efforts to obtain, or cause to be obtained, all other authorizations, approvals, consents and waivers from all persons and governmental authorities necessary to be obtained by it or its affiliates, in order for it to consummate such transactions, at the cost of the party required to file or submit the same. Notwithstanding anything to the contrary herein, nothing herein shall require, or be construed to require, any party to agree to hold separate or to divest any of the businesses, product lines or assets.

 

 

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  6.2. Each party hereto shall promptly inform the other parties of any material communication from any governmental authority regarding any of the transactions contemplated by this Agreement and shall promptly furnish the other parties with copies of substantive notices or other communications received from any third party or any governmental authority with respect to such transactions. Each party shall agree on the content of any proposed substantive written communication or submission or any oral communication to any governmental authority. If any party or any affiliate thereof receives a request for additional information or documentary material from any such governmental authority with respect to the transactions contemplated by this Agreement, then such party will endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other parties, an appropriate response in compliance with such request. The parties shall, to the extent practicable, provide the other parties and their counsel with advance notice of and the opportunity to participate in any substantive discussion, telephone call or meeting with any governmental authority in respect of any filing, investigation or other inquiry in connection with the transactions contemplated by this Agreement and to participate in the preparation for such discussion, telephone call or meeting, to the extent not prohibited by the governmental authority.
     
  6.3. Each of the parties shall execute such documents and perform such further acts as may be reasonably required to carry out the provisions hereof and the actions contemplated hereby.
     
7. Conditions Precedent to the Obligations of Shareholder . The obligations of Shareholder to consummate any of the transactions contemplated herein are subject to the fulfillment or waiver by Shareholder of each of the following conditions:

 

  7.1.1. The representations and warranties of AGAG contained in this Agreement and all related documents shall be true and correct in all material respects, except for those representations and warranties which are qualified as to materiality, which shall be true and correct in all respects.
     
  7.1.2. AGAG shall have complied in all material respects with all covenants, agreements, and conditions that this Agreement requires.
     
  7.1.3. No proceeding or investigation shall have been instituted before or by any court or governmental authority to restrain or prevent the carrying out of the transactions contemplated by this Agreement and there shall exist no injunction or other order issued by any governmental authority which prohibits the consummation of the transactions contemplated under this Agreement.
     
  7.1.4. Shareholder shall have received all other documents and instruments from AGAG as Shareholder may reasonably request in order to consummate the transactions contemplated herein

 

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8. Conditions Precedent to the Obligations of AGAG. The obligation of AGAG to consummate any of the transactions contemplated herein are subject to the fulfillment or waiver by AGAG of each of the following conditions:
     
  8.1.1. The representations and warranties of Shareholder contained in this Agreement and all related documents shall be true and correct in all material respects, except for those representations and warranties which are qualified as to materiality, which shall be true and correct in all respects.
     
  8.1.2. Shareholder shall have complied in all material respects with all covenants, agreements, and conditions that this Agreement requires.
  8.1.3. No proceeding or investigation shall have been instituted before or by any court or governmental authority to restrain or prevent the carrying out of the transactions contemplated by this Agreement; and there shall exist no injunction or other order issued by any governmental authority which prohibits the consummation of the transactions contemplated under this Agreement.
     
  8.1.4. AGAG shall have received all other documents and instruments from Shareholder as AGAG may reasonably request, in order to consummate the transactions contemplated herein.
     
  9. Miscellaneous.
     
  9.1. Further Assurances. From time to time, whether at or following the Closing, each party shall make reasonable commercial efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable, including as required by applicable laws, to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement.
     
  9.2. Expenses . Each of the parties shall pay its own costs that it incurs incident to the preparation, execution, and delivery of this Agreement and the performance of any related obligations, whether or not the transactions contemplated by this Agreement shall be consummated.
     
  9.3. Fees . Each party hereto agrees to pay the costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party in litigation, arbitration, administrative proceeding or any other proceeding related to the enforcement or interpretation of any of the terms of this Agreement.
     
  9.4. Consequential Damages . EACH PARTY HERETO WAIVES ANY AND ALL CLAIMS AGAINST THE OTHER FOR ANY LOSS, COST, DAMAGE, EXPENSE, INJURY OR OTHER LIABILITY WHICH IS IN THE NATURE OF INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES WHICH ARE SUFFERED OR INCURRED AS THE RESULT OF, ARISE OUT OF, OR ARE IN ANY WAY CONNECTED TO THE PERFORMANCE OF THE OBLIGATIONS UNDER THIS AGREEMENT.

 

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  9.5. Representations and Warranties. All representations, warranties, and agreements made by the parties pursuant to this Agreement shall survive the consummation of the transactions contemplated herein until the expiration of the applicable statute of limitations.

 

 

  9.6. Notices . All notices or other communications required or permitted hereunder shall be in writing shall be deemed duly given (a) if by personal delivery, when so delivered, (b) if mailed, three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below, or (c) if sent through an overnight delivery service in circumstances to which such service guarantees next day delivery, the day following being so sent to the addresses of the parties as indicated on the signature page hereto; or (d) if sent via email, when sent with return receipt requested and received, in each case to the addresses as set forth below. Any party may change the address to which notices and other communications hereunder are to be delivered by giving the other parties notice in the manner herein set forth.

 

If to AGAG, to:

 

Blue Star Foods Corp.

Attn: Laura Anthony, Chief Financial Officer

330 Clematis Street, Suite 217

West Palm Beach, FL 33401

E-mail: Lanthony@legalandcompliance.com

 

If to Shareholder, to:

 

  9.7. Choice of Law . This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
     
  9.8. Jurisdiction . Any claim arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted only in any federal or state court located in the Palm Beach County, Florida, and each party agrees not to assert, by way of motion, as a defense or otherwise, in any such claim, that it is not subject personally to the exclusive jurisdiction of such court, that the claim is brought in an inconvenient forum, that the venue of the claim is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party further irrevocably submits to the jurisdiction of such court in any such claim.

 

  9.9. 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 ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.9.

 

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  9.10. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns. No party to this Agreement may assign or delegate, by operation of law or otherwise, all or any portion of its rights, obligations or liabilities under this Agreement without the prior written consent of the other parties to this Agreement, which any such party may withhold in its absolute discretion.
     
  9.11. No Third Party Beneficiaries . Nothing in this Agreement shall confer any rights, remedies or claims upon any Person or entity not a party or a permitted assignee of a party to this Agreement.
     
  9.12. Specific Performance . The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by them in accordance with the terms hereof or were otherwise breached and that each party hereto shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches of the provisions hereof and to enforce specifically the terms and provisions hereof, without the proof of actual damages, in addition to any other remedy to which they are entitled at law or in equity. Each party agrees to waive any requirement for the security or posting of any bond in connection with any such equitable remedy, and agrees that it will not oppose the granting of an injunction, specific performance or other equitable relief on the basis that (a) any other party has an adequate remedy at law, or (b) an award of specific performance is not an appropriate remedy for any reason at law or equity.
     
  9.13. Entire Agreement . This Agreement represents the entire understanding and agreement between the parties regarding the subject matter hereof and supersede all prior agreements, representations, warranties, and negotiations between the parties. This Agreement may be amended, supplemented, or changed only by an agreement in writing that makes specific reference to this Agreement or the agreement delivered pursuant to it, and must be signed by all of the parties hereto. This Agreement may not be amended by email or other electronic communications.
     
  9.14. Interpretation . The parties have jointly participated in the drafting and negotiation of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the parties thereto and no presumption of burden of proof shall arise favoring or burdening any party by virtue of the authorship of any provision in this Agreement.
     
  9.15. Severability . Whenever possible, each provision of this Agreement shall be interpreted in a manner to be effective and valid under applicable law, but if one or more of the provisions of this Agreement is subsequently declared invalid or unenforceable, the invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions of this Agreement. In the event of the declaration of invalidity or unenforceability, this Agreement, as modified, shall be applied and construed to reflect substantially the intent of the parties and achieve the same economic effect as originally intended by its terms. In the event that the scope of any provision to this Agreement is deemed unenforceable by a court of competent jurisdiction, or by an arbitrator, the parties agree to the reduction of the scope of the provision as the court or arbitrator shall deem reasonably necessary to make the provision enforceable under the circumstances.

 

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  9.16. Headings . The headings contained in this Agreement are intended solely for convenience and shall not affect the rights of the parties to this Agreement.
     
  9.17. Waiver . Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement.
     
  9.18. Counterparts . This Agreement may be signed in any number of counterparts with the same effect as if the signature on each counterpart were on the same instrument.
     

[Remainder of page intentionally left blank – Signature pages follow]

 

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

 

  Blue Star Foods Corp.  
     
  By:  
  Name:  
  Title:  
     
     
  [_______________________]  
     
  By:  
  Name:    
  Title:  

 

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BLUE STAR FOODS CORP.

2018 EQUITY INCENTIVE AWARD PLAN

 

ARTICLE 1.

 

PURPOSE

 

The purpose of the Blue Star Foods Corp. 2018 Equity Incentive Award Plan (as it may be amended from time to time, the “ Plan ”) is to promote the success and enhance the value of Blue Star Foods Corp., a Delaware corporation (the “ Company ”), by linking the individual interests of the members of the Board, Employees, and Consultants to those of the Company’s stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.

 

ARTICLE 2.

 

DEFINITIONS AND CONSTRUCTION

 

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.

 

2.1 “ Administrator ” shall mean the entity that conducts the general administration of the Plan as provided in Article 13 hereof. With reference to the duties of the Administrator under the Plan which have been delegated to one or more persons pursuant to Section 13.6 hereof, or as to which the Board has assumed, the term “Administrator” shall refer to such person(s) unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties.

 

2.2 “ Affiliate ” shall mean any Parent or Subsidiary.

 

2.3 “ Applicable Accounting Standards ” shall mean Generally Accepted Accounting Principles in the United States, International Financial Reporting Standards or such other accounting principles or standards as may apply to the Company’s financial statements under United States federal securities laws from time to time.

 

2.4 “ Applicable Law ” shall mean any applicable law, including without limitation, (i) provisions of the Code, the Securities Act, the Exchange Act and any rules or regulations thereunder; (ii) corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state, local or foreign; and (iii) rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded.

 

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2.5 “ Award ” shall mean an Option, a Restricted Stock award, a Restricted Stock Unit award, a Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Deferred Stock Unit award, a Stock Payment award or a Stock Appreciation Right, which may be awarded or granted under the Plan (collectively, “ Awards ”).

 

2.6 “ Award Agreement ” shall mean any written notice, agreement, terms and conditions, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine consistent with the Plan.

 

2.7 “ Board ” shall mean the Board of Directors of the Company.

 

2.8 “ Cause ” shall mean, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between a Holder and the Company applicable to an Award, the occurrence of any of the following events: (i) the Holder’s gross negligence or willful misconduct in the performance of the duties and services with the Company; (ii) the Holder’s conviction of, or plea of guilty or nolo contendere to, a felony or crime involving moral turpitude (or any similar crime in any jurisdiction outside the United States); (iii) the Holder’s willful refusal to perform the duties and responsibilities required of the Holder or as lawfully directed by the Company; (iv) the Holder’s material breach of any material provision of any employment agreement, confidentiality agreement or other agreement with the Company or corporate code or policy; (v) any act of fraud, embezzlement, material misappropriation or dishonesty committed by the Holder against the Company; or (v) any acts, omissions or statements by the Holder which the Company determines to be materially detrimental or damaging to the reputation, operations, prospects or business relations of the Company.

 

2.9 “ Change in Control ” shall mean the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

(a) A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

 

(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 2.9(a) or 2.9(c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

 

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(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

 

(i) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

 

(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 2.9(c)(ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

 

(d) The Company’s stockholders approve a liquidation or dissolution of the Company.

 

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any portion of an Award that provides for the deferral of compensation and is subject to Section 409A of the Code, the transaction or event described in subsection (a), (b), (c) or (d) with respect to such Award (or portion thereof) must also constitute a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5) to the extent required by Section 409A.

 

The Committee shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority is in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

 

2.10 “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder, whether issued prior or subsequent to the grant of any Award.

 

2.11 “ Committee ” shall mean the Compensation Committee of the Board, a subcommittee of the Compensation Committee of the Board or another committee or subcommittee of the Board, appointed as provided in Section 13.1 hereof.

 

2.12 “ Common Stock ” shall mean the common stock of the Company, par value $0.0001 per share.

 

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2.13 “ Company ” shall have the meaning set forth in Article 1 hereof.

 

2.14 “ Consultant ” shall mean any consultant or advisor engaged to provide services to the Company or any Affiliate who qualifies as a consultant or advisor under the applicable rules of the Securities and Exchange Commission for registration of shares on a Form S-8 Registration Statement or any successor Form thereto.

 

2.15 “ Covered Employee ” shall mean any Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code.

 

2.16 “ Deferred Stock ” shall mean a right to receive Shares awarded under Section 10.4 hereof.

 

2.17 “ Deferred Stock Unit ” shall mean a right to receive Shares awarded under Section 10.5 hereof.

 

2.18 “ Director ” shall mean a member of the Board, as constituted from time to time.

 

2.19 “ Dividend Equivalent ” shall mean a right to receive the equivalent value (in cash or Shares) of dividends paid on Shares, awarded under Section 10.2 hereof.

 

2.20 “ DRO ” shall mean a “domestic relations order” as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.

 

2.21 “ Effective Date ” shall mean the date the Board adopts the Plan, subject to approval of the Plan by the Company’s stockholders in accordance with the terms hereof.

 

2.22 “ Eligible Individual ” shall mean any person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Administrator.

 

2.23 “ Employee ” shall mean any officer or other employee (as determined in accordance with Section 3401(c) of the Code and the Treasury Regulations thereunder) of the Company or any Affiliate.

 

2.24 “ Equity Restructuring ” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in the per share value of the Common Stock underlying outstanding stock-based Awards.

 

2.25 “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

2.26 “ Fair Market Value ” shall mean, as of any given date, the value of a Share determined as follows:

 

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(a) If the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

(b) If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

 

(c) If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith.

 

2.27 “ Good Reason ” shall mean, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between a Holder and the Company applicable to an Award, with respect to any particular Holder, the Holder’s resignation from all positions he or she then-holds with the Company if (A) without Holder’s written consent (I) there is a material reduction of the Holder’s base salary; provided , however , that a material reduction in the Holder’s base salary pursuant to a salary reduction program affecting all or substantially all of the employees of the Company and that does not adversely affect Holder to a greater extent than other similarly situated employees shall not constitute Good Reason; or (II) the Holder is required to relocate his or her primary work location to a facility or location that would increase the Holder’s one way commute distance by more than fifty (50) miles from the Holder’s primary work location as of immediately prior to such change, (B) the Holder provides written notice outlining such conditions, acts or omissions to the Company’s General Counsel within thirty (30) days immediately following such material change or reduction, (C) such material change or reduction is not remedied by the Company within thirty (30) days following the Company’s receipt of such written notice and (D) the Holder’s resignation is effective not later than thirty (30) days after the expiration of such thirty (30) day cure period.

 

2.28 “ Greater Than 10% Stockholder ” shall mean an individual then owning (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any “parent corporation” or “subsidiary corporation” (as defined in Sections 424(e) and 424(f) of the Code, respectively).

 

2.29 “ Holder ” shall mean a person who has been granted an Award.

 

2.30 “ Incentive Stock Option ” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.

 

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2.31 “ Non-Employee Director ” shall mean a Director of the Company who is not an Employee.

 

2.32 “ Non-Employee Director Equity Compensation Policy ” shall have the meaning set forth in Section 4.6 hereof.

 

2.33 “ Non-Qualified Stock Option ” shall mean an Option that is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.

 

2.34 “ Option ” shall mean a right to purchase Shares at a specified exercise price, granted under Article 6 hereof. An Option shall be either a Non-Qualified Stock Option or an Incentive Stock Option; provided , however , that Options granted to Non-Employee Directors and Consultants shall only be Non-Qualified Stock Options.

 

2.35 “ Option Term ” shall have the meaning set forth in Section 6.4 hereof.

 

2.36 “ Parent ” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities ending with the Company if each of the entities other than the Company beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.37 “ Performance Award ” shall mean a cash bonus award, stock bonus award, performance award or incentive award that is paid in cash, Shares or a combination of both, awarded under Section 10.1 hereof.

 

2.38 “ Performance-Based Compensation ” shall mean any compensation that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

 

2.39 “ Performance Criteria ” shall mean the criteria (and adjustments) that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period, determined as follows:

 

(a) The Performance Criteria that shall be used to establish Performance Goals are limited to the following: (i) net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue or sales or revenue growth; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating income, earnings or profit (either before or after taxes); (vi) cash flow (including, but not limited to, cash flow return on investments, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital (or invested capital) and cost of capital; (ix) return on stockholders’ equity; (x) total stockholder return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) costs, reductions in costs and cost control measures; (xiv) funds from operations; (xv) expenses; (xvi) working capital; (xvii) earnings or loss per Share; (xviii) adjusted earnings or loss per share; (xix) price per Share or dividends per share (or appreciation in and/or maintenance of such price of dividends); (xx) regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product); (xxi) implementation or completion of critical projects; (xxii) market share; (xxiii) economic value; (xxiv) debt levels or reduction; (xxv) customer retention; (xxvi) sales-related goals; (xxvii) comparisons with other stock market indices; (xxviii) operating efficiency; (xxix) customer satisfaction and/or growth; (xxx) employee satisfaction; (xxxi) research and development achievements; (xxxii) financing and other capital raising transactions; (xxxiii) recruiting and maintaining personnel; and (xxxiv) year-end cash, any of which may be measured either in absolute terms for the Company or any department or operating unit of the Company or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

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(b) The Administrator may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals. Such adjustments may include, but are not limited to, one or more of the following: (i) items related to a change in accounting principle; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the sale or disposition of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under Applicable Accounting Standards; (ix) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments, (xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items related to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xix) items relating to any other unusual or nonrecurring events or changes in Applicable Laws, accounting principles or business conditions. For all Awards intended to qualify as Performance-Based Compensation, such determinations shall be made within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.

 

2.40 “ Performance Goals ” shall mean, with respect to a Performance Period, one or more goals established in writing by the Administrator for the Performance Period based upon one or more Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of an Affiliate, a division, business unit or one or more individuals. The achievement of each Performance Goal shall be determined, to the extent applicable, with reference to Applicable Accounting Standards.

 

2.41 “ Performance Period ” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Holder’s right to, and the payment of, a Performance Award.

 

2.42 “ Performance Stock Unit ” shall mean a Performance Award awarded under Section 10.1 hereof which is denominated in units of value including dollar value of shares of Common Stock.

 

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2.43 “ Permitted Transferee ” shall mean, with respect to a Holder, any “family member” of the Holder, as defined under the General Instructions to Form S-8 Registration Statement under the Securities Act or any successor Form thereto, or any other transferee specifically approved by the Administrator, after taking into account Applicable Law.

 

2.44 “ Plan ” shall have the meaning set forth in Article 1 hereof.

 

2.45 “ Program ” shall mean any program adopted by the Administrator pursuant to the Plan containing the terms and conditions intended to govern a specified type of Award granted under the Plan and pursuant to which such type of Award may be granted under the Plan.

 

2.46 “ Restricted Stock ” shall mean an award of Shares made under Article 8 hereof that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.

 

2.47 “ Restricted Stock Unit ” shall mean a contractual right awarded under Article 9 hereof to receive in the future a Share or the Fair Market Value of a Share in cash.

 

2.48 “ Securities Act ” shall mean the Securities Act of 1933, as amended.

 

2.49 “ Shares ” shall mean shares of Common Stock.

 

2.50 “ Share Limit ” shall have the meaning set forth in Section 3.1(a) hereof.

 

2.51 “ Stock Appreciation Right ” shall mean a stock appreciation right granted under Article 11 hereof.

 

2.52 “ Stock Appreciation Right Term ” shall have the meaning set forth in Section 11.4 hereof.

 

2.53 “ Stock Payment ” shall mean (a) a payment in the form of Shares, or (b) an option or other right to purchase Shares, as part of a bonus, deferred compensation or other arrangement, awarded under Section 10.3 hereof.

 

2.54 “ Subsidiary ” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.55 “ Substitute Award ” shall mean an Award granted under the Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock; provided , however , that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option or Stock Appreciation Right.

 

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2.56 “ Termination of Service ” shall mean:

 

(a) As to a Consultant, the time when the engagement of a Holder as a Consultant to the Company or an Affiliate is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment or service with the Company or any Affiliate.

 

(b) As to a Non-Employee Director, the time when a Holder who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company or any Affiliate.

 

(c) As to an Employee, the time when the employee-employer relationship between a Holder and the Company or any Affiliate is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement; but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company or any Affiliate.

 

The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to Terminations of Service, including, without limitation, the question of whether a Termination of Service resulted from a discharge for cause and all questions of whether particular leaves of absence constitute a Termination of Service; provided , however , that, with respect to Incentive Stock Options, unless the Administrator otherwise provides in the terms of the Program, the Award Agreement or otherwise, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section. For purposes of the Plan, a Holder’s employee-employer relationship or consultancy relations shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Holder ceases to remain an Affiliate following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).

 

ARTICLE 3.

 

SHARES SUBJECT TO THE PLAN

 

3.1 Number of Shares .

 

(a) Subject to Sections 14.1, 14.2 and 3.1(b) hereof, the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan shall be 7,500,00 ( the “ Share Limit ”). Notwithstanding the foregoing, to the extent permitted under Applicable Law, Awards that provide for the delivery of Shares subsequent to the applicable grant date may be granted in excess of the Share Limit if such Awards provide for the forfeiture or cash settlement of such Awards to the extent that insufficient Shares remain under the Share Limit in this Section 3.1 at the time that Shares would otherwise be issued in respect of such Award.

 

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(b) If any Shares subject to an Award are forfeited or expire or such Award is settled for cash (in whole or in part), the Shares subject to such Award shall, to the extent of such forfeiture, expiration or cash settlement, again be available for future grants of Awards under the Plan and shall be added back to the Share Limit. In addition, the following Shares shall be available for future grants of Awards under the Plan and shall be added back to the Share Limit: (i) Shares tendered by a Holder or withheld by the Company in payment of the exercise price of an Option; (ii) Shares tendered by the Holder or withheld by the Company to satisfy any tax withholding obligation with respect to an Award; and (iii) Shares subject to Stock Appreciation Rights that are not issued in connection with the stock settlement of the Stock Appreciation Rights on exercise thereof. Notwithstanding anything to the contrary contained herein, Shares purchased on the open market with the cash proceeds from the exercise of Options shall not be added back to the Share Limit and shall not be available for future grants of Awards. Any Shares repurchased by the Company under Section 8.4 hereof at the same price paid by the Holder or a lower price so that such Shares are returned to the Company will again be available for Awards. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan. Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

 

(c) Substitute Awards shall not reduce the Shares authorized for grant under the Plan. Additionally, in the event that a company acquired by the Company or any Affiliate or with which the Company or any Affiliate combines has shares available under a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.

 

3.2 Stock Distributed . Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.

 

ARTICLE 4.

 

GRANTING OF AWARDS

 

4.1 Participation . The Administrator may, from time to time, select from among all Eligible Individuals, those to whom an Award shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan. Except as provided in Section 4.6 hereof regarding the grant of Awards pursuant to the Non-Employee Director Equity Compensation Policy, no Eligible Individual shall have any right to be granted an Award pursuant to the Plan.

 

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4.2 Award Agreement . Each Award shall be evidenced by an Award Agreement that sets forth the terms, conditions and limitations for such Award, which may include the term of the Award, the provisions applicable in the event of the Holder’s Termination of Service, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award. Award Agreements evidencing Awards intended to qualify as Performance-Based Compensation shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.

 

4.3 Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

 

4.4 At-Will Service; Voluntary Participation . Nothing in the Plan or in any Program or Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of, or as a Director or Consultant for, the Company or any Affiliate, or shall interfere with or restrict in any way the rights of the Company and any Affiliate, which rights are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Holder and the Company or any Affiliate. Participation by each Holder in the Plan shall be voluntary and nothing in the Plan shall be construed as mandating that any Eligible Individual shall participate in the Plan.

 

4.5 Foreign Holders . Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in countries other than the United States in which the Company and its Affiliates operate or have Employees, Non-Employee Directors or Consultants, or in order to comply with the requirements of any foreign securities exchange, the Administrator, in its sole discretion, shall have the power and authority to: (a) determine which Affiliates shall be covered by the Plan; (b) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (c) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws or listing requirements of any such foreign securities exchange; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to the Plan as appendices); provided , however , that no such subplans and/or modifications shall increase the share limitations contained in Sections 3.1, 3.3 and 3.4 hereof; and (e) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any such foreign securities exchange. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Code, the Exchange Act, the Securities Act, any other securities law or governing statute, the rules of the securities exchange or automated quotation system on which the Shares are listed, quoted or traded or any other Applicable Law. For purposes of the Plan, all references to foreign laws, rules, regulations or taxes shall be references to the laws, rules, regulations and taxes of any applicable jurisdiction other than the United States or a political subdivision thereof.

 

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4.6 Non-Employee Director Awards . The Administrator may, in its discretion, provide that Awards granted to Non-Employee Directors shall be granted pursuant to a written non-discretionary formula established by the Administrator (the “ Non-Employee Director Equity Compensation Policy ”), subject to the limitations of the Plan. The Non-Employee Director Equity Compensation Policy shall set forth the type of Award(s) to be granted to Non-Employee Directors, the number of Shares to be subject to Non-Employee Director Awards, the conditions on which such Awards shall be granted, become exercisable and/or payable and expire, and such other terms and conditions as the Administrator shall determine in its discretion. The Non-Employee Director Equity Compensation Policy may be modified by the Administrator from time to time in its discretion.

 

4.7 Stand-Alone and Tandem Awards . Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

 

ARTICLE 5.

 

PROVISIONS APPLICABLE TO AWARDS INTENDED TO QUALIFY AS PERFORMANCE-BASED COMPENSATION.

 

5.1 Purpose . The Committee, in its sole discretion, may determine at the time an Award is granted or at any time thereafter whether any Award is intended to qualify as Performance-Based Compensation. If the Committee, in its sole discretion, decides to grant such an Award to an Eligible Individual that is intended to qualify as Performance-Based Compensation, then the provisions of this Article 5 shall control over any contrary provision contained in the Plan. The Administrator may in its sole discretion (i) grant Awards to other Eligible Individuals that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 5 and that are not intended to qualify as Performance-Based Compensation and (ii) subject any Awards intended to qualify as Performance-Based Compensation to additional conditions and restrictions unrelated to any Performance Criteria or Performance Goals (including, without limitation, continued employment or service requirements) to the extent such Awards otherwise satisfy the requirements of this Article 5 with respect to the Performance Criteria and Performance Goals applicable thereto. Unless otherwise specified by the Committee at the time of grant, the Performance Criteria with respect to an Award intended to be Performance-Based Compensation payable to a Covered Employee shall be determined on the basis of Applicable Accounting Standards.

 

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5.2 Applicability . The grant of an Award to an Eligible Individual for a particular Performance Period shall not require the grant of an Award to such Eligible Individual in any subsequent Performance Period and the grant of an Award to any one Eligible Individual shall not require the grant of an Award to any other Eligible Individual in such period or in any other period.

 

5.3 Types of Awards . Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to an Eligible Individual intended to qualify as Performance-Based Compensation, including, without limitation, Restricted Stock the restrictions with respect to which lapse upon the attainment of specified Performance Goals, Restricted Stock Units that vest and become payable upon the attainment of specified Performance Goals and any Performance Awards described in Article 10 hereof that vest or become exercisable or payable upon the attainment of one or more specified Performance Goals.

 

5.4 Procedures with Respect to Performance-Based Awards . To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted to one or more Eligible Individuals which is intended to qualify as Performance-Based Compensation, no later than ninety (90) days following the commencement of any Performance Period or any designated fiscal period or period of service (or such earlier time as may be required under Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Eligible Individuals, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period based on the Performance Goals, and (d) specify the relationship between the Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned under such Awards, unless otherwise provided in an applicable Program or Award Agreement, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant, including the assessment of individual or corporate performance for the Performance Period.

 

5.5 Payment of Performance-Based Awards . Unless otherwise provided in the applicable Program or Award Agreement or pursuant to Section 14.2 hereof and only to the extent otherwise permitted by Section 162(m)(4)(C) of the Code, as to an Award that is intended to qualify as Performance-Based Compensation, the Holder must be employed by the Company or an Affiliate throughout the applicable Performance Period. Unless otherwise provided in the applicable Performance Goals, Program or Award Agreement, a Holder shall be eligible to receive payment pursuant to such Awards for a Performance Period only if and to the extent the Performance Goals for such applicable Performance Period are achieved.

 

5.6 Additional Limitations . Notwithstanding any other provision of the Plan and except as otherwise determined by the Administrator, any Award which is granted to an Eligible Individual and is intended to qualify as Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code or any regulations or rulings issued thereunder that are requirements for qualification as Performance-Based Compensation, and the Plan, the Program and the Award Agreement shall be deemed amended to the extent necessary to conform to such requirements.

 

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ARTICLE 6.

 

GRANTING OF OPTIONS

 

6.1 Granting of Options to Eligible Individuals . The Administrator is authorized to grant Options to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine which shall not be inconsistent with the Plan.

 

6.2 Qualification of Incentive Stock Options . No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or any subsidiary corporation (as defined in Section 424(f) of the Code) of the Company. No person who qualifies as a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. Any Incentive Stock Option granted under the Plan may be modified by the Administrator, with the consent of the Holder, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code. To the extent that the aggregate fair market value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year under the Plan, and all other plans of the Company and any subsidiary or parent corporation thereof (each as defined in Section 424(f) and (e) of the Code, respectively), exceeds $100,000, the Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the Fair Market Value of stock shall be determined as of the time the respective options were granted. In addition, to the extent that any Options otherwise fail to qualify as Incentive Stock Options, such Options shall be treated as Nonqualified Stock Options.

 

6.3 Option Exercise Price . Except as provided in Article 14 hereof, the exercise price per Share subject to each Option shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted (or, as to Incentive Stock Options, on the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code). In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Stockholder, such price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).

 

6.4 Option Term . The term of each Option (the “ Option Term ”) shall be set by the Administrator in its sole discretion; provided , however , that the Option Term shall not be more than ten (10) years from the date the Option is granted, or five (5) years from the date an Incentive Stock Option is granted to a Greater Than 10% Stockholder. The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Holder has the right to exercise the vested Options, which time period may not extend beyond the last day of the Option Term. Except as limited by the requirements of Section 409A or Section 422 of the Code and regulations and rulings thereunder, the Administrator may extend the Option Term of any outstanding Option, may extend the time period during which vested Options may be exercised following any Termination of Service of the Holder, and may amend any other term or condition of such Option relating to such a Termination of Service.

 

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6.5 Option Vesting .

 

(a) The period during which the right to exercise, in whole or in part, an Option vests in the Holder shall be set by the Administrator and the Administrator may determine that an Option may not be exercised in whole or in part for a specified period after it is granted. Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria, or any other criteria selected by the Administrator. At any time after the grant of an Option, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the vesting of the Option, including following a Termination of Service; provided, that in no event shall an Option become exercisable following its expiration, termination or forfeiture.

 

(b) No portion of an Option which is unexercisable at a Holder’s Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Program, the Award Agreement or by action of the Administrator following the grant of the Option.

 

6.6 Substitute Awards . Notwithstanding the foregoing provisions of this Article 6 to the contrary, in the case of an Option that is a Substitute Award, the price per share of the shares subject to such Option may be less than the Fair Market Value per share on the date of grant; provided that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares.

 

6.7 Substitution of Stock Appreciation Rights . The Administrator may provide in the applicable Program or the Award Agreement evidencing the grant of an Option that the Administrator, in its sole discretion, shall have the right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option; provided that such Stock Appreciation Right shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable, and shall also have the same exercise price, vesting schedule and remaining Option Term as the substituted Option.

 

ARTICLE 7.

 

EXERCISE OF OPTIONS

 

7.1 Partial Exercise . An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional Shares and the Administrator may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.

 

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7.2 Manner of Exercise . All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

 

(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option;

 

(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all Applicable Law. The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

 

(c) In the event that the Option shall be exercised pursuant to Section 12.3 hereof by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the Administrator; and

 

(d) Full payment of the exercise price and applicable withholding taxes to the stock administrator of the Company for the shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by Section 12.1 and 12.2 hereof.

 

7.3 Notification Regarding Disposition . The Holder shall give the Company prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) two (2) years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) of such Option to such Holder, or (b) one (1) year after the transfer of such shares to such Holder.

 

ARTICLE 8.

 

AWARD OF RESTRICTED STOCK

 

8.1 Award of Restricted Stock .

 

(a) The Administrator is authorized to grant Restricted Stock to Eligible Individuals, and shall determine the terms and conditions, including the restrictions applicable to each award of Restricted Stock, which terms and conditions shall not be inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate.

 

(b) The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock; provided , however , that if a purchase price is charged, such purchase price shall be no less than the par value, if any, of the Shares to be purchased, unless otherwise permitted by Applicable Law. In all cases, legal consideration shall be required for each issuance of Restricted Stock to the extent required by Applicable Law.

 

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8.2 Rights as Stockholders . Subject to Section 8.4 hereof, upon issuance of Restricted Stock, the Holder shall have, unless otherwise provided by the Administrator, all the rights of a stockholder with respect to said Shares, subject to the restrictions in the applicable Program or in each individual Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the Shares; provided , however , that, in the sole discretion of the Administrator, any extraordinary distributions with respect to the Shares shall be subject to the restrictions set forth in Section 8.3 hereof. In addition, with respect to a share of Restricted Stock with performance-based vesting, dividends which are paid prior to vesting shall only be paid out to the Holder to the extent that performance-based vesting conditions are subsequently satisfied and the share of Restricted Stock vests.

 

8.3 Restrictions . All shares of Restricted Stock (including any shares received by Holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of the applicable Program or in each individual Award Agreement, be subject to such restrictions and vesting requirements as the Administrator shall provide. Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Administrator, including, without limitation, criteria based on the Holder’s duration of employment, directorship or consultancy with the Company, the Performance Criteria, Company or Affiliate performance, individual performance or other criteria selected by the Administrator. By action taken after the Restricted Stock is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, accelerate the vesting of such Restricted Stock by removing any or all of the restrictions imposed by the terms of the Program and/or the Award Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire.

 

8.4 Repurchase or Forfeiture of Restricted Stock . Except as otherwise determined by the Administrator at the time of the grant of the Award or thereafter, if no price was paid by the Holder for the Restricted Stock, upon a Termination of Service during the applicable restriction period, the Holder’s rights in unvested Restricted Stock then subject to restrictions shall lapse, and such Restricted Stock shall be surrendered to the Company and cancelled without consideration. If a price was paid by the Holder for the Restricted Stock, upon a Termination of Service during the applicable restriction period, the Company shall have the right to repurchase from the Holder the unvested Restricted Stock then subject to restrictions at a cash price per share equal to the price paid by the Holder for such Restricted Stock or such other amount as may be specified in the Program or the Award Agreement. Notwithstanding the foregoing, the Administrator in its sole discretion may provide that in the event of certain events, including a Change in Control, the Holder’s death, retirement or disability or any other specified Termination of Service or any other event, the Holder’s rights in unvested Restricted Stock shall not lapse, such Restricted Stock shall vest and, if applicable, the Company shall not have a right of repurchase.

 

8.5 Certificates for Restricted Stock . Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine. Certificates or book entries evidencing shares of Restricted Stock must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock. The Company may, in it sole discretion, (a) retain physical possession of any stock certificate evidencing shares of Restricted Stock until the restrictions thereon shall have lapsed and/or (b) require that the stock certificates evidencing shares of Restricted Stock be held in custody by a designated escrow agent (which may but need not be the Company) until the restrictions thereon shall have lapsed, and that the Holder deliver a stock power, endorsed in blank, relating to such Restricted Stock.

 

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8.6 Section 83(b) Election . If a Holder makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Holder would otherwise be taxable under Section 83(a) of the Code, the Holder shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.

 

ARTICLE 9.

AWARD OF RESTRICTED STOCK UNITS

 

9.1 Grant of Restricted Stock Units . The Administrator is authorized to grant Awards of Restricted Stock Units to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator.

 

9.2 Term . Except as otherwise provided herein, the term of a Restricted Stock Unit award shall be set by the Administrator in its sole discretion.

 

9.3 Purchase Price . The Administrator shall specify the purchase price, if any, to be paid by the Holder to the Company with respect to any Restricted Stock Unit award; provided , however , that value of the consideration shall not be less than the par value of a Share, unless otherwise permitted by Applicable Law.

 

9.4 Vesting of Restricted Stock Units . At the time of grant, the Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including, without limitation, vesting based upon the Holder’s duration of service to the Company or any Affiliate, one or more Performance Criteria, Company performance, individual performance or other specific criteria, in each case on a specified date or dates or over any period or periods, as determined by the Administrator.

 

9.5 Maturity and Payment . At the time of grant, the Administrator shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the Holder (if permitted by the applicable Award Agreement); provided that, except as otherwise determined by the Administrator, set forth in any applicable Award Agreement, and subject to compliance with Section 409A of the Code, in no event shall the maturity date relating to each Restricted Stock Unit occur following the later of (a) the fifteenth (15 th ) day of the third (3 rd ) month following the end of calendar year in which the Restricted Stock Unit vests; or (b) the fifteenth (15 th ) day of the third (3 rd ) month following the end of the Company’s fiscal year in which the Restricted Stock Unit vests. On the maturity date, the Company shall, subject to Section 12.4(e) hereof, transfer to the Holder one unrestricted, fully transferable Share for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited, or, in the sole discretion of the Administrator, an amount in cash equal to the Fair Market Value of such shares on the maturity date or a combination of cash and Common Stock as determined by the Administrator.

 

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9.6 Payment upon Termination of Service . An Award of Restricted Stock Units shall only be payable while the Holder is an Employee, a Consultant or a member of the Board, as applicable; provided , however , that the Administrator, in its sole and absolute discretion may provide (in an Award Agreement or otherwise) that a Restricted Stock Unit award may be paid subsequent to a Termination of Service in certain events, including a Change in Control, the Holder’s death, retirement or disability or any other specified Termination of Service.

 

9.7 No Rights as a Stockholder . Unless otherwise determined by the Administrator, a Holder who is awarded Restricted Stock Units shall possess no incidents of ownership with respect to the Shares represented by such Restricted Stock Units, unless and until the same are transferred to the Holder pursuant to the terms of this Plan and the Award Agreement.

 

9.8 Dividend Equivalents . Subject to Section 10.2 hereof, the Administrator may, in its sole discretion, provide that Dividend Equivalents shall be earned by a Holder of Restricted Stock Units based on dividends declared on the Common Stock, to be credited as of dividend payment dates during the period between the date an Award of Restricted Stock Units is granted to a Holder and the maturity date of such Award.

 

ARTICLE 10.

 

AWARD OF PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, STOCK PAYMENTS, DEFERRED STOCK, DEFERRED STOCK UNITS

 

10.1 Performance Awards .

 

(a) The Administrator is authorized to grant Performance Awards, including Awards of Performance Stock Units, to any Eligible Individual and to determine whether such Performance Awards shall be Performance-Based Compensation. The value of Performance Awards, including Performance Stock Units, may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Performance Awards, including Performance Stock Unit awards may be paid in cash, Shares, or a combination of cash and Shares, as determined by the Administrator.

 

(b) Without limiting Section 10.1(a) hereof, the Administrator may grant Performance Awards to any Eligible Individual in the form of a cash bonus payable upon the attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Any such bonuses paid to a Holder which are intended to be Performance-Based Compensation shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Article 5 hereof.

 

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10.2 Dividend Equivalents .

 

(a) Dividend Equivalents may be granted by the Administrator based on dividends declared on the Common Stock, to be credited as of dividend payment dates during the period between the date an Award is granted to a Holder and the date such Award vests, is exercised, is distributed or expires, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator. Notwithstanding the foregoing, with respect to Performance-Based Compensation, dividends which are paid prior to vesting shall only be paid out to the Holder to the extent that performance-based vesting conditions are subsequently satisfied and the Performance-Based Compensation vests.

 

(b) Notwithstanding the foregoing, no Dividend Equivalents shall be payable with respect to Options or Stock Appreciation Rights.

 

10.3 Stock Payments . The Administrator is authorized to make Stock Payments to any Eligible Individual. The number or value of Shares of any Stock Payment shall be determined by the Administrator and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company or any Affiliate, determined by the Administrator. Shares underlying a Stock Payment which is subject to a vesting schedule or other conditions or criteria set by the Administrator will not be issued until those conditions have been satisfied. Unless otherwise provided by the Administrator, a Holder of a Stock Payment shall have no rights as a Company stockholder with respect to such Stock Payment until such time as the Stock Payment has vested and the Shares underlying the Award have been issued to the Holder. Stock Payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.

 

10.4 Deferred Stock . The Administrator is authorized to grant Deferred Stock to any Eligible Individual. The number of shares of Deferred Stock shall be determined by the Administrator and may (but is not required to) be based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, as the Administrator determines, in each case on a specified date or dates or over any period or periods determined by the Administrator. Shares underlying a Deferred Stock award which is subject to a vesting schedule or other conditions or criteria set by the Administrator will be issued on the vesting date(s) or date(s) that those conditions and criteria have been satisfied, as applicable. Unless otherwise provided by the Administrator, a Holder of Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Award has vested and any other applicable conditions and/or criteria have been satisfied and the Shares underlying the Award have been issued to the Holder.

 

10.5 Deferred Stock Units . The Administrator is authorized to grant Deferred Stock Units to any Eligible Individual. The number of Deferred Stock Units shall be determined by the Administrator and may (but is not required to) be based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, as the Administrator determines, in each case on a specified date or dates or over any period or periods determined by the Administrator. Each Deferred Stock Unit shall entitle the Holder thereof to receive one share of Common Stock on the date the Deferred Stock Unit becomes vested or upon a specified settlement date thereafter (which settlement date may (but is not required to) be the date of the Holder’s Termination of Service). Shares underlying a Deferred Stock Unit award which is subject to a vesting schedule or other conditions or criteria set by the Administrator will not be issued until on or following the date that those conditions and criteria have been satisfied. Unless otherwise provided by the Administrator, a Holder of Deferred Stock Units shall have no rights as a Company stockholder with respect to such Deferred Stock Units until such time as the Award has vested and any other applicable conditions and/or criteria have been satisfied and the Shares underlying the Award have been issued to the Holder.

 

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10.6 Term . The term of a Performance Award, Dividend Equivalent award, Stock Payment award, Deferred Stock award and/or Deferred Stock Unit award shall be set by the Administrator in its sole discretion.

 

10.7 Purchase Price . The Administrator may establish the purchase price of a Performance Award, Shares distributed as a Stock Payment award, shares of Deferred Stock or Shares distributed pursuant to a Deferred Stock Unit award; provided , however , that value of the consideration shall not be less than the par value of a Share, unless otherwise permitted by Applicable Law.

 

10.8 Termination of Service . A Performance Award, Stock Payment award, Dividend Equivalent award, Deferred Stock award and/or Deferred Stock Unit award is distributable only while the Holder is an Employee, Director or Consultant, as applicable. The Administrator, however, in its sole discretion may provide that the Performance Award, Dividend Equivalent award, Stock Payment award, Deferred Stock award and/or Deferred Stock Unit award may be distributed subsequent to a Termination of Service in certain events, including a Change in Control, the Holder’s death, retirement or disability or any other specified Termination of Service.

 

ARTICLE 11.

 

AWARD OF STOCK APPRECIATION RIGHTS

 

11.1 Grant of Stock Appreciation Rights .

 

 

 

(a) The Administrator is authorized to grant Stock Appreciation Rights to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine consistent with the Plan.

 

(b) A Stock Appreciation Right shall entitle the Holder (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per Share of the Stock Appreciation Right from the Fair Market Value on the date of exercise of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, subject to any limitations the Administrator may impose. Except as described in (c) below or in Section 14.2 hereof, the exercise price per Share subject to each Stock Appreciation Right shall be set by the Administrator but shall not be less than one hundred percent (100%) of the Fair Market Value on the date the Stock Appreciation Right is granted.

 

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(c) Notwithstanding the foregoing provisions of Section 11.1(b) hereof to the contrary, in the case of a Stock Appreciation Right that is a Substitute Award, the price per Share of the Shares subject to such Stock Appreciation Right may be less than one hundred percent (100%) of the Fair Market Value per share on the date of grant; provided that the excess of: (i) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (ii) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares.

 

11.2 Stock Appreciation Right Vesting .

 

(a) The period during which the right to exercise, in whole or in part, a Stock Appreciation Right vests in the Holder shall be set by the Administrator and the Administrator may determine that a Stock Appreciation Right may not be exercised in whole or in part for a specified period after it is granted. Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria or any other criteria selected by the Administrator. At any time after grant of a Stock Appreciation Right, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which a Stock Appreciation Right vests.

 

(b) No portion of a Stock Appreciation Right which is unexercisable at Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the applicable Program or Award Agreement or by action of the Administrator following the grant of the Stock Appreciation Right, including following a Termination of Service; provided, that in no event shall a Stock Appreciation Right become exercisable following its expiration, termination or forfeiture.

  

11.3 Manner of Exercise . All or a portion of an exercisable Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the stock administrator of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

 

(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Stock Appreciation Right, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Stock Appreciation Right or such portion of the Stock Appreciation Right;

 

(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal, state or foreign securities laws or regulations. The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance; and

 

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(c) In the event that the Stock Appreciation Right shall be exercised pursuant to this Section 11.3 hereof by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Stock Appreciation Right.

 

11.4 Stock Appreciation Right Term . The term of each Stock Appreciation Right (the “ Stock Appreciation Right Term ”) shall be set by the Administrator in its sole discretion; provided , however , that the term shall not be more than ten (10) years from the date the Stock Appreciation Right is granted. The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Holder has the right to exercise the vested Stock Appreciation Rights, which time period may not extend beyond the expiration date of the Stock Appreciation Right Term. Except as limited by the requirements of Section 409A of the Code and regulations and rulings thereunder or the first sentence of this Section 11.4, the Administrator may extend the Stock Appreciation Right Term of any outstanding Stock Appreciation Right, may extend the time period during which vested Stock Appreciation Rights may be exercised following any Termination of Service of the Holder, and may amend any other term or condition of such Stock Appreciation Right relating to such a Termination of Service.

 

11.5 Payment . Payment of the amounts payable with respect to Stock Appreciation Rights pursuant to this Article 11 shall be in cash, Shares (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised), or a combination of both, as determined by the Administrator.

 

ARTICLE 12.

 

ADDITIONAL TERMS OF AWARDS

 

12.1 Payment . The Administrator shall determine the methods by which payments by any Holder with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) or Shares held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to the Company upon settlement of such sale, or (d) other form of legal consideration acceptable to the Administrator. The Administrator shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Holders. Notwithstanding any other provision of the Plan to the contrary, no Holder who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.

 

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12.2 Tax Withholding . The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Holder to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Holder’s FICA or employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Holder arising as a result of the Plan. The Administrator may in its sole discretion and in satisfaction of the foregoing requirement allow a Holder to satisfy such obligations by any payment means described in Section 12.1 hereof, including without limitation, by allowing such Holder to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income. The Administrator shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.

 

12.3 Transferability of Awards .

 

(a) Except as otherwise provided in Sections 12.3(b) and 12.3(c) hereof:

 

(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;

 

(ii) No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or the Holder’s successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed, and any attempted disposition of an Award prior to the satisfaction of these conditions shall be null and void and of no effect, except to the extent that such disposition is permitted by clause (i) of this provision; and

 

(iii) During the lifetime of the Holder, only the Holder may exercise an Award (or any portion thereof) granted to such Holder under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Holder, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Program or Award Agreement, be exercised by the Holder’s personal representative or by any person empowered to do so under the deceased Holder’s will or under the then applicable laws of descent and distribution.

 

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(b) Notwithstanding Section 12.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Holder or a Permitted Transferee of such Holder to transfer an Award other than an Incentive Stock Option (unless such Incentive Stock Option is to become a Non-Qualified Stock Option) to any one or more Permitted Transferees, subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee (other than to another Permitted Transferee of the applicable Holder) other than by will or the laws of descent and distribution; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Holder (other than the ability to further transfer the Award); and (iii) the Holder (or transferring Permitted Transferee) and the Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal, state and foreign securities laws and (C) evidence the transfer.

 

(c) Notwithstanding Section 12.3(a) hereof, a Holder may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Holder and to receive any distribution with respect to any Award upon the Holder’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Holder, except to the extent the Plan, the Program and the Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If the Holder is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a community property state, a designation of a person other than the Holder’s spouse or domestic partner, as applicable, as his or her beneficiary with respect to more than fifty percent (50%) of the Holder’s interest in the Award shall not be effective without the prior written or electronic consent of the Holder’s spouse or domestic partner, as applicable. If no beneficiary has been designated or survives the Holder, payment shall be made to the person entitled thereto pursuant to the Holder’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Holder at any time; provided that the change or revocation is filed with the Administrator prior to the Holder’s death.

 

12.4 Conditions to Issuance of Shares .

 

(a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of any Award, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such shares is in compliance with all Applicable Law, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Holder make such reasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with Applicable Law.

 

(b) All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with Applicable Law. The Administrator may place legends on any Share certificate or book entry to reference restrictions applicable to the Shares.

 

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(c) The Administrator shall have the right to require any Holder to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.

 

(d) No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding down.

 

(e) Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by any Applicable Law, the Company shall not deliver to any Holder certificates evidencing Shares issued in connection with any Award and instead such Shares shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

 

12.5 Forfeiture and Claw-Back Provisions . Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in an Award Agreement or otherwise, or to require a Holder to agree by separate written or electronic instrument, that:

 

(a) (i) Any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (x) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (y) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (z) the Holder incurs a Termination of Service for “cause” (as such term is defined in the sole discretion of the Administrator, or as set forth in a written agreement relating to such Award between the Company and the Holder); and

 

(b) All Awards (including any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with the requirements of Applicable Law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such claw-back policy and/or in the applicable Award Agreement.

 

12.6 Repricing . The Administrator shall, without the approval of the stockholders of the Company, have the authority to (i) amend any outstanding Option or Stock Appreciation Right to reduce its price per Share, or (ii) cancel any Option or Stock Appreciation Right in exchange for cash or another Award when the Option or Stock Appreciation Right price per Share exceeds the Fair Market Value of the underlying Shares, in its sole discretion.

 

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12.7 Leave of Absence . Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence. A Holder shall not cease to be considered an Employee, Non-Employee Director or Consultant, as applicable, in the case of any (a) leave of absence approved by the Company, (b) transfer between locations of the Company or between the Company and any of its Affiliates or any successor thereof, or (c) change in status (Employee to Director, Employee to Consultant, etc.), provided that such change does not affect the specific terms applying to the Holder’s Award.

 

ARTICLE 13.

 

ADMINISTRATION

 

13.1 Administrator . The Committee (or another committee or a subcommittee of the Board or the Compensation Committee of the Board assuming the functions of the Committee under the Plan) shall administer the Plan (except as otherwise permitted herein) and, unless otherwise determined by the Board, shall consist solely of two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as both a “non-employee director” as defined by Rule 16b-3 of the Exchange Act or any successor rule, an “outside director” for purposes of Section 162(m) of the Code and an “independent director” under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded; provided that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 13.l or otherwise provided in any charter of the Committee. Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written or electronic notice to the Board. Vacancies in the Committee may only be filled by the Board. Notwithstanding the foregoing, (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted to Non-Employee Directors and, with respect to such Awards, the terms “Administrator” and “Committee” as used in the Plan shall be deemed to refer to the Board and (b) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 13.6 hereof.

 

13.2 Duties and Powers of Administrator . It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. The Administrator shall have the power to interpret the Plan, the Program and the Award Agreement, and to adopt such rules for the administration, interpretation and application of the Plan as are not inconsistent therewith, to interpret, amend or revoke any such rules and to amend any Program or Award Agreement; provided that the rights or obligations of the Holder of the Award that is the subject of any such Program or Award Agreement are not affected materially and adversely by such amendment, unless the consent of the Holder is obtained or such amendment is otherwise permitted under Section 14.10 hereof. Any such grant or award under the Plan need not be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act or any successor rule, or Section 162(m) of the Code, or any regulations or rules issued thereunder, or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded are required to be determined in the sole discretion of the Committee.

 

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13.3 Action by the Committee . Unless otherwise established by the Board or in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

 

13.4 Authority of Administrator . Subject to the Company’s Bylaws, the Committee’s Charter and any specific designation in the Plan, the Administrator has the exclusive power, authority and sole discretion to:

 

(a) Designate Eligible Individuals to receive Awards;

 

(b) Determine the type or types of Awards to be granted to each Eligible Individual;

 

(c) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;

 

(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any performance criteria, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;

 

(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

 

(f) Prescribe the form of each Award Agreement, which need not be identical for each Holder;

 

(g) Decide all other matters that must be determined in connection with an Award;

 

(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

 

(i) Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement;

 

    28  
 

 

(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan; and

 

(k) Accelerate wholly or partially the vesting or lapse of restrictions of any Award or portion thereof at any time after the grant of an Award, subject to whatever terms and conditions it selects and Sections 3.4 and 14.2(d) hereof.

 

13.5 Decisions Binding . The Administrator’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

 

13.6 Delegation of Authority . To the extent permitted by Applicable Law, the Board or Committee may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to Article 13; provided , however , that in no event shall an officer of the Company be delegated the authority to grant awards to, or amend awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, (b) Covered Employees, or (c) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder; provided , further , that any delegation of administrative authority shall only be permitted to the extent it is permissible under Section 162(m) of the Code and Applicable Law. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 13.6 hereof shall serve in such capacity at the pleasure of the Board and the Committee.

 

ARTICLE 14.

 

MISCELLANEOUS PROVISIONS

 

14.1 Amendment, Suspension or Termination of the Plan . Except as otherwise provided in this Section 14.1, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without approval of the Company’s stockholders given within twelve (12) months before or after the action by the Administrator, no action of the Administrator may, except as provided in Section 14.2 hereof, increase the limits imposed in Section 3.1 hereof on the maximum number of shares which may be issued under the Plan. Except as provided in Section 14.10 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the Holder, materially and adversely affect any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and in no event may any Incentive Stock Option be granted under the Plan after the tenth (10 th ) anniversary of the Effective Date.

 

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14.2 Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events .

 

(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of the Company’s stock or the share price of the Company’s stock other than an Equity Restructuring, the Administrator may make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 hereof on the maximum number and kind of shares which may be issued under the Plan); (ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards; (iii) the number and kind of shares of Common Stock (or other securities or property) for which grants are subsequently to be made to new and continuing Non-Employee Directors pursuant to Section 4.6 hereof; (iv) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (v) the grant or exercise price per share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended as Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code.

 

(b) In the event of any transaction or event described in Section 14.2(a) hereof or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate of the Company, or the financial statements of the Company or any Affiliate, or of changes in Applicable Law, the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

 

(i) To provide for either (A) termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Holder’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 14.2 the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Holder’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion having an aggregate value not exceeding the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested;

 

(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

 

(iii) To make adjustments in the number and type of shares of the Company’s stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards and Awards which may be granted in the future;

 

    30  
 

 

(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Program or Award Agreement; and

 

(v) To provide that the Award cannot vest, be exercised or become payable after such event.

 

(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 14.2(a) and 14.2(b) hereof:

 

(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or

 

(ii) The Administrator shall make such equitable adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 hereof on the maximum number and kind of shares which may be issued under the Plan).

 

The adjustments provided under this Section 14.2(c) shall be nondiscretionary and shall be final and binding on the affected Holder and the Company.

 

(d) Change in Control .

 

(i) In the event of a Change in Control, each outstanding Award shall be assumed or an equivalent Award substituted by the successor corporation or a parent or subsidiary of the successor corporation, in each case, as determined by the Administrator.

 

(ii) In the event that the successor corporation in a Change in Control and its parents and subsidiaries refuse to assume or substitute for any Award in accordance with Section 14.2(d)(i) hereof, each such non-assumed/substituted Award, except for any Performance Awards, shall become fully vested and, as applicable, exercisable and shall be deemed exercised, immediately prior to the consummation of such transaction, and all forfeiture restrictions on any or all such Awards shall lapse at such time. For the avoidance of doubt, the vesting of any Performance Awards not assumed in a Change in Control will not be automatically accelerated pursuant to this Section 14.2(d)(ii) and will instead vest pursuant to the terms and conditions of the applicable Award Agreement upon a Change in Control where the successor corporation and its parents and subsidiaries refuse to assume or substitute for any Award in accordance with Section 14.2(d)(i) hereof. If an Award vests and, as applicable, is exercised in lieu of assumption or substitution in connection with a Change in Control, the Administrator shall notify the Holder of such vesting and any applicable exercise period, and the Award shall terminate upon the Change in Control. For the avoidance of doubt, if the value of an Award that is terminated in connection with this Section 14.2(d)(ii) is zero or negative at the time of such Change in Control, such Award shall be terminated upon the Change in Control without payment of consideration therefor.

 

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(iii) Notwithstanding anything to the contrary, in the event that, within the twelve (12) month period immediately following a Change in Control, a Holder experiences a Termination of Service by the Company for other than Cause or by a Holder for Good Reason, then the vesting and, if applicable, exercisability of that number of Shares equal to one hundred percent (100%) of the then-unvested Shares subject to the outstanding Awards held by such Holder shall accelerate upon the date of such Termination of Service.

 

(e) The Administrator may, in its sole discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.

 

(f) With respect to Awards which are granted to Covered Employees and are intended to qualify as Performance-Based Compensation, no adjustment or action described in this Section 14.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify as Performance-Based Compensation, unless the Administrator determines that the Award should not so qualify. No adjustment or action described in this Section 14.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 of the Exchange Act unless the Administrator determines that the Award is not to comply with such exemptive conditions.

 

(g) The existence of the Plan, the Program, the Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

(h) In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the share price of the Common Stock including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of thirty (30) days prior to the consummation of any such transaction.

 

14.3 Approval of Plan by Stockholders . The Plan will be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the Board’s initial adoption of the Plan. Awards may be granted or awarded prior to such stockholder approval; provided that such Awards shall not be exercisable, shall not vest and the restrictions thereon shall not lapse and no Shares shall be issued pursuant thereto prior to the time when the Plan is approved by the stockholders; and provided , further , that if such approval has not been obtained at the end of said twelve (12) month period, all Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void.

 

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14.4 No Stockholders Rights . Except as otherwise provided herein, a Holder shall have none of the rights of a stockholder with respect to Shares covered by any Award until the Holder becomes the record owner of such Shares.

 

14.5 Paperless Administration . In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Holder may be permitted through the use of such an automated system.

 

 

 

14.6 Effect of Plan upon Other Compensation Plans . The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate. Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Affiliate, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

 

14.7 Compliance with Laws . The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all Applicable Law, and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all Applicable Law. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such Applicable Law.

 

14.8 Titles and Headings, References to Sections of the Code or Exchange Act . The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.

 

14.9 Governing Law . The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof or of any other jurisdiction.

 

14.10 Section 409A . To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A of the Code, the Program pursuant to which such Award is granted and the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan, the Program and any Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Administrator determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Administrator may adopt such amendments to the Plan and the applicable Program and Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or

 

    33  
 

 

preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section.

 

14.11 No Rights to Awards . No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Eligible Individuals, Holders or any other persons uniformly.

 

14.12 Unfunded Status of Awards . The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Holder pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Holder any rights that are greater than those of a general creditor of the Company or any Affiliate.

 

14.13 Indemnification . To the extent allowable pursuant to Applicable Law, each member of the Committee or of the Board and any officer or other employee to whom authority to administer any component of the Plan is delegated shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

 

14.14 Relationship to other Benefits . No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

 

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14.15 Expenses . The expenses of administering the Plan shall be borne by the Company and its Affiliates.

 

I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Blue Star Foods Corp. on  November 8, 2018.

 

I hereby certify that the foregoing Plan was approved by the stockholders of Blue Star Foods Corp. on November 8, 2018.

 

Executed on this 8th day of November, 2018.

 

  /s/ John Keeler
 

John Keeler

Executive Chairman

 

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BLUE STAR FOODS CORP.

2018 EQUITY INCENTIVE AWARD PLAN

STOCK OPTION GRANT NOTICE

 

Blue Star Foods Corp., a Delaware corporation (the “ Company ”), pursuant to its 2018 Equity Incentive Award Plan, as may be amended from time to time (the “ Plan ”), hereby grants to the holder listed below (“ Participant ”), an option to purchase the number of shares of the Company’s common stock (“ Stock ”), set forth below (the “ Option ”). This Option is subject to all of the terms and conditions set forth herein, as well as in the Plan and the Stock Option Agreement attached hereto as Exhibit A (the “ Stock Option Agreement ”), each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Stock Option Agreement.

 

     
Participant: ____________  
   
Grant Date: ____________  
   
Exercise Price per Share: $_______  
   
Total Number of Shares Subject to the Option: ____________  
   
Expiration Date: ____________  
   
Vesting Schedule: ____________  

 

Type of Option:    [  ]  Incentive Stock Option    [  ]  Non-Qualified Stock Option

 

By his or her signature and the Company’s signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Stock Option Agreement, and this Grant Notice. Participant has reviewed the Stock Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Stock Option Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Stock Option Agreement.

 

BLUE STAR FOOODS CORP.:         PARTICIPANT:
         
By:

 

        By:

 

Print Name:

 

        Print
Name:
 
Title:

 

           
Address:

 

        Address:

 

 

 
 

 

EXHIBIT A

TO STOCK OPTION GRANT NOTICE

 

BLUE STAR FOODS CORP. STOCK OPTION AGREEMENT

 

Pursuant to the Stock Option Grant Notice (the “ Grant Notice ”) to which this Stock Option Agreement (this “ Agreement ”) is attached, Blue Star Foods Corp., a Delaware corporation (the “ Company ”), has granted to Participant an Option under the Company’s 2018 Equity Incentive Award Plan, as may be amended from time to time (the “ Plan ”), to purchase the number of shares of Stock indicated in the Grant Notice.

 

ARTICLE 1.

 

GENERAL

 

1.1 Defined Terms . Wherever the following terms are used in this Agreement they shall have the meanings specified below, unless the context clearly indicates otherwise. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.

 

1.2 Incorporation of Terms of Plan . The Option is subject to the terms and conditions of the Plan which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

 

ARTICLE 2.

 

GRANT OF OPTION

 

2.1 Grant of Option . In consideration of Participant’s past and/or continued employment with or service to the Company or any Affiliate and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the “ Grant Date ”), the Company irrevocably grants to Participant the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement, subject to adjustments as provided in Section 14.2 of the Plan. Unless designated as a Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to the maximum extent permitted by law.

 

2.2 Exercise Price . The exercise price of the shares of Stock subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided , however , that the price per share of the shares of Stock subject to the Option shall not be less than 100% of the Fair Market Value of a share of Stock on the Grant Date. Notwithstanding the foregoing, if this Option is designated as an Incentive Stock Option and Participant is a Greater Than 10% Stockholder as of the Date of Grant, the exercise price per share of the shares of Stock subject to the Option shall not be less than 110% of the Fair Market Value of a share of Stock on the Grant Date.

 

2.3 Consideration to the Company . In consideration of the grant of the Option by the Company, Participant agrees to render faithful and efficient services to the Company or any Affiliate. Nothing in the Plan or this Agreement shall confer upon Participant any right to continue in the employ or service of the Company or any Affiliate or shall interfere with or restrict in any way the rights of the Company and its Affiliates, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or an Affiliate and Participant.

 

 
 

 

ARTICLE 3.

 

PERIOD OF EXERCISABILITY

 

3.1 Commencement of Exercisability .

 

(a) Subject to Sections 3.2, 3.3, 5.11 and 5.17 hereof, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.

 

(b) No portion of the Option which has not become vested and exercisable at the date of Participant’s Termination of Service shall thereafter become vested and exercisable, except as may be otherwise provided by the Administrator or as set forth in a written agreement between the Company and Participant.

 

(c) Notwithstanding Section 3.1(a) hereof and the Grant Notice, but subject to Section 3.1(b) hereof, in the event of a Change in Control the Option shall be treated pursuant to Section 14.2 of the Plan.

 

3.2 Duration of Exercisability . The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3 hereof.

 

3.3 Expiration of Option . The Option may not be exercised to any extent by anyone after the first to occur of the following events:

 

(a) The Expiration Date set forth in the Grant Notice, which shall in no event be more than ten (10) years from the Grant Date;

 

(b) If this Option is designated as an Incentive Stock Option and Participant, at the time the Option was granted, was a Greater Than 10% Stockholder, the expiration of five (5) years from the Grant Date;

 

(c) The expiration of three (3) months from the date of Participant’s Termination of Service, unless such termination occurs by reason of Participant’s death or disability; or

 

(d) The expiration of one (1) year from the date of Participant’s Termination of Service by reason of Participant’s death or disability.

 

 
 

 

3.4 Special Tax Consequences . Participant acknowledges that, to the extent that the aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options, including the Option (if applicable), are exercisable for the first time by Participant in any calendar year exceeds $100,000, the Option and such other options shall be Non-Qualified Stock Options to the extent necessary to comply with the limitations imposed by Section 422(d) of the Code. Participant further acknowledges that the rule set forth in the preceding sentence shall be applied by taking the Option and other “incentive stock options” into account in the order in which they were granted, as determined under Section 422(d) of the Code and the Treasury Regulations thereunder. Participant also acknowledges that an Incentive Stock Option exercised more than three (3) months after Participant’s Termination of Employment, other than by reason of death or disability, will be taxed as a Non-Qualified Stock Option.

 

3.5 Tax Indemnity .

 

(a) Participant agrees to indemnify and keep indemnified the Company, any Affiliate and Participant’s employing company, if different, from and against any liability for or obligation to pay any Tax Liability (a “ Tax Liability ” being any liability for income tax, withholding tax and any other employment related taxes or social security contributions in any jurisdiction) that is attributable to (1) the grant or exercise of, or any benefit derived by Participant from, the Option, (2) the acquisition by Participant of the Stock on exercise of the Option or (3) the disposal of any Stock.

 

(b) The Option cannot be exercised until Participant has made such arrangements as the Company may require for the satisfaction of any Tax Liability that may arise in connection with the exercise of the Option and/or the acquisition of the Stock by Participant. The Company shall not be required to issue, allot or transfer Stock until Participant has satisfied this obligation.

 

(c) Participant hereby acknowledges that the Company (i) makes no representations or undertakings regarding the treatment of any Tax Liabilities in connection with any aspect of the Option and (ii) does not commit to and is under no obligation to structure the terms of the grant or any aspect of any Award, including the Option, to reduce or eliminate Participant’s liability for Tax Liabilities or achieve any particular tax result. Furthermore, if Participant becomes subject to tax in more than one jurisdiction between the date of grant of an Award, including the Option, and the date of any relevant taxable event, Participant acknowledges that the Company may be required to withhold or account for Tax Liabilities in more than one jurisdiction.

 

ARTICLE 4.

 

EXERCISE OF OPTION

 

4.1 Person Eligible to Exercise . Except as provided in Section 5.3 hereof, during the lifetime of Participant, only Participant may exercise the Option or any portion thereof, unless it has been disposed of pursuant to a DRO. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3 hereof, be exercised by the deceased Participant’s personal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.

 

 
 

 

4.2 Partial Exercise . Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3 hereof. However, the Option shall not be exercisable with respect to fractional shares of Stock.

 

4.3 Manner of Exercise . The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company (or any third party administrator or other person or entity designated by the Company; for the avoidance of doubt, delivery shall include electronic delivery), during regular business hours, of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3 hereof:

 

(a) An exercise notice in a form specified by the Administrator, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Administrator. The notice shall be signed by Participant or other person then entitled to exercise the Option or such portion of the Option;

 

(b) The receipt by the Company of full payment for the shares of Stock with respect to which the Option or portion thereof is exercised, including payment of any applicable withholding tax, which shall be made by deduction from other compensation payable to Participant or in such other form of consideration permitted under Section 4.4 hereof that is acceptable to the Company;

 

(c) Any other written representations or documents as may be required in the Administrator’s sole discretion to evidence compliance with the Securities Act, the Exchange Act or any other applicable law, rule or regulation; and

 

(d) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 hereof by any person or persons other than Participant, appropriate proof of the right of such person or persons to exercise the Option.

 

Notwithstanding any of the foregoing, the Company shall have the right to specify all conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from time to time.

 

4.4 Method of Payment . Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of Participant:

 

(a) Cash or check;

 

(b) With the consent of the Administrator, surrender of shares of Stock (including, without limitation, shares of Stock otherwise issuable upon exercise of the Option) held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or

 

(c) Other legal consideration acceptable to the Administrator (including, without limitation, through the delivery of a notice that Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company at such time as may be required by the Company, but in any event not later than the settlement of such sale).

 

 
 

 

4.5 Conditions to Issuance of Stock . The shares of Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares of Stock or issued shares of Stock which have then been reacquired by the Company. Such shares of Stock shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the conditions in Section 12.4 of the Plan and following conditions:

 

(a) The admission of such shares of Stock to listing on all stock exchanges on which such Stock is then listed;

 

(b) The completion of any registration or other qualification of such shares of Stock under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable;

 

(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable;

 

(d) The receipt by the Company of full payment for such shares of Stock, including payment of any applicable withholding tax, which may be in one or more of the forms of consideration permitted under Section 4.4 hereof; and

 

(e) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience.

 

4.6 Rights as Stockholder . The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company, including, without limitation, voting rights and rights to dividends, in respect of any shares of Stock purchasable upon the exercise of any part of the Option unless and until such shares of Stock shall have been issued by the Company and held of record by such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment will be made for a dividend or other right for which the record date is prior to the date the shares of Stock are issued, except as provided in Section 14.2 of the Plan.

 

 
 

 

ARTICLE 5.

 

OTHER PROVISIONS

 

5.1 Administration . The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Participant, the Company and all other interested persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option.

 

5.2 Whole Shares . The Option may only be exercised for whole shares of Stock.

 

5.3 Option Not Transferable .

 

(a) Subject to Section 4.1 hereof, the Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until the Option has been exercised and the shares of Stock underlying the Option have been issued, and all restrictions applicable to such shares of Stock have lapsed. Neither the Option nor any interest or right therein shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until the Option has been exercised, and any attempted disposition thereof prior to exercise shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

 

(b) During the lifetime of Participant, only Participant may exercise the Option (or any portion thereof), unless it has been disposed of pursuant to a DRO; after the death of Participant, any exercisable portion of the Option may, prior to the time when such portion becomes unexercisable under the Plan or this Agreement, be exercised by Participant’s personal representative or by any person empowered to do so under the deceased Participant’s will or under the then-applicable laws of descent and distribution.

 

(c) Notwithstanding any other provision in this Agreement, Participant may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of Participant and to receive any distribution with respect to the Option upon Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and this Agreement, except to the extent the Plan and this Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If Participant is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a community property state, a designation of a person other than Participant’s spouse or domestic partner, as applicable, as his or her beneficiary with respect to more than 50% of Participant’s interest in the Option shall not be effective without the prior written consent of Participant’s spouse or domestic partner. If no beneficiary has been designated or survives Participant, payment shall be made to the person entitled thereto pursuant to Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by Participant at any time provided the change or revocation is filed with the Administrator prior to Participant’s death.

 

 
 

 

5.4 Tax Consultation . Participant understands that Participant may suffer adverse tax consequences as a result of the grant, vesting and/or exercise of the Option, and/or with the purchase or disposition of the shares of Stock subject to the Option. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of such shares of Stock and that Participant is not relying on the Company for any tax advice.

 

5.5 Binding Agreement . Subject to the limitation on the transferability of the Option contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

 

5.6 Adjustments Upon Specified Events . The Administrator may accelerate the vesting of the Option in such circumstances as it, in its sole discretion, may determine. In addition, upon the occurrence of certain events relating to the Stock contemplated by Section 14.2 of the Plan (including, without limitation, an extraordinary cash dividend on such Stock), the Administrator shall make such adjustments the Administrator deems appropriate in the number of shares of Stock subject to the Option, the exercise price of the Option and the kind of securities that may be issued upon exercise of the Option. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided in this Agreement and Section 14.2 of the Plan.

 

5.7 Notices . Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last address reflected on the Company’s records. By a notice given pursuant to this Section 5.7, either party may hereafter designate a different address for notices to be given to that party. Any notice which is required to be given to Participant shall, if Participant is then deceased, be given to the person entitled to exercise his or her Option pursuant to Section 4.1 hereof by written notice under this Section 5.7. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

 

5.8 Titles . Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

5.9 Governing Law . The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

5.10 Conformity to Securities Laws . Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all Applicable Law and regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such Applicable Law. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such Applicable Law.

 

5.11 Amendment, Suspension and Termination . To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Option in any material way without the prior written consent of Participant.

 

 
 

 

5.12 Successors and Assigns . The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in Section 5.3 hereof, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.

 

5.13 Notification of Disposition . If this Option is designated as an Incentive Stock Option, Participant shall give prompt notice to the Company of any disposition or other transfer of any shares of Stock acquired under this Agreement if such disposition or transfer is made (a) within two (2) years from the Grant Date with respect to such shares of Stock or (b) within one (1) year after the transfer of such shares of Stock to Participant. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.

 

5.14 Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Option and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

 

5.15 Not a Contract of Service Relationship . Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of the Company or any of its Affiliates or interfere with or restrict in any way with the right of the Company or any of its Affiliates, which rights are hereby expressly reserved, to discharge or to terminate for any reason whatsoever, with or without cause, the services of Participant’s at any time.

 

5.16 Entire Agreement . The Plan, the Grant Notice and this Agreement (including all Exhibits thereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

 

5.17 Section 409A . This Option is not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “ Section 409A ”). However, notwithstanding any other provision of the Plan, the Grant Notice or this Agreement (or any Exhibits hereto), if at any time the Administrator determines that the Option (or any portion thereof) may be subject to Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify Participant or any other person for failure to do so) to adopt such amendments to the Plan, the Grant Notice or this Agreement (or any Exhibits hereto), or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate either for the Option to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.

 

5.18 Limitation on Participant’s Rights . Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Stock as a general unsecured creditor with respect to options, as and when exercised pursuant to the terms hereof.

 

 
 

 

 

 

LOAN AND SECURITY AGREEMENT

 

BETWEEN

 

ACF FINCO I LP

 

AND

 

JOHN KEELER & CO. INC.

(d/b/a Blue Star Foods)

 

Effective Date: August 31, 2016

 

 

 

 

 

TABLE OF CONTENTS

 

ARTICLE 1. DEFINITIONS. 1
ARTICLE 2. THE LOANS. 1
2.1. Revolving Credit; Revolving Credit Note. 1
2.2. Conditions to Loans and Advances. 1
2.3. Overadvances. 3
2.4. Reserves. 3
2.5. Manner of Revolving Credit Borrowing; Notice of Borrowing. 3
2.6. Collections; Lockbox; Blocked Account. 4
2.7. Crediting of Funds. 4
2.8. Records of Lender. 5
2.9. Payment on Revolving Credit Termination Date; Termination of Advances. 5
ARTICLE 3. INTEREST AND FEES. 5
3.1. Interest. 5
3.2. Facility Fee. 6
3.3. Collateral Management Fee. 6
3.4. Intentionally Omitted. 6
3.5. Field Examination Fees; Appraisals. 6
3.6. Intentionally Omitted. 6
3.7. Liquidated Damages. 6
3.8. Computation of Interest and Fees. 7
ARTICLE 4. COLLATERAL AND SECURITY INTEREST. 7
4.1. Grant of Security Interest. 7
4.2. Nature of Security Interest. 7
4.3. Perfection and Protection of Security Interest. 8
4.4. Limited License. 9
4.5. Rights of Lender as Secured Party. 9
4.6. Communication with Account Debtors. 9
4.7. Confirmatory Written Assignments. 9
4.8. Lender’s Right to Perform Borrower’s Obligations. 10
ARTICLE 5. REPRESENTATIONS. 10
5.1. Organization, Qualification and Structure. 10
5.2. Legally Enforceable Agreement. 10
5.3. Name and Address. 10
5.4. Location of Collateral. 11
5.5. Title; Liens; Permitted Liens. 11
5.6. Existing Indebtedness. 11
5.7. Financial Statements. 11
5.8. Solvent Financial Condition. 11
5.9. General Intangibles, Patents, Trademarks, Copyrights and Licenses. 11
5.10. Existing Business Relationships. 12
5.11. Investment Company Act: Federal Reserve Board Regulations. 12
5.12. Anti-Money Laundering and Terrorism Regulations. 12
5.13. Tax Returns. 12
5.14. Litigation. 13

 

i

 

 

5.15. ERISA Matters. 13
5.16. O.S.H.A. 13
5.17. Environmental Matters. 13
5.18. Labor Disputes. 13
5.19. Location of Bank and Securities Accounts. 13
5.20. Compliance With Laws. 13
5.21. Capital Structure. 14
5.22. No Other Violations. 14
5.23. Full Disclosure. 14
5.24. Survival of Representations. 14
ARTICLE 6. FINANCIAL INFORMATION TO BE DELIVERED TO LENDER. 15
6.1. Borrowing Base Certificates. 15
6.2. A/R and A/P Aging; Perpetual Inventory Report. 15
6.3. Ineligible Receivables/Ineligible Inventory. 15
6.4. Annual Financial Statements; Compliance Certificates. 15
6.5. Monthly Financial Statements; Compliance Certificates. 16
6.6. Inventory Counts and Reports. 16
6.7. Projections. 16
6.8. Customer and Vendor Lists. 16
6.9. Insurance. 16
6.10. Tax Returns. 16
6.11. Other Information. 16
ARTICLE 7. AFFIRMATIVE COVENANTS. 16
7.1. Use of Loan Proceeds. 16
7.2. Business and Existence; Trade Names. 16
7.3. Taxes. 17
7.4. Compliance with Laws. 17
7.5. Maintain Properties; Insurance. 17
7.6. Business Records. 19
7.7. Delivery of Documents and Instruments. 19
7.8. Name Change; Organizational Change; Creation of Affiliates. 20
7.9. Change of Offices; Records. 20
7.10. Change of Fiscal Year. 20
7.11. Access to Books and Records. 20
7.12.  Solvency. 20
7.13. Notice to Lender. 20
7.14. Payments to Customs Brokers, etc . 22
7.15. Retention of Turnaround Management Consultant. 22
7.16. Post-Closing Covenants. 22
ARTICLE 8. NEGATIVE COVENANTS. 22  
8.1. Indebtedness. 22
8.2. Mergers; Consolidations; Acquisitions. 22
8.3. Change of Management; Change of Control. 22
8.4. Sale or Disposition. 22
8.5. Real Property Defaults. 23
8.6. Liens and Encumbrances. 23
8.7. Dividends and Distributions; Payment of Indebtedness; Amendments. 23
8.8. Guaranties; Contingent Liabilities. 23
8.9. Removal of Collateral. 23

 

ii

 

 

8.10. Transfer of Notes or Accounts. 23
8.11. Settlements. 24
8.12. Change of Business. 24
8.13. Change of Accounting Practices. 24
8.14. Inconsistent Agreement. 24
8.15. Loan or Advances; Personal Expenses. 24
8.16. Investments. 24
8.17. Bank Accounts. 24
8.18. Compensation. 24
8.19. Transactions with Affiliates. 24
8.20.  Capital Expenditures. 25
8.21. Fixed Charge Coverage Ratio. 25
ARTICLE 9. EVENTS OF DEFAULT; REMEDIES OF LENDER. 26
9.1. Events of Default. 26
9.2. Continuation of Events of Default. 28
9.3. Rights and Remedies with Respect to Loans and Advances. 28
9.4. Rights and Remedies with Respect to Collateral. 28
ARTICLE 10.GENERAL PROVISIONS. 31
10.1. Rights and Remedies Cumulative. 31
10.2. Reinstatement. 31
10.3. Successors and Assigns. 32
10.4. Notice. 32
10.5. Strict Performance. 32
10.6. Waiver. 32
10.7. Construction of Agreement. 32
10.8. Expenses; Taxes. 32
10.9. Interest, Fees and Reimbursements Charged to Revolving Credit. 33
10.10. Marketing and Advertising. 33
10.11. Waiver of Right to Jury Trial. 34
10.12.  Indemnification by Borrower. 34
10.13. Savings Clause for Indemnification. 35
10.14. Lender’s Performance. 35
10.15. Entire Agreement; Amendments; Lender’s Consent. 35
10.16. Cross Default; Cross Collateralization. 35
10.17. Execution in Counterparts. 36
10.18. Severability of Provisions. 36
10.19. Governing Law; Consent to Jurisdiction. 36
10.20. Rules of Construction. 37

 

Schedules and Exhibits

 

Definitions Schedule

Disclosure Schedule

Exhibit A: Form of Notice of Borrower

Exhibit B: Form of Borrowing Base Certificate

Exhibit C: Form of Compliance Certificate

 

iii

 

 

This LOAN AND SECURITY AGREEMENT (together with all Schedules and Exhibits hereto, and all amendments, modifications and supplements hereto, and all restatements hereof, from time to time, pursuant to the terms hereof, collectively, this “ Agreement ”) between ACF FINCO I LP , a Delaware limited partnership (“ Lender ”), and JOHN KEELER & CO. INC. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”), is dated the date of execution by Lender on the signature page of this Agreement (the “ Effective Date ”).

 

RECITALS :

 

Borrower has requested Lender to extend loans to Borrower consisting of a revolving credit facility to support Borrower’s working capital needs and for other purposes as described in this Agreement. Lender is willing to extend such loans to Borrower subject to the terms and conditions set forth in this Agreement.

 

AGREEMENT :

 

ARTICLE 1. DEFINITIONS.  

 

Unless defined in the introductory paragraph, above, in the Recitals, above, in the body of this Agreement, or in the Exhibits or other Schedules hereto, capitalized terms have the meanings given to such terms in the Definitions Schedule . The Definitions Schedule also provides meanings for certain other phrases used in this Agreement (whether or not capitalized). Each term defined in the singular shall be interpreted in a collective manner when used in the plural, and each term defined in the plural shall be interpreted in an individual manner when used in the singular.

 

ARTICLE 2. THE LOANS.

 

2.1. Revolving Credit; Revolving Credit Note. Subject to the terms and conditions of this Agreement and as long as no Default or Event of Default then exists, on Borrower’s request prior to the Revolving Credit Termination Date Lender shall lend to Borrower under a revolving credit facility (the “Revolving Credit” ) an aggregate principal sum equal to the Borrowing Capacity. The maximum principal amount of any Advance shall not exceed an amount equal to the amount of the Borrowing Capacity less the aggregate amount of all Obligations then outstanding. Within the limits of the Borrowing Capacity, and subject to terms and conditions of this Agreement, prior to the Revolving Credit Termination Date Borrower may borrow, repay and reborrow the principal amount of the Revolving Credit. Borrower’s obligation to pay the principal of, and interest on, Advances made to Borrower and the Revolving Credit shall be evidenced by an Authenticated promissory note in form and content acceptable to Lender (the “Revolving Credit Note” ).

 

2.2. Conditions to Loans and Advances. Lender’s obligation to make any Loan or Advance under this Agreement is subject to the following conditions precedent that must be satisfied on and as of the date of such Loan or Advance and after giving effect to such Loan or Advance:

 

(a) Conditions Precedent to Initial Loans and Advances . Each of the following is a condition precedent to Lender making the initial Loans and Advances hereunder:

 

(i) This Agreement and the other Loan Documents and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender;

 

(ii) All requisite corporate action and proceedings in connection with this Agreement and the other Loan Documents shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including Borrower’s Charter Documents and corporate resolutions, certified by appropriate corporate officers or Governmental Units;

 

 

 

 

(iii) Since the date of the most recent audited financial statements of Borrower provided to Lender prior to the Effective Date, no event or circumstance shall have occurred which has had, or which could reasonably be expected to have, a Material Adverse Change;

 

(iv) Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first-priority security interests in and Liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of Borrower or any Guarantor, any in respect thereof, subject only to Permitted Liens;

 

(v) Lender shall have received a final payoff letter from any Person whose outstanding Indebtedness is to be satisfied by remittance of proceeds of the Loans and Advances to be made on the Effective Date;

 

(vi) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third Persons which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in the Collateral or to effectuate the provisions or purposes of this Agreement and the other Loan Documents, including acknowledgments by lessors of Lender’s Lien in the Collateral, waivers by such Persons of any security interests, Liens or other claims by such Persons to the Collateral and agreements permitting Lender access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral;

 

(vii) Lender shall have received evidence of insurance and all lenders loss payee endorsements required hereunder and under the other Loan Documents, in form and substance satisfactory to Lender, and certificates of insurance policies and/or endorsements naming Lender as lenders loss payee;

 

(viii) Lender shall have received, in form and substance satisfactory to Lender, such opinion letters of counsel to Borrower with respect to the Loan Documents and such other matters as Lender may request;

 

(ix) The Borrowing Capacity (as determined by Lender on the Effective Date) shall be at least $150,000 after giving pro forma effect to the initial Loans and Advances made or to be made in connection hereunder;

 

(x) Lender shall have received evidence of payment of the Florida documentary stamp tax in the amount of $2,450;

 

(xi) Lender shall have completed its business, financial and legal due diligence of Borrower and Guarantor, including a roll-forward of its previous field examination, in each case with results satisfactory to Lender;

 

(xii) Lender shall have received such other agreements, documents, instruments and other items as it may require, including, without limitation, all items on the closing checklist delivered by Lender or its counsel to Borrower or its counsel.

 

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(b) Conditions Precedent to All Loans and Advances . Without limiting any other provision of this Agreement, Lender shall have no obligation to make any Loans or Advances unless each of the following is satisfied in the sole opinion of Lender, on and as of the date of such Loan or Advance and after giving effect to such Loan or Advance:

 

(i) The representations set forth in ARTICLE 5 and in the other Loan Documents shall be true and complete in all material respects (except that if such representation is subject to a materiality, “Material Adverse Change” or similar qualifier, it shall be true and correct in all respects) on and as of such date as if made on and as of such date (except to the extent any such representation expressly relates to any earlier and/or specified date);

 

(ii) No Default or Event of Default shall have occurred and be continuing;

 

(iii) No Material Adverse Change shall have occurred; and

 

(iv) No Overadvance shall have occurred and be continuing.

 

Borrower’s acceptance of each Loan or Advance under this Agreement shall constitute a confirmation by Borrower, on and as of the date of such Loan or Advance and after giving effect to such Loan or Advance, of the satisfaction of the conditions precedent set forth above, including (A) the accuracy and completeness of the representations set forth in ARTICLE 5 and in the other Loan Documents, (B) Borrower’s satisfaction of the covenants and agreements set forth in ARTICLE 6 , ARTICLE 7 and ARTICLE 8 and in the other Loan Documents, and (C) the absence of any Default or Event of Default. Borrower shall confirm such matters by delivery to Lender of an Authenticated Compliance Certificate as provided in Section 6.4 and Section 6.5 , and if requested by Lender by delivery of a Compliance Certificate with any Notice of Borrowing requesting an Advance.

 

2.3. Overadvances. Lender shall not be required to make any Advance at any time in a principal amount that would, when aggregated with the amount of the Obligations then outstanding, exceed the Borrowing Capacity. If the Obligations of Borrower to Lender incurred under the Revolving Credit exceed the Borrowing Capacity for any reason (the amount of such excess to be referred to as an “Overadvance” ), then (a) such Overadvance will constitute an Advance for purposes of this Agreement, (b) payment of such Overadvance will be secured by the Collateral, (c) Borrower shall immediately repay the amount of such Overadvance without notice or demand by Lender, and (d) Lender may in Lender’s sole discretion refrain from making any additional Advances until the Overadvance has been repaid to Lender in full. Any funding of an Overadvance shall not constitute a waiver of the Event of Default caused thereby.

 

2.4. Reserves. Lender may at any time establish one or more reserves ( “Reserves” ) under the Revolving Credit in Lender’s permitted discretion. A Reserve may limit the Borrowing Capacity, reduce the Borrowing Base, or otherwise restrict Borrower’s ability to borrow under the Revolving Credit. Lender shall endeavor to notify Borrower promptly after the establishment of any Reserve; provided, however , under no circumstance shall the delivery or receipt of any such notice constitute a condition to Lender’s establishment of any Reserve.

 

2.5. Manner of Revolving Credit Borrowing; Notice of Borrowing. Borrower shall request each Advance by delivering an Authenticated Notice of Borrowing to Lender (a) by facsimile, or (b) by electronic transmission including, without limitation, e-mail. Borrower must verify Lender’s receipt of each Notice of Borrowing by telephone confirmation, or upon Borrower’s request by Borrower’s receipt of confirming e-mail from Lender. Subject to the terms and conditions of this Agreement, Lender shall deliver the amount of the Advance requested in the Notice of Borrowing for credit to any account of Borrower (other than a payroll account) at a bank in the United States of America as Borrower may specify in writing by wire transfer of immediately available funds (i) on the same day of Lender’s receipt of the Notice of Borrowing if Lender verifies that the Notice of Borrowing was received by Lender on or before 11 a.m. Eastern Time on a Banking Day, or (ii) on the Banking Day immediately following Lender’s receipt of the Notice of Borrowing if Lender verifies that the Notice of Borrowing was received by Lender after 11 a.m. Eastern Time on a Banking Day, or Lender verifies that the Notice of Borrowing was received by Lender on any day that is not a Banking Day. Lender shall charge to the Revolving Credit Lender’s usual and customary fees for the wire transfer of each Advance.

 

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2.6. Collections; Lockbox; Blocked Account.

 

(a) Promptly after the Effective Date, Borrower shall instruct all Account Debtors to forward all payments of Receivables by check to one or more lockboxes (each, a “Lockbox ”) established by Lender with a financial institution acceptable to Lender (the “Depository Bank” ) and shall instruct all Account Debtors paying Receivables by wire transfer or other electronic payment to make such payments to a “Blocked Account” (defined below). Borrower shall require each customer making a payment of a Receivable by check or other instrument to make such check or instrument payable to the order of Borrower. Collected funds in a Lockbox shall be deposited into one or more accounts with the Depository Bank established by Lender and subject to Lender’s sole dominion and control (including, but not limited to the sole power of withdrawal) (each, a “Blocked Account ”). The agreement(s) relating to each Blocked Account between Lender, the Depository Bank and Borrower shall be in form and content reasonably satisfactory to Lender.

 

(b) All Proceeds of Collateral received by Borrower, including cash, checks, drafts, notes, acceptances or other forms of payment, and whether Proceeds of Receivables, Inventory, insurance claims, or other otherwise, shall be received by Borrower in trust for Lender. Borrower shall deliver all Proceeds of Collateral in Borrower’s possession to the Blocked Account immediately after receipt, in precisely the form received (except for the endorsement or assignment of Borrower where necessary).

 

(c) Borrower shall instruct Persons processing or collecting any credit card payments or Proceeds of Receivables on behalf of Borrower to deliver such payments or Proceeds to the Blocked Account promptly, but not less frequently than once every week.

 

2.7. Crediting of Funds. Each Banking Day Lender shall withdraw available funds from the Blocked Account, deposit such funds in the Settlement Account, and credit available funds received in the Settlement Account to the payment of the Obligations. Lender shall credit to the payment of the Obligations any other form of funds received by Lender in the Settlement Account for which Lender has received notice that such funds are collected and available to Lender (i) on the same day of Lender’s receipt of such notice if such notice is received by Lender on or before 2 p.m. Eastern Time on a Banking Day, and (ii) on the Banking Day immediately following Lender’s receipt of such notice if such notice is received by Lender after 2 p.m. Eastern Time on a Banking Day, or if such notice is received by Lender on a day that is not a Banking Day. In the absence of an Event of Default, all funds credited to the repayment of the Obligations will be applied in the following order:

 

(a) to unpaid fees and expenses;

 

(b) to unpaid interest;

 

(c) the outstanding principal balance of the Revolving Credit; and

 

(d) to all other Obligations in such order as Lender shall elect.

 

Upon the occurrence and during the continuation of an Event of Default Lender shall credit available funds received in the Settlement Account to the repayment of the Obligations in such order and in such amounts as Lender determines in Lender’s sole discretion.

 

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All funds credited to the payment of the Obligations are conditional upon final payment to Lender in cash or solvent credits of the items giving rise to such funds. If any item credited to the payment of the Obligations is not paid to Lender or payment thereof is rescinded or required to be returned by Lender, the amount of any credit given for such item shall be charged to the balance of the Obligations whether or not the item is returned. For the purpose of computing interest on the Obligations, interest shall continue to accrue on the amount of any funds credited to the payment of the Obligations by Lender for a period of two (2) Banking Days after the date so credited.

 

2.8. Records of Lender. Lender shall maintain Records relating to the Obligations, Loans and Advances (including schedules maintained electronically) containing such annotations as Lender deems appropriate, including but not limited to annotations regarding the dates and amounts of Advances, the principal balance of any Loan, and the dates and amounts of repayments of any Loans, and shall account to Borrower monthly. In the absence of manifest error each Record of any annotations delivered to Borrower shall be conclusive and binding upon Borrower unless Borrower delivers to Lender written notice of any objection within ten (10) Banking Days of receipt. If Borrower disputes the accuracy of any Record or annotation, Borrower’s notice shall specify in detail the particulars of its basis for contending that such Record or annotation is inaccurate. No failure of Lender to render any Record or in making any annotation shall affect the obligation of Borrower to pay and perform the Obligations pursuant to the terms of this Agreement and the other Loan Documents.

 

2.9. Payment on Revolving Credit Termination Date; Termination of Advances. On the Revolving Credit Termination Date Borrower shall pay to Lender in cash the entire outstanding principal balance of the Revolving Credit, plus all accrued and unpaid interest thereon, plus all fees, costs, expenses and other amounts payable to Lender in connection with the Revolving Credit, plus all other Obligations payable to Lender pursuant to the terms of this Agreement and the other Loan Documents. Lender shall not be obligated to make or continue to extend any Advance or continue any Loan to Borrower under the Revolving Credit after the Revolving Credit Termination Date.

 

ARTICLE 3. INTEREST AND FEES.

 

3.1. Interest. Borrower shall pay to Lender interest on the outstanding principal amount of the Revolving Credit until Full Payment of the Obligations. Interest shall accrue daily on the daily unpaid principal amount of the Revolving Credit, and Borrower shall pay interest to Lender monthly in arrears commencing on the first Banking Day of the calendar month immediately following the Effective Date and on the first Banking Day of each calendar month thereafter and on the Revolving Credit Termination Date. The interest rate on the Revolving Credit shall equal:

 

(a) if no Default or Event of Default has occurred and is continuing, the Revolving Credit Rate; and

 

(b) if a Default or an Event of Default has occurred and is continuing, the Default Rate.

 

Notwithstanding anything to the contrary in this Agreement or any other Loan Document, in no event shall any interest paid to Lender on the Revolving Credit exceed an amount that would cause the interest rate on the Revolving Credit to exceed the maximum rate permitted by applicable law. Any amount of interest paid to Lender that is finally and irrevocably determined by a court of competent jurisdiction to exceed the maximum interest payable on the Revolving Credit under applicable law shall be, at Lender’s sole discretion, applied to the outstanding principal amount of the Revolving Credit, any fees, expenses or other amounts payable hereunder, or returned by Lender to Borrower promptly thereafter.

 

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3.2. Facility Fee. Borrower shall pay to Lender a fee (the “Facility Fee” ) in an amount equal to (a) on the Effective Date, one percent (1.00%) of the Revolving Credit Limit and (b) on the first (1st) day of each of the Contract Years commencing in Fiscal Year 2017 and 2018, one-half of one percent (0.50%) of the Revolving Credit Limit. The Facility Fee shall be earned in full on the Effective Date and on the first (1 st ) day of each subsequent Contract Year. In the absence of the occurrence and continuation of an Event of Default, the Facility Fee otherwise payable on the Effective Date shall be paid in five (5) equal monthly installments on the Effective Date and on the first day of each calendar month thereafter until fully paid. Upon the Revolving Credit Termination Date, Borrower shall immediately pay to Lender the portion of the Facility Fee remaining unpaid for the then current Contract Year.

 

3.3. Collateral Management Fee. Borrower shall pay to Lender monthly a collateral management fee (the “Collateral Management Fee” ) in an amount equal to $2,500. The Collateral Management Fee shall be earned in full on the Effective Date and on the first (1 st ) day of each calendar month thereafter until Full Payment of the Obligations. In the absence of the occurrence and continuation of an Event of Default the Collateral Management Fee shall be paid in arrears commencing on the first Banking Day of the calendar month immediately following the Effective Date and on the first Banking Day of each calendar month thereafter until Full Payment of the Obligations.

 

3.4. Unused Line Fee. Borrower shall pay to Lender monthly an unused line fee at a rate equal to one-half of one percent (0.5%) per annum, applied to the amount by which the Revolving Credit Limit exceeds the average daily principal balance of the outstanding Advances during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable in arrears on the first (1 st ) day of each month and on the Revolving Credit Termination Date.

 

3.5. Field Examination Fees; Appraisals. Borrower shall be liable for and promptly reimburse Lender for all fees, costs and expenses (including standard fees charged by Lender’s internal field examiners) associated with periodic field examinations and appraisals of Collateral performed by Lender and/or Lender’s agents, all as deemed necessary by Lender in its permitted discretion, and shall pay to Lender the then standard amount charged by Lender per person per day ($1,000 per person per day as of the Effective Date) for each day that an employee or agent of Lender shall be engaged in a field examination, plus reasonable expenses. Prior to the occurrence of a Default or Event of Default in no event shall Borrower be liable for or reimburse Lender for such fees, costs or expenses to the extent Lender performs more than three (3) field examinations and two (2) appraisals in any calendar year. Borrower acknowledges and agrees that during the continuation of a Default or Event of Default Borrower shall be liable for and shall reimburse Lender for all reasonable fees, costs and expenses of all field examinations and appraisals conducted by Lender and/or its agents, without limit and regardless of the number of field examinations or appraisals conducted by Lender or its agents in any calendar year.

 

3.6. Intentionally Omitted.

 

3.7. Liquidated Damages. Subject to the terms and conditions of this Agreement, Borrower shall have the right prior to the third (3rd) anniversary of the Effective Date and upon not less than thirty (30) calendar days’ advance written notice to Lender (a “ Principal Reduction Notice ”) to prepay in full the entire outstanding principal balance of the Revolving Credit, all accrued and unpaid interest thereon, all fees, costs, expenses and other amounts payable to Lender in connection with the Revolving Credit, and all other Obligations payable to Lender under this Agreement and the other Loan Documents. A Principal Reduction Notice shall be irrevocable when delivered to Lender and upon the full, final and indefeasible payment to Lender of all Obligations following such Principal Reduction Notice, the Revolving Credit shall be terminated and all obligations of Lender to extend credit to Borrower under the Revolving Credit shall terminate.

 

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If prior to the third (3rd) anniversary of the Effective Date (a) Borrower prepays all Obligations outstanding in full pursuant to the foregoing paragraph, or (b) pursuant to the terms of this Agreement or any other Loan Document, either (i) Lender demands repayment of the outstanding Obligations in whole or in part, or (ii) repayment of the outstanding Obligations are otherwise accelerated in whole or in part, then (c) at the time of such prepayment, repayment, demand or acceleration, and in addition to the principal balance of the Revolving Credit, all accrued and unpaid interest thereon, all fees, costs, expenses and other amounts payable to Lender in connection with the Revolving Credit, and all other Obligations paid to Lender under this Agreement and the other Loan Documents, Borrower shall pay liquidated damages to Lender in an amount equal to the Revolving Credit Limit multiplied by (i) three percent 3.00%) if such prepayment, repayment, demand or acceleration occurs prior to the first (1st) anniversary of the Effective Date, (ii) one percent (1.00%) if such prepayment, repayment, demand or acceleration occurs on or after the first (1st) anniversary of the Effective Date but prior to the second (2nd) anniversary of the Effective Date, and (iii) one-half of one percent (0.50%) if such prepayment, repayment, demand or acceleration occurs on or after the second (2nd) anniversary of the Effective Date but prior to the date that is ten (10) calendar days in advance of the third (3rd) anniversary of the Effective Date.

 

Lender and Borrower each hereby acknowledges and agrees that it would be impractical and extremely difficult to ascertain Lender’s actual damages from early termination of the Revolving Credit, and that the above liquidated damages have been arrived at by mutual agreement of Lender and Borrower as to a reasonable calculation of Lender’s lost profits as a result of early termination of the Revolving Credit. Lender and Borrower each further hereby acknowledges and agrees that the liquidated damages provided above are intended to be fair and reasonable approximations of Lender’s actual damages from early termination of the Revolving Credit, are presumed to be the amount of damages sustained by Lender as a result of such early termination, are reasonable under the circumstances currently existing, and that the liquidated damages are not intended to be penalties.

 

3.8. Computation of Interest and Fees. All interest and fees under this Agreement shall be computed on the basis of a year consisting of three hundred sixty (360) days for the number of days actually elapsed.

 

ARTICLE 4. COLLATERAL AND SECURITY INTEREST.

 

4.1. Grant of Security Interest. As security for the full, final and indefeasible payment to Lender in cash and performance of the Obligations, Borrower hereby pledges to Lender, and grants to Lender a continuing general lien upon and security interest in and to the Collateral. Borrower acknowledges and agrees that Collateral securing any purchase money security interest in favor of Lender also secures all non-purchase money security interests in favor of Lender.

 

4.2. Nature of Security Interest. The pledge, lien and security interest granted to Lender pursuant to this Agreement shall continue in full force and effect until Full Payment of the Obligations, notwithstanding the termination of any other Loan Document (in whole or in part), the termination of Lender’s obligations to extend credit to Borrower under this Agreement or any other Loan Document, the full or partial termination (whether by prepayment, demand or acceleration) of any Loan, or that the Revolving Credit may from time to time be temporarily in a credit position. Any balances to the credit of Borrower in the possession of Lender, and any other Property or assets of Borrower in the possession of Lender, shall be held by Lender as Collateral, and applied in whole or partial satisfaction of the Obligations when due, subject to the terms of this Agreement.

 

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4.3. Perfection and Protection of Security Interest.

 

(a) Borrower will execute and deliver to Lender security agreements, assignments (including, without limitation, assignments of specific Accounts, Receivables, Certificates Of Title, Chattel Paper, Documents, Instruments, Goods, Inventory, Equipment and General Intangibles), control agreements, mortgages, deeds of trust, collateral assignments, and other documents and instruments as Lender may at any time reasonably request to establish, evidence, attach, perfect, or protect any Lien granted to Lender. Borrower authorizes Lender to file all financing statements (including, without limitation, describing the Collateral as “all assets” or “all personal property,” whether owned or hereafter acquired), and all continuations or amendments thereof, to establish, evidence attach, perfect or protect any Lien granted to Lender in the Collateral. Borrower agrees that subject to Borrower’s rights under Section 9-509(d)(2) of the UCC, Borrower is not and shall not be authorized to file any financing statement or amendment, termination or corrective statement with respect to any financing statement filed by Lender, or with respect to any continuation or amendment thereof, without the prior written consent of Lender.

 

(b) Borrower will perform any and all actions requested by Lender in Lender’s permitted discretion to establish, attach, perfect or protect any Lien of Lender in Inventory, including without limitation, placing and maintaining signs, appointing custodians, maintaining stock Records and transferring Inventory to warehouses. Upon Lender’s request, Borrower shall record Lender’s security interest on any Certificate Of Title for any Collateral that is a motor vehicle. Borrower hereby appoints Lender, and Lender’s designee(s), as Borrower’s attorney-in-fact (i) to execute and deliver notices of lien, financing statements, assignments, and any other documents, instruments, notices, and agreements necessary for the establishment, attachment, perfection or protection of any Lien of Lender in any Collateral, (ii) to endorse the name of Borrower on any checks, notes, drafts or other forms of payment or security consisting of Collateral that may come into the possession of Lender or any Affiliate of Lender, (iii) following the occurrence and during the continuation of an Event of Default, to sign Borrower’s name on invoices or bills of lading, drafts against customers, notices of assignment, verifications and schedules relating to Collateral, (iv) following the occurrence and during the continuation of an Event of Default (A) to notify the Post Office authorities to change the address of delivery of mail to an address designated by Lender, and (B) to open and dispose of mail addressed to Borrower, and (v) generally, to do all things reasonably necessary to carry out the purposes and intent of this Agreement. The powers granted herein, being coupled with an interest, are irrevocable, and Borrower approves and ratifies all acts of the attorney(s)-in-fact consistent with the foregoing. Neither Lender nor any attorney(s)-in-fact shall be liable for any act or omission, error in judgment or mistake of law so long as the same does not constitute gross negligence or willful misconduct of Lender, as determined in a final, non-appealable judgment of a court of competent jurisdiction.

 

(c) Borrower shall cooperate with, and take such actions as required by, Lender in obtaining waivers or subordinations in favor of Lender as Lender may reasonably require from third parties having any interest in any Collateral and Borrower shall cooperate with, and take such actions as required by, Lender in obtaining “control” of Collateral consisting of Deposit Accounts, electronic Chattel Paper, Investment Property, or Letter-Of-Credit Rights as provided in Sections 9-104 through 9-107, inclusive, of the UCC. If any Inventory is in the possession or control of any third party other than a purchaser in the ordinary course of business or a public warehouseman where the warehouse receipt is in the name of or held by Borrower, Borrower shall notify such Person of the Lien of Lender therein and instruct such person or persons to hold such Inventory for the account and benefit of Lender and subject to Lender’s instructions. Borrower will deliver to Lender warehouse receipts covering any Inventory located in warehouses showing Lender as the beneficiary thereof and will also cooperate with Lender in obtaining from warehousemen and bailees agreements relating to the release of warehouseman’s and bailee’s liens on Inventory as Lender may reasonably request.

 

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(d) Borrower acknowledges and agrees that the security interest granted to Lender pursuant to this Agreement shall specifically include a security interest in all Commercial Tort Claims arising after the Effective Date, and in order to permit Lender to perfect its security interest in each such Commercial Tort Claim Borrower shall promptly deliver to Lender copies of all summonses, complaints, responses, motions and other pleadings filed by or against Borrower after the date hereof so that Lender may file a Uniform Commercial Code financing statement relating to each such Commercial Tort Claim.

 

4.4. Limited License. Regardless of whether Lender’s security interests in and to any of the General Intangibles has attached or is perfected, until Full Payment of the Obligations, Borrower hereby irrevocably grants to Lender a royalty-free, non-exclusive license to use Borrower’s General Intangibles during the continuation of an Event of Default, including all trademarks, copyrights, patents and other proprietary and intellectual property rights, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, and any Property of a similar nature, as it pertains to the Collateral in connection with the (a) advertisement for, and sale or other disposition of, any finished goods Inventory by Lender in accordance with the provisions of this Agreement, (b) manufacture, assembly, completion, preparation and advertising for sale or other disposition of any unfinished Inventory by Lender in accordance with the provisions of this Agreement, (c) sale, lease, license or other disposition of Collateral by Lender in accordance with the provisions of this Agreement, and Borrower’s rights under all licenses and any franchise, sales, distribution and supply agreements shall inure to Lender’s benefit for such purposes.

 

4.5. Rights of Lender as Secured Party. At all times prior to Full Payment of the Obligations, Lender shall have, in addition to all other rights, powers, remedies and privileges of Lender under this Agreement (a) all rights, powers, remedies and privileges granted to a Secured Party under the UCC, (b) all rights, powers, remedies and privileges with respect to Collateral granted to Lender under the other Loan Documents, and (c) all rights, powers, remedies and privileges of Lender with respect to the Collateral available under applicable law.

 

4.6. Communication with Account Debtors. Borrower authorizes Lender, at any time and without notice to or the consent of Borrower, to communicate directly with customers of Borrower and Account Debtors of Borrower by whatever means Lender shall elect for the purpose of verifying information supplied by Borrower to Lender with respect to Receivables pursuant to this Agreement. If a customer or an Account Debtor is a Governmental Unit, Lender shall be specifically authorized to communicate directly with each contract officer of such Governmental Unit in order to confirm matters relating to Borrower’s business with such Governmental Unit or contract, including, but not limited to, the validity of Receivables owing to Borrower by such Governmental Unit, the award rating of Borrower, whether such Governmental Unit has declared Borrower to have defaulted on such business arrangement or contract, the continuing effectiveness of such business arrangement or contract and such other information as Lender deems reasonably necessary to determine the validity, amount and/or collectability of each Receivable under such business arrangement or contract. Upon Lender’s request at any time Borrower shall provide Lender with a list of the addresses, telephone and facsimile numbers of its Account Debtors.

 

4.7. Confirmatory Written Assignments. Upon Lender’s request at any time after the occurrence and during the continuance of an Event of Default, Borrower shall promptly execute and deliver a confirmatory written assignment to Lender of any Receivables then existing or any Receivable thereafter created. Borrower’s failure to execute or deliver any such assignment shall not affect or limit any Lien or other right of Lender in and to such Receivable.

 

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4.8. Lender’s Right to Perform Borrower’s Obligations. In the event that Borrower shall fail to purchase or maintain insurance, or to pay any tax, assessment, charge or levy of any Governmental Unit, except as the same may be Properly Contested, or in the event that any Lien on any Collateral not specifically permitted by the terms of this Agreement shall not be paid in full or discharged, or in the event that Borrower shall fail to perform or comply with any other covenant, promise or Obligation to Lender hereunder or under any other Loan Document, Lender may, but shall not be required to, perform, pay, satisfy, discharge or bond the same for the account of Borrower, and all monies so paid by Lender, including reasonable attorneys’ fees and expenses incurred by Lender in connection therewith, shall be treated as an Advance.

 

ARTICLE 5. REPRESENTATIONS.

 

5.1. Organization, Qualification and Structure.

 

(a) Borrower is and except as described in the Disclosure Schedule always has been a corporation duly organized and existing under the laws of the State of Florida. Borrower’s federal tax identification number is 65-0580744 and Borrower’s registration or filing number with the State of Florida is P95000038151. Borrower is qualified to do business in every jurisdiction where the nature of its business requires it to be so qualified unless the failure to so qualify could not reasonably be expected to result in a Material Adverse Change.

 

(b) Except as set forth in the Disclosure Schedule (i) Borrower has no subsidiaries or Affiliates that are not natural persons, and (ii) during the preceding five (5) years (A) Borrower has not acquired, been acquired by, or merged, consolidated, combined or amalgamated with or into, any other Person, in whole or in part (whether by purchase or sale of securities and/or assets, by assumption of liabilities, or by merger or otherwise), (B) Borrower has not liquidated, sold or disposed of any subsidiary or Affiliate (whether by sale or assignment of securities and/or assets or otherwise), and (C) Borrower has not engaged in any joint venture or partnership with any other Person.

 

5.2. Legally Enforceable Agreement. The execution, delivery and performance of this Agreement, each of the other Loan Documents and each of the other agreements, instruments and documents to be delivered by Borrower in connection with this Agreement or any other Loan Document, and the creation of all Liens in favor of Lender pursuant to this Agreement and any other Loan Document (a) are within Borrower’s organizational power, (b) have been duly authorized by all necessary or proper actions of or pertaining to Borrower (including the consent of directors, officers, managers, partners, shareholders and/or members, as applicable), (c) are not in contravention of (i) any agreement or indenture to which Borrower is a party or by which Borrower is bound, or (ii) Borrower’s Charter Documents, or (iii) any provision of law, or (iv) any order, writ, judgment, injunction, or decree of any court of competent jurisdiction binding on Borrower or its property, and (d) do not require the consent or approval of any Governmental Unit or any other Person that has not been obtained, and each such consent or approval obtained by Borrower has been furnished to Lender prior to the Effective Date. Upon the execution and delivery thereof, this Agreement and each of the other Loan Documents shall constitute the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms, except as such enforceability may be limited by equitable principles or any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally.

 

5.3. Name and Address. During the preceding five (5) years, Borrower has not been known by and has not used any other name, whether corporate, fictitious or otherwise, except as set forth on the Disclosure Schedule . The Disclosure Schedule lists all real property owned or leased by Borrower, and if leased, the correct name and address of the landlord and the date and term of the applicable lease. Borrower’s chief executive office is at the address identified as such in the Disclosure Schedule and Borrower maintains no other offices or facilities except as described in the Disclosure Schedule .

 

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5.4. Location of Collateral.

 

The Disclosure Schedule lists:

 

(a) all places at which Records relating to the Collateral, including, but not limited to, all Documents and Instruments relating to Receivables and Inventory, are maintained by Borrower or by any other Person;

 

(b) except for In Transit Inventory, all places where Borrower maintains, or will maintain, Inventory, and whether the premises are owned or leased by Borrower or whether the premises are the premises of a warehouseman, bailee or other third party, and if owned by a third party, the name and address of such third party; and

 

(c) to the extent located at any address not otherwise disclosed in response to paragraph (b) above, each other location at which Borrower’s equipment is located, and whether the premises are owned or leased by Borrower or whether the premises are the premises of a bailee or other third party, and if owned by a third party, the name and address of such third party.

 

5.5. Title; Liens; Permitted Liens. Except for Permitted Liens, Borrower has good and marketable title to the Collateral and is the sole owner thereof. Except as set forth on the Disclosure Schedule none of the Collateral is subject to any prohibition against encumbering, granting a security interest in or to, pledging, hypothecating or assigning the same or requires notice or consent to any Person in connection therewith. Upon the execution and delivery of this Agreement and the other Loan Documents and the filing of any UCC financing statements deemed necessary by Lender, Lender shall have a first priority perfected security interest in the Collateral, subject only to Permitted Liens.

 

5.6. Existing Indebtedness. Borrower has no existing Indebtedness except the Indebtedness described in the Disclosure Schedule or as is otherwise permitted under Section 8.1 .

 

5.7. Financial Statements. The financial statements of Borrower described on the Disclosure Schedule , copies of which have been delivered to Lender, fairly present Borrower’s financial condition and results of operations as of the dates and for the periods covered, contain no Material misstatements, and there has been no Material Adverse Change since such dates. Borrower has no material contingent liabilities, liabilities for delinquent taxes (whether or not being Properly Contested by Borrower), unusual forward or long-term commitments, or material unrealized or unanticipated losses or expenses from any unfavorable commitments that have not been disclosed in such financial statements or the notes thereto.

 

5.8. Solvent Financial Condition. Borrower is Solvent.

 

5.9. General Intangibles, Patents, Trademarks, Copyrights and Licenses. Borrower owns or is licensed to use all rights, title and interests in and to all General Intangibles, including but not limited to patents, trademarks, service marks, trade names, copyrights, licenses and intellectual property, necessary for the conduct of Borrower’s business on the Effective Date and planned future conduct of its business without any conflict with the rights of others. All General Intangibles owned or used by Borrower in Borrower’s operations or the conduct of its business as of the Effective Date are listed on the Disclosure Schedule and indicate the owner of such General Intangible and a description of the rights of Borrower to use such General Intangible if not owned by Borrower.

 

5.10. Existing Business Relationships. Except as described in the Disclosure Schedule there exists no actual or threatened termination, cancellation or limitation of, or any adverse modification or change in, the business relationship of Borrower with any supplier, customer or group of customers that individually or in the aggregate could result in a Material Adverse Change.

 

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5.11. Investment Company Act: Federal Reserve Board Regulations. Borrower is not an “investment company”, or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. §§ 80(a)(1), et seq .). The making of the Loans under this Agreement by Lender, the application of the proceeds and repayment thereof by Borrower and the performance of the transactions contemplated by this Agreement will not violate any provision of such Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. Borrower does not own any margin security as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System and the proceeds of the Loans made pursuant to this Agreement will be used only for the purposes contemplated under this Agreement. None of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin security or for any other purpose which might constitute any of the Loans under this Agreement a “purpose credit” within the meaning of said Regulation U or Regulation T or X of the Federal Reserve Board. Borrower will not take, or permit any agent acting on its behalf to take, any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board.

 

5.12. Anti-Money Laundering and Terrorism Regulations. Borrower: (a) is familiar with all applicable Anti-Terrorism Laws; (b) acknowledges that its transactions are subject to applicable Anti-Terrorism Laws; (c) will comply in all material respects with all applicable Anti-Terrorism Laws, including, if appropriate, the USA Patriot Act; (d) acknowledges that Lender’s performance hereunder is also subject to Lender’s compliance with all applicable Anti-Terrorism Laws, including the USA Patriot Act; (e) acknowledges that neither it nor its Affiliates are Blocked Persons; (f) acknowledges that Lender will not conduct business with any Blocked Person; (g) will not (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any Property or interests in Property blocked pursuant to Executive Order No. 13224, other applicable OFAC regulations or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224, other applicable OFAC regulations or other Anti-Terrorism Law; (h) shall provide to Lender all such information about Borrower’s ownership, officers, directors, business structure and, to the extent not prohibited by applicable law or agreement, customers, as Lender may reasonably require; and (i) will take such other action as Lender may reasonably request in connection with Lender’s obligations described in clause (d) above.

 

5.13. Tax Returns. Borrower and, to Borrower’s knowledge, each Significant Holder of Borrower’s Equity Interests, has filed all federal, state and local tax returns required to be filed, or has received an extension for such filing from the appropriate taxing authority, and has paid all taxes shown thereon to be due including interest and penalties or has provided adequate reserves therefor. No assessments have been made against Borrower by any taxing authority nor has any penalty or deficiency been made by any such authority. Except as disclosed to Lender in writing, no federal, state or local income tax return of Borrower, or to Borrower’s knowledge of any Significant Holder of Borrower’s Equity Interests, is presently being examined by the Internal Revenue Service or any applicable state or local taxing authority, and the results of any prior examination by the Internal Revenue Service or any state or local taxing authority is not being Properly Contested by Borrower, or to Borrower’s knowledge by such Significant Holder.

 

5.14. Litigation. Except as disclosed in the Disclosure Schedule , as of the Effective Date, no action or proceeding at law, in equity or otherwise is pending, or to the knowledge of Borrower is threatened, by or before any Governmental Unit, or before any arbitrator or panel of arbitrators (a) against Borrower, (b) to Borrower’s knowledge against any Guarantor, if any, or (c) by Borrower as plaintiff, as counter-claimant or otherwise pursuant to which Borrower has asserted claims for damages, and Borrower has not, and to Borrower’s knowledge no Guarantor, if any, has, accepted liability for any matter described on the Disclosure Schedule .

 

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5.15. ERISA Matters. The Disclosure Schedule lists all “Employee Benefit Plans” (as such term is defined in ERISA) offered by Borrower to any of its employees, officers and directors, and indicates whether any such plan is a defined benefit pension plan. If any Employee Benefit Plan is a defined benefit plan: (a) the present value of all accrued vested benefits under such defined benefit plan (calculated on the basis of the actuarial valuation for the plan) did not exceed, as of the date of the most recent actuarial valuation for such defined benefit plan, the fair market value of the assets of such plan allocable to such benefits, (b) Borrower is not aware of any information since the date of the most recent actuarial valuation that would affect the information contained therein, (c) such defined benefit plan has not incurred an “accumulating funding deficiency” (as that term is defined in Section 302 of ERISA or Section 412 of the Code) whether or not waived, or Borrower has made all “minimum required contributions” (as such term is defined in Section 303 of ERISA or Section 430 of the Code) to such defined benefit plan, (d) no liability to the Pension Benefit Guaranty Corporation (other than required premiums which have become due and payable, all of which have been paid) has been incurred with respect to such defined benefit plan, and (e) there has not been any Reportable Event which presents a risk of termination of the defined benefit plan by the Pension Benefit Guaranty Corporation. Borrower has not engaged in any transaction that would subject Borrower to tax, penalty or liability for prohibited transactions imposed by ERISA or the Code.

 

5.16. O.S.H.A. Borrower has complied in all Material respects with, and its facilities, business, leaseholds, equipment and other property are in Material compliance with, the provisions of the Federal Occupational Safety and Health Act and all rules and regulations promulgated thereunder, and all federal, state and local governmental rules, ordinances and regulations similar thereto. Except as disclosed to Lender in writing, there are no outstanding citations, notices or orders of non-compliance issued to Borrower or relating to its facilities, business, leaseholds, equipment or other property under the Federal Occupational Safety and Health Act, any rule or regulation promulgated thereunder, or any similar state or local Governmental Rules.

 

5.17. Environmental Matters. Except as disclosed in the Disclosure Schedule , Borrower is in Material compliance with all Environmental Laws.

 

5.18. Labor Disputes. There is no pending, or to Borrower’s knowledge threatened, labor dispute which could result in a Material Adverse Change.

 

5.19. Location of Bank and Securities Accounts. The Disclosure Schedule lists all deposit, checking and other bank accounts, and all securities and other investment accounts, maintained with any financial institution or securities intermediary and all other similar accounts maintained by Borrower (collectively, “ Bank Accounts ”), together with a description thereof.

 

5.20. Compliance With Laws. Borrower is in Material compliance with all Governmental Rules applicable to it, its ownership or use of its Property and the operation and conduct of its business. In addition to, and without limiting the generality of the foregoing, Borrower represents and warrants that:

 

(a) no Inventory has been produced in violation of the Fair Labor Standards Act “(“FLSA”);

 

(b) Borrower is in Material compliance with all Governmental Rules and other applicable laws relating to the manufacturing, processing, packing, holding, labeling, importing, sale and distribution of food, including fresh or frozen crab or crabmeat and any other wild or farm-raised fish or fish products, including the Federal Food, Drug, and Cosmetic Act (the “ FD&C Act ”), 21 U.S.C. § 301 et seq. , the Lacey Act, 16 U.S.C. § 3372 et seq ., the Magnuson-Stevens Fishery Conservation and Management Act (the “ Magnuson-Stevens Act ”), 16 U.S.C. § 1801 et seq. , the 1946 Agricultural Marketing Act (the “ AMA ”), 7 U.S.C. § 1621 et seq. , the Tariff Act of 1930, 19 U.S.C. § 1304 et seq. , and the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the “ Bioterrorism Act ”);

 

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(c) Borrower is in Material compliance with all Governmental Rules and other applicable laws relating to the labeling, marking, marketing, branding, and advertising of food, including, but not limited to, fresh or frozen crab or crabmeat and any other wild or farm-raised fish or fish products, including the FD&C Act, the Fair Packaging and Labeling Act, 15 U.S.C. § 1451 et seq. , the Lacey Act, all Governmental Rules set forth in Title 21 of the Code of Federal Regulations; the Seafood List of the Food and Drug Administration (“ FDA ”), and all Governmental Rules regarding disclosures or labels regarding the country of origin of any food product, and the method of production of any fish or shellfish;

 

(d) Borrower is not, and at no time during the three years prior to the Effective Date, been subject to any investigation, proceeding, citation, penalty, fine, assessment, inquiry, consent decree, or any other enforcement action of any kind by the FDA or any other Governmental Unit relating to the manufacturing, processing, packing, holding, labeling, importing, sale or distribution of food, including fresh or frozen crab or crabmeat and any other wild or farm-raised fish or fish products, including the receipt of (i) a FDA import alert or an order or directive requiring detention of any Inventory without physical examination, or (ii) a Notice of Violation, FDA Form 483, an inspection report noting deficiencies of any kind, a warning letter, or any other similar communication from any Governmental Unit.

 

5.21. Capital Structure. The Disclosure Schedule describes (a) Borrower’s holders of Equity Interests of record and the number and type of Equity Interests held by each such Person, and (b) all holders of subscriptions, warrants, options, convertible securities, and other rights (fixed, contingent or otherwise) to purchase or otherwise acquire Equity Interests, and the number and type of Equity Interests that may be acquired by each such Person.

 

5.22. No Other Violations. Borrower is not in violation of any term or provision of its Charter Documents, and no event or condition or series of events or conditions has or have occurred or is or are continuing which constitutes or results in (or would constitute or result in, with the giving of notice, lapse of time or other condition) (a) a breach of, or a default under, Borrower’s Charter Documents or (b) the imposition of any Lien on any Collateral.

 

5.23. Full Disclosure. No information contained in any Loan Document, the financial statements or any written statement furnished by or on behalf of Borrower under any Loan Document, or to induce Lender to execute the Loan Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

 

5.24. Survival of Representations. All representations of Borrower contained in this Agreement and in the other Loan Documents shall be true, accurate and complete at the time of Borrower’s execution of this Agreement, shall be true, accurate and complete on the Effective Date, and shall be true, accurate and complete on the date of each Advance and Loan made to Borrower. Lender’s right to bring an action for breach of any such representation or to exercise any right, remedy, power or privilege under this Agreement or any other Loan Document based upon the breach of any such representation shall survive the execution, delivery and acceptance of this Agreement and each other Loan Document, and the closing of the transactions described in this Agreement until Full Payment of the Obligations.

 

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ARTICLE 6. FINANCIAL INFORMATION TO BE DELIVERED TO LENDER. Borrower covenants and agrees that at all times prior to Full Payment of the Obligations, Borrower shall deliver to Lender, or shall cause to be delivered to Lender:

 

6.1. Borrowing Base Certificates. A satisfactorily completed and Authenticated Borrowing Base Certificate together with accompanying sales journals, cash receipts journals and detailed sales credit reports (a) contemporaneously with each request for an Advance, (b) if no Advance was requested in a calendar week, on or before Tuesday of the following week prepared as of the preceding week end, and (c) monthly (within five (5) calendar days after the end of each calendar month, prepared as of the end of such month). In addition, Borrower shall provide to Lender with each Borrowing Base Certificate a report showing in reasonable detail all sales to Account Debtors (i) on consignment or on approval, under all bill and hold, guaranteed sale, sale or return, billing in advance of shipment, and other “pre-billing” arrangements, and (ii) under all payment plans, scheduled installment plans, extended payment terms or on any other repurchase or return basis. On Lender’s request, Borrower shall also furnish to Lender copies of invoices to customers and related shipping and delivery receipts or warehouse receipts for all Inventory covered by each such invoice.

 

6.2. A/R and A/P Aging; Perpetual Inventory Report. (a) Weekly (on or before Tuesday of the following week prepared as of the preceding week end) a summary report of Borrower’s agings of accounts receivable and accounts payable (each, based on the respective invoice dates), and (b) monthly (within five (5) calendar days after the end of each month, prepared as of the end of such month) a detailed report of Borrower’s agings of accounts receivable and accounts payable (each, based on the respective invoice dates), and a perpetual inventory report setting forth the quantity, type, lot identification number, cost and aging of Borrower’s Inventory, all of which shall be set forth in form and substance satisfactory to Lender.

 

6.3. Ineligible Receivables/Ineligible Inventory. (a) Weekly (on or before Tuesday of the following week prepared as of the preceding week end) and monthly (within five (5) calendar days after the end of each calendar month, prepared as of the end of such month) a report showing Borrower’s Receivables that are not Eligible Receivables and showing Borrower’s Inventory that is not Eligible Inventory, and (b) monthly (within five (5) calendar days after the end of each calendar month, prepared as of the end of such month), an inventory roll-forward summary margin analysis report.

 

6.4. Annual Financial Statements; Compliance Certificates. No later than April 30 of each Fiscal Year, a copy of audited annual financial statements of Borrower prepared by an independent certified public accountant in accordance with GAAP consisting of a balance sheet, statements of operations and retained earnings, statements of cash flow, acceptable to Lender in its permitted discretion, together with a satisfactorily completed and Authenticated Compliance Certificate prepared as of and for the end of such Fiscal Year. If Borrower’s independent certified public accountant has prepared footnotes to accompany any such financial statements, Borrower shall deliver such footnotes to Lender contemporaneously with Borrower’s delivery of the associated financial statements to Lender. The financial statements delivered to Lender pursuant to this Section 6.4 shall fairly present Borrower’s financial condition and results of operations as of the dates and for the periods covered, and shall not contain any Material misstatements.

 

6.5. Monthly Financial Statements; Compliance Certificates. Within thirty (30) calendar days after the end of each calendar month, financial statements consisting of balance sheets, statements of operations and retained earnings and statements of cash flow, prepared by management of Borrower as of and for the end of such calendar month, in accordance with GAAP (except for the absence of footnotes), together with a satisfactorily completed and Authenticated Compliance Certificate prepared as of and for the end of such calendar month. The financial statements delivered to Lender pursuant to this Section 6.5 shall fairly present Borrower’s financial condition and results of operations as of the dates and for the periods covered, and shall not contain any Material misstatements.

 

6.6. Inventory Counts and Reports. At least monthly, cycle counts of Inventory performed in a manner consistent with Borrower’s practices as of the Effective Date, with corresponding adjustments to Borrowers’ records to reflect the results of such count, the results of which shall be delivered to Lender in such form and with such detail as Lender may reasonably request; provided , that Lender may require (and Borrower shall promptly perform upon notice from Lender) a physical Inventory count in the event any adjustments made as result of such cycle counts are materially different from adjustments made by Borrower historically as a result of such counts.

 

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6.7. Projections. No later than December 31 of each Fiscal Year, monthly financial projections for the next Fiscal Year and annual projections for each succeeding Fiscal Year ending on or prior to the Revolving Credit Termination Date, in form satisfactory to Lender.

 

6.8. Customer and Vendor Lists. At least annually and upon Lender’s reasonable request, a list of all of Borrower’s customers and vendors, including the addresses, telephone and facsimile numbers, if any, of each customer and vendor as of such date.

 

6.9. Insurance. Annually, no later than thirty (30) calendar days prior to the renewal date of each of Borrower’s insurance policies, evidence of insurance with respect to such insurance in form and content satisfactory to Lender and otherwise in compliance with Section 7.5 of this Agreement, and upon Lender’s request, the original insurance policy.

 

6.10. Tax Returns. Annually, within ten (10) calendar days of filing, (a) copies of Borrower’s federal and state tax returns and (b) each Guarantor’s federal and state tax returns.

 

6.11. Other Information. Such other information relating to the financial condition of Borrower, or any Property or Collateral of Borrower in, on or respect to which Lender may have a Lien, as Lender may from time to time reasonably request.

 

ARTICLE 7. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that at all times prior to Full Payment of the Obligations, Borrower shall:

 

7.1. Use of Loan Proceeds. Use all proceeds of Loans and Advances for Borrower’s working capital and transaction expenses in addition to the refinancing of Indebtedness owing by Borrower to AloStar Bank of Commerce on the Effective Date. Borrower shall not, directly or indirectly, use the proceeds of the Loans or Advances, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person, (i) to fund any activities or business of or with any Person, or in any country or territory, that, at the time of such funding, is, or whose government is, the subject of sanctions pursuant to any Anti-Terrorism Laws, or (ii) in any other manner that would result in a violation of sanctions under any Anti-Terrorism Laws by any Person (including any Person participating in the Loans or Advances, whether as underwriter, advisor, investor, or otherwise).

 

7.2. Business and Existence; Trade Names. Preserve and maintain Borrower’s separate existence and rights, privileges and franchises, and except for trade names described in the Disclosure Schedule transact business in Borrower’s own name and invoice all of Borrower’s Receivables in Borrower’s own name.

 

7.3. Taxes. Pay and discharge all taxes, assessments, charges, levies and encumbrances imposed upon Borrower, Borrower’s income or Borrower’s profits or upon any Property of Borrower by any Governmental Unit prior to the date on which penalties attach thereto, except where the same is being Properly Contested.

 

7.4. Compliance with Laws. Comply in all Material respects with all Governmental Rules applicable to Borrower including, without limitation, all laws and regulations regarding the collection, payment and deposit of employees’ income, unemployment and Social Security taxes, all Environmental Laws and all applicable provisions of ERISA, the Code, and any other applicable laws, rules or regulations relating to the compensation of employees and funding of employee pension plans, and Governmental Rules of the U.S. Food and Drug Administration; notwithstanding the foregoing, Borrower will take such actions as to ensure that Borrower’s representations contained in Section 5.12 are true and accurate at all times prior to Full Payment of the Obligations.

 

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(b) Without limiting paragraph (a) , above, Borrower shall comply in all Material respects with all applicable law and Governmental Rules relating to: (i) food production, processing, safety, contamination or adulteration, (ii) cleanliness, maintenance and other requirements relating to food production facilities or employees, (iii) handling, storage, processing and sale of food products, including without limitation any labeling, advertising or other product disclosure laws, and (iv) any other Governmental Rule that may impact the conduct of Borrower’s business or its products.

 

7.5. Maintain Properties; Insurance.

 

(a) Maintain its Properties in good condition and repair at all times; preserve its Properties from loss, damage, or destruction of any nature whatsoever; keep all of its Properties insured with insurance companies licensed to do business in the state where such Property is located against loss or damage by fire or other risk under extended coverage endorsement and against theft, burglary, and pilferage together with such other hazards, and in such amounts, as Lender may from time to time reasonably request; and defend its title to the Collateral and Lender’s Liens thereon against all Persons, claims and demands, other than Permitted Liens.

 

(b) Borrower shall obtain and maintain in full force and effect at all times prior to Full Payment of the Obligations: (i) insurance covering the Collateral against all risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such risks, in such amounts, with such companies, under such policies and in such form as shall be satisfactory to Lender, and (ii) liability insurance and such other types of insurance as Lender may require (such as products liability, product recall, worker’s compensation, cyber liability, and business interruption insurance), in each case against such risks, in such amounts, with such companies, under such policies and in such form as shall be satisfactory to Lender. Borrower shall promptly notify its insurers and Lender with complete and updated information regarding material changes in Borrower’s business (including any changes in Borrower’s product lines or customer concentrations, growth in Borrower’s revenue, or any acquisitions by Borrower) and, if requested by Lender, Borrower shall obtain increased insurance coverage or obtain coverage from other insurers as a result of any such changes.

 

(c) Borrower covenants and agrees to satisfy the following additional requirements with respect to each insurance policy required to be maintained in accordance with this Section 7.5 :

 

(i) All insurance premiums on all policies must be paid as and when due and payable, consistent with the past practices of Borrower. All premiums owing for the current policy term are to be paid on or before the due dates applicable to such premiums;

 

(ii) No insurance policy required hereunder shall be permitted to provide for premium assessments to be made against Lender;

 

(iii) Borrower shall provide the following prior to the effective date of such policy: (i) an ACORD 25 or equivalent certificate of liability insurance and (ii) an ACORD 28 or equivalent certificate of property insurance;

 

(iv) Prior to the renewal date of each insurance policy required hereunder, Borrower shall provide certificates of insurance providing evidence that the policies have been renewed on forms ACORD 28 and ACORD 25;

 

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(v) Borrower shall provide promptly upon Lender’s request complete copies of the insurance policies providing the coverage required hereunder;

 

(vi) Each property policy and to the extent possible, each liability policy shall contain a provision providing not less than thirty (30) days’ prior written notice to Lender of cancellation and not less than ten (10) days’ prior written notice to Lender of cancellation for non-payment of premium;

 

(vii) A waiver of subrogation shall be provided on all liability policies of insurance waiving rights of recovery against Lender; and

 

(viii) Lender is to be named (A) the first lender loss payee with respect to the property insurance coverage, and (B) an additional insured with respect to general liability and umbrella or excess liability insurances, as follows:

 

ACF FinCo I LP, and its successors and assigns

560 White Plains Road

4th Floor, Suite 400

Tarrytown, NY 10591

 

(d) Borrower shall direct all insurers under such policies of insurance to pay all proceeds of insurance policies directly to Lender. Borrower irrevocably makes, constitutes and appoints Lender (and each officer, employee or agent designated by Lender) as Borrower’s true and lawful attorney-in-fact for the purpose of (i) making, settling and adjusting such claims under all such policies of insurance if Borrower fails to make such claim within fifteen (15) calendar days after any casualty or fails to diligently prosecute such claim, (ii) endorsing the name of Borrower on any check, draft, instrument or other item of payment pertaining to the Collateral received by Borrower or Lender pursuant to any such policies of insurance, and (iii) upon the occurrence and during the continuation of an Event of Default, making all determinations and decisions with respect to such policies of insurance as they relate to the Collateral. Borrower agrees to provide Lender with prompt written notice of any change, amendment or modification to any insurance policy.

 

(e) With respect to any claim for Proceeds of insurance insuring any Collateral, Lender is authorized to collect such proceeds and, in Lender’s permitted discretion: (i) apply such proceeds against the Revolving Credit and the other Obligations, whether or not then due, or (ii) allow Borrower to use such Proceeds, or a part thereof, to repair any damage or restore, replace or rebuild the Property that was the subject of such proceeds; provided, however , that notwithstanding the foregoing provisions, as to proceeds of insurance for Equipment constituting Collateral, if, as determined by Lender in Lender’s permitted discretion, (A) no Default or Event of Default has occurred and is continuing, (B) the damaged Property can be repaired, restored, replaced or rebuilt to an economical unit of the same character and not less valuable than such Property was prior to such damage and destruction with the Proceeds of the insurance held by Lender, and (C) the Obligations will at all times be collateralized with respect to the Obligations to the same extent as prior to such damage and destruction, then Lender shall hold the Proceeds of such insurance (provided that no Default or Event of Default has occurred and is continuing or occurs, at which time Lender may apply such proceeds to the Obligations in such amounts and in such manner as determined by Lender in its permitted discretion) make them available to Borrower for repair, restoration, replacement or rebuilding of such Property; provided that , such repaired, restored, replaced or rebuilt Property shall be free and clear of all Liens except Permitted Liens, and subject to such other terms and conditions as Lender may determine in Lender’s permitted discretion; and, further provided , that while in possession of such funds Lender shall not be required to invest the same (except in a non-interest bearing commercial money market account of Lender in which Lender has a first priority perfected security interest) or to hold such funds separate and apart from Lender’s other funds. Notwithstanding anything herein to the contrary, at any time that a Default or Event of Default has occurred and is continuing, if Lender receives proceeds of insurance or is holding proceeds of insurance theretofore received by Lender, Lender may apply the same to the Obligations at any time and from time to time as it may determine in Lender’s sole discretion. If no Default or Event of Default has occurred and is continuing and Borrower has been permitted to apply insurance proceeds to repair, restore, replace or rebuild Property, then Lender will return any insurance proceeds to Borrower which Lender continues to hold after any such repair, restoration, replacement or rebuilding of such Property is completed to Lenders’ satisfaction as determined in Lender’s permitted discretion.

 

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(f) If Borrower fails to provide Lender with evidence of the insurance coverage required by this Agreement, Lender may purchase insurance, at Borrower’s expense, to protect Lender’s interests in the Collateral. This insurance may, but need not, protect the interests of Borrower. The coverage that Lender purchases may not pay any claim that Borrower may make or any claim that is made against Borrower in connection with the Collateral. Borrower may later cancel any insurance purchased by Lender, but only after providing Lender with evidence that Borrower has obtained insurance as required by this Agreement. If Lender purchases insurance for the Collateral, Borrower will be responsible for, and shall reimburse Lender for, all costs of such insurance, including interest and any other charges that may be imposed in connection with the placement of such insurance, until the effective date of the cancellation or expiration of the insurance. Lender may add the cost of any insurance purchased by Lender pursuant to this paragraph to the Obligations, and Borrower acknowledges and agrees that the cost of any such insurance may be more than the cost of insurance that Borrower may be able to obtain on its own.

 

7.6. Business Records. Keep adequate records and books of account with respect to Borrower’s business activities in which proper entries are made in accordance with sound bookkeeping practices reflecting all financial transactions of Borrower. Borrower shall maintain full, accurate and complete Records respecting Receivables, Inventory (including a perpetual inventory reporting system), and all other Collateral at all times. Borrower shall maintain all of its Bank Accounts as set forth on the Disclosure Schedule .

 

7.7. Delivery of Documents and Instruments. Appropriately endorse and immediately deliver to Lender all notes, trade acceptances, Instruments and Documents included in or evidencing the Proceeds of any Receivables, and all Documents of title and Chattel Paper, whether or not negotiable, covering any Inventory; provided, that Documents issued in connection with In-Transit Inventory originating from a location outside the United States may be delivered by the Vendor (or carrier engaged by such Vendor) directly to Borrower so long as Borrower forwards all original counterparts of such Document to the Eligible Logistics Provider engaged to facilitate the importation of such In-Transit Inventory not later than three (3) Banking Days after Borrower’s receipt thereof. Borrower acknowledges that Borrower waives protest regardless of the form of the endorsement on any note, trade acceptance, Instrument, Document, Document of title or Chattel Paper delivered to Lender.

 

7.8. Name Change; Organizational Change; Creation of Affiliates. Provide Lender with not fewer than thirty (30) calendar days’ notice in an Authenticated Record prior to any proposed (a) change in Borrower’s state of organization or organizational structure, (b) change of Borrower’s name, (c) use of any trade name or fictitious name, “d/b/a” or other similar designation not described in the Disclosure Schedule , (d) creation of any Affiliate under the control of Borrower, or (e) transaction or series of transactions pursuant to which Borrower would become an Affiliate under the control of any other Person.

 

7.9. Change of Offices; Records. Provide Lender with not fewer than thirty (30) calendar days’ notice in an Authenticated Record prior to any change of Borrower’s chief executive office or any office where Borrower maintains its Records (including computer printouts and programs) with respect to Receivables or any other Collateral.

 

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7.10. Change of Fiscal Year. Provide Lender with not fewer than ninety (90) calendar days’ notice in an Authenticated Record prior to any change of Borrower’s Fiscal Year.

 

7.11. Access to Books and Records. Provide Lender with access to Borrower’s books and Records and permit Lender to copy and inspect such books and Records as Lender may reasonably request to enable Lender to monitor the Loans and the Collateral. Lender may examine and inspect the Inventory, Equipment or other Collateral and may examine, inspect and copy all books and Records with respect thereto at any time during Borrower’s normal business hours (a) in the absence of a Default or Event of Default, upon reasonable notice to Borrower, and (b) following the occurrence and during the continuation of a Default or Event of Default, without notice.

 

7.12. Solvency. Continue to be Solvent.

 

7.13. Notice to Lender. Provide Lender with immediate telephonic notice (followed by notice in an Authenticated Record) after becoming aware of any of the following:

 

(a) the happening of any event, occurrence or condition, or series of events, occurrences or conditions, that would cause any representation contained in ARTICLE 5 to be untrue, inaccurate or misleading;

 

(b) the existence of a Default or an Event of Default;

 

(c) the happening of any event, occurrence or condition, or series of events, occurrences or conditions, that has resulted in, or that may reasonably be expected to result in, a Material Adverse Change;

 

(d) any dispute that may arise between Borrower and any Governmental Unit, including any action relating to any tax liability of Borrower, in connection with which Borrower would be liable (as damages, penalties, fines, costs or expenses, or any combination of the foregoing) for a Material amount if adversely determined;

 

(e) any labor controversy resulting in or threatening to result in a strike or work stoppage against Borrower in connection with which Borrower would suffer Material damages;

 

(f) any proposal by any Governmental Unit to acquire any Material Property of Borrower;

 

(g) a violation or alleged violation of any Governmental Rules (including O.S.H.A., the FLSA, any Environmental Laws, or U.S. Food and Drug Administration regulations);

 

(h) the location of any Collateral other than at Borrower’s place(s) of business as described in the Disclosure Schedule ;

 

(i) any cancellation, default, non-renewal, acceleration, draw upon, termination or other event (as applicable) with respect to any letter of credit, bond, note or other financial accommodation in a Material face amount or Material principal amount issued or made to, or in favor of, any other Person, for which Borrower has agreed to or is obligated to repay, or to reimburse or indemnify the issuer thereof, the creditor with respect thereto or any other Person, in whole or in part (a “ Third Party Obligation ”), whether such obligation of Borrower arises by reason of the extension of credit, the opening, guaranteeing or confirming of a letter of credit, any loan, guaranty, indemnification, or any other manner, whether direct or indirect (including if acquired by purchase, assignment or otherwise), absolute or contingent;

 

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(j) the commencement of any proceeding by a Governmental Unit or litigation, suit, action or proceeding, at law or in equity (i) against Borrower as defendant, co-defendant, third party defendant or otherwise, involving money or Property of a Material amount, or (ii) by Borrower as plaintiff, as counter-claimant or otherwise pursuant to which Borrower has asserted claims for damages of a Material amount;

 

(k) if any Proceeds of Receivables shall include, or any of the Receivables shall be evidenced by, notes, trade acceptances or Instruments or Documents, or if any Inventory is covered by any Certificate of Title or Chattel Paper, whether or not negotiable;

 

(l) any breach or other violation or claim of a breach or violation of Section 7.4(b); or any voluntary or involuntary recall by Borrower of any Inventory sold by Borrower;

 

(m) Borrower’s creation or acquisition of any intellectual property used by Borrower in its operations or the conduct of its business that is not otherwise described in any patent security agreement or trademark security agreement previously delivered to Lender;

 

(n) Borrower’s receipt of any notice from the Internal Revenue Service or any applicable state or local taxing authority regarding (i) any claimed deficiency regarding any federal, state or local income tax return of Borrower or any Significant Holder of Borrower’s Equity Interests, (ii) any tax lien, or (iii) an audit or other examination of any such tax return;

 

(o) the commencement of any action or proceeding at law or in equity against Borrower involving potential liability in a Material amount, any material changes in any existing action or proceeding, or any judgment entered against Borrower or its assets;

 

(p) any damage to or destruction of any Collateral in a Material amount, or the happening of any event, occurrence or condition, or series of events, occurrences or conditions, that has caused, or that may cause, a Material loss or depreciation in the value of any Collateral or a Material loss or decline in the value of insured Property or the existence of an event justifying a Material claim under any insurance; provided, however , the provisions of this paragraph (m) shall not apply to (i) obsolete, worn out or surplus Property, (ii) Equipment replaced in the Ordinary Course of Business of Borrower, and (iii) Inventory disposed of in the Ordinary Course of Business of Borrower;

 

7.14. Payments to Customs Brokers, etc . Pay in a timely manner all applicable duties, freight, charges and like fees and charges of U.S. Customs, Eligible Logistics Providers, and other customs brokers, freight forwarders, carriers and warehousemen.

 

7.15. Retention of Turnaround Management Consultant. Continue to retain Conway MacKenzie as Borrower’s turnaround management consultant for a period of no less than ninety (90) days after the Effective Date.

 

7.16. Post-Closing Covenants.

 

(a) On or before September 30, 2016 received (and delivered evidence to Lender of Borrower’s receipt) the proceeds of the Additional Specified Subordinated Indebtedness.

 

(b) In addition to paragraph (a) , above, comply with all of the covenants and agreements contained in the Post-Closing Letter.

 

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ARTICLE 8. NEGATIVE COVENANTS. Borrower covenants and agrees that at all times prior to Full Payment of the Obligations, Borrower shall not:

 

8.1. Indebtedness. Create, incur, assume or suffer to exist, voluntarily or involuntarily, any Indebtedness, except (a) Obligations to Lender, (b) trade debt incurred in the Ordinary Course of Business of Borrower; (c) purchase money financing and equipment leases with a principal amount not to exceed either individually or in the aggregate $100,000 in any Fiscal Year; (d) existing Indebtedness described on the Disclosure Schedule and the Specified Subordinated Indebtedness, and (e) extensions, renewals and replacements of any Indebtedness described in clauses (b) through (d), inclusive, of this Section 8.1 that do not increase the outstanding principal amount thereof.

 

8.2. Mergers; Consolidations; Acquisitions. Enter into any transaction or series of transactions that directly or indirectly would constitute a merger, consolidation, reorganization or recapitalization with any other Person; take any action in contemplation of dissolution or liquidation; conduct any part of its business through any Affiliate or other Person; or acquire substantially all of the equity interests or assets of any Person, whether by merger, consolidation, purchase of equity interests or otherwise.

 

8.3. Change of Management; Change of Control. (a) Allow a change in the ownership structure of Borrower, whether by the issuance, sale, transfer, exchange, assignment or other direct or indirect hypothecation of Equity Interests, or by the issuance of subscriptions, warrants, options, convertible securities, or other rights (fixed, contingent or otherwise) to purchase or otherwise acquire Equity Interests, or (b) permit any person other than (i) John R. Keeler to hold the office of chief executive officer of Borrower (or to perform the duties generally associated with such office as existing on the Effective Date) or (ii) Christopher Constable to hold the office of chief financial officer of Borrower (or to perform the duties generally associated with such office as existing on the Effective Date), in each case unless a replacement reasonably acceptable to Lender is appointed within sixty (60) calendar days.

 

8.4. Sale or Disposition. Sell or otherwise dispose of all or any Collateral or other Property, or grant any Person an option to acquire any Collateral or other Property, except for (a) obsolete, worn out or surplus Property disposed of in the Ordinary Course of Business of Borrower, (b) Equipment replaced in the Ordinary Course of Business of Borrower, and (c) Inventory sold in the Ordinary Course of Business of Borrower.

 

8.5. Real Property Defaults. Permit any landlord, mortgagee, trustee under deed of trust, warehouseman, bailee or lienholder to declare a default under any lease, mortgage, deed of trust, warehousing or bailee agreement or Lien on real estate owned or leased by Borrower or in which Borrower maintains any Collateral, which default remains uncured after the lesser of (a) any stated cure period, if any, relating to such default stated in the applicable lease, mortgage, deed of trust, warehouse agreement, bailment agreement or lien instrument, or (b) a period of thirty (30) calendar days after its occurrence, unless such default is being Properly Contested by Borrower.

 

8.6. Liens and Encumbrances. Grant, permit or suffer to exist the imposition of any Lien on any Collateral, except for Liens in favor of Lender and other Permitted Liens.

 

8.7. Dividends and Distributions; Payment of Indebtedness; Amendments. Except as expressly permitted under this Section 8.7 , (i) pay any cash dividends or profits to any current or former holder of its Equity Interests, (ii) make any distribution or return of capital in cash or other Property to any current or former holder of its Equity Interests, (iii) make any payment or distribution in cash or other Property to any current or former holder of its Equity Interests in connection with any direct or indirect redemption or purchase of Equity Interests entered into on or prior to the date hereof, (iv) directly or indirectly purchase or redeem any of its Equity Interests, or retire any of its Equity Interests, or take any action which would have an effect equivalent to any of the foregoing, (v) pay any principal, interest, or other amount in connection with any Indebtedness (other than the Obligations) not permitted pursuant to Section 8.1 , or (vi) amend or modify any provision of any instrument or agreement evidencing or securing the Specified Subordinated Indebtedness or pay any principal of or interest on any Specified Subordinated Indebtedness other than as expressly permitted under the Specified Subordination Agreement.

 

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(b) So long as no Default or Event of Default shall have occurred and be continuing, and so long as Borrower is qualified as an “S” corporation for federal or applicable state tax purposes, Borrower may make distributions to holders of its Equity Interests in amounts sufficient to enable such Persons to pay applicable federal and state income taxes which are directly attributable to the net income of Borrower in any Fiscal Year (each a “ Tax Distribution ”), which distributions shall be made pro rata based on a percentage of owned Equity Interests and shall be calculated based on the assumption that the income of each holder of Equity Interests will be taxed at the maximum rate permissible under federal or such state law, as applicable.

 

8.8. Guaranties; Contingent Liabilities. Assume, guarantee, endorse, contingently agree to purchase, assume or otherwise become liable for the Indebtedness of any Person, except (a) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the Ordinary Course of Business of Borrower and (b) unsecured guarantees in existence on the Effective Date that are described in the Disclosure Schedule .

 

8.9. Removal of Collateral. Remove, or cause or permit to be removed, any of the Collateral from the premises where such Collateral is currently located and described in the Disclosure Schedule , except (a) for sales of Inventory in the Ordinary Course of Business of Borrower, (b) dispositions of worn-out, obsolete or surplus Equipment in the Ordinary Course of Business of Borrower, and (c) off-site repairs of Equipment in the Ordinary Course of Business of Borrower.

 

8.10. Transfer of Notes or Accounts. (a) Sell, assign, transfer, or otherwise dispose of any Account, or any Chattel Paper, Letter-Of-Credit Rights, promissory note or other Instrument payable to Borrower or evidencing any Account, or (b) accept or negotiate any discount on any Account, promissory note or other Instrument payable to Borrower except in the Ordinary Course of Business of Borrower.

 

8.11. Settlements. Compromise, settle or adjust any Material claim relating to any Collateral except in the Ordinary Course of Business of Borrower.

 

8.12. Change of Business. Cause or permit a change in the nature of its business as conducted on the Effective Date.

 

8.13. Change of Accounting Practices. Change its accounting principles or practices as in effect on the Effective Date in any respect, except for changes in accounting principles as may be required by changes in GAAP for which Borrower has provided prior written notice to Lender in an Authenticated Record.

 

8.14. Inconsistent Agreement. Enter into any agreement that would be violated by the payment or performance of the Obligations or Borrower’s other liabilities and obligations under this Agreement or any other Loan Document.

 

8.15. Loan or Advances; Personal Expenses. Make any loans or advances to any Person, or make any payments or pay any liabilities, costs or expenses, of or on behalf of any other Person (collectively, “third party expenses” ), whether such third party expenses have arisen or have been incurred on or prior to the date of this Agreement, or arise or are incurred after the date hereof, except for (a) loans to Borrower’s Affiliates described in the Disclosure Schedule , (b) loans to employees of Borrower in the ordinary course in an aggregate outstanding amount not to exceed $20,000 at any time, and (c) advances for or reimbursements of business-related expenses incurred by employees of Borrower in the ordinary course, including but not limited to business expenses for food, lodging, travel and credit card charges.

 

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8.16. Investments. Make any investment in any Person or Affiliate after the Effective Date, whether in the form of equity interests (including, but not limited to, subscriptions, warrants, options or other rights convertible into equity interests), Indebtedness (including Indebtedness that is convertible into equity interests), any combination of equity interests and Indebtedness, or otherwise.

 

8.17. Bank Accounts. Open or maintain any deposit, checking, operating or other bank account, or similar money handling account, with any bank or other financial institution except for those accounts identified in the Disclosure Schedule , or close or permit to be closed any of the accounts listed in the Disclosure Schedule , in each case without Lender’s prior written consent, and then only after Borrower has implemented agreements with such bank or financial institution and Lender in form and substance acceptable to Lender.

 

8.18. Compensation. Increase the total compensation paid to John R. Keeler (or any of his relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any calendar year of Borrower during the term of this Agreement in an aggregate amount in excess of $250,000, exclusive of any payments of interest on the Specified Subordinated Notes expressly permitted under the Specified Subordination Agreement.

 

8.19. Transactions with Affiliates.

(a)

 

(a) Make, enter into or otherwise undertake any transaction with any Affiliate, unless such transaction (i) is a purchase of Inventory by Borrower from Bacolod in the Ordinary Course of Business of Borrower that otherwise complies with paragraph (b) , below, (ii) is a payment of rent to John Keeler Real Estate Holdings, Inc. in the Ordinary Course of Business of Borrower and consistent with the terms of the real Property lease in effect on the Effective Date, (iii) is a payment of Borrower in respect of the Specified Subordinated Indebtedness so long as such payment is expressly permitted under the Specified Subordination Agreement, (iv) is a repayment of Indebtedness owed to Borrower by Strike the Gold Foods, Ltd., (v) is an unsecured guaranty of Indebtedness of an Affiliate permitted under Section 8.8 , (vi) is a loan to an employee of Borrower permitted under Section 8.15 , or (vii) (A) has been approved or otherwise consented to pursuant to the applicable terms of Borrower’s Charter Documents, (B) has been approved by at least a majority of the disinterested directors of Borrower entitled to approve or vote on such transaction after being informed of the material terms of such transaction, and (C) is at least as favorable to Borrower as a similar transaction entered into at arms’ length with an unrelated third party.

 

(b) Maintain a balance of prepaid deposits in respect of Borrower’s purchase of Inventory from Bacolod that exceeds the amount set forth below for the test date corresponding thereto:

 

Test Date   Amount  
September 30, 2016   $ 1,300,000  
October 31, 2016   $ 1,300,000  
November 30, 2016   $ 1,300,000  
December 31, 2016   $ 1,100,000  
January 31, 2017   $ 1,100,000  
February 28, 2017   $ 1,100,000  
March 31, 2017   $ 900,000  
April 30, 2017   $ 900,000  
May 31, 2017   $ 900,000  
June 30, 2017   $ 650,000  
July 31, 2017   $ 650,000  
August 31, 2017   $ 650,000  
September 30, 2017 and the last day of each month thereafter   $ 350,000  

 

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On or before the six (6) month anniversary of the Effective Date and each six (6) month anniversary thereafter, Borrower and Lender will review the amounts set forth on the above table for each subsequent Test Date and endeavor to agree to adjust such amounts based on Lender’s review of Borrower’s performance and financial statements.

 

8.20. Capital Expenditures. Permit Unfunded Capital Expenditures to exceed, individually or in the aggregate, an amount equal to $100,000 in any consecutive twelve (12) month period.

 

8.21. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio as of and for the last day of each calendar month, beginning with the calendar month ending December 31, 2016, to be less than the amount set forth below for the period corresponding thereto:

 

Period     Ratio  
Six (6) calendar months ending December 31, 2016     1.10 to 1.00  
Seven (7) calendar months ending January 31, 2017     1.10 to 1.00  
Eight (8) calendar months ending February 28, 2017     1.10 to 1.00  
Nine (9) calendar months ending March 31, 2017     1.10 to 1.00  
Ten (10) calendar months ending April 30, 2017     1.10 to 1.00  
Eleven (11) calendar months ending May 31, 2017     1.10 to 1.00  
Twelve (12) calendar months ending June 30, 2017 and ending on the last day of each month thereafter     1.10 to 1.00  

 

ARTICLE 9. EVENTS OF DEFAULT; REMEDIES OF LENDER.

 

9.1. Events of Default. The happening of any of the following events, occurrences or conditions, or series of events, occurrences or conditions, shall be an “ Event of Default ” (collectively, “ Events of Default ”) under this Agreement:

 

(a) Borrower shall fail to pay the amount of any Obligation (whether principal, interest, fees, costs, charges, expenses, or otherwise) in full when due pursuant to the terms of this Agreement or any other Loan Document; or

 

(b) any representation contained in ARTICLE 5 of this Agreement, or any representation or certification contained in any certificate, document or instrument delivered to Lender pursuant to ARTICLE 6 of this Agreement, shall have been inaccurate when made by Borrower or shall have been otherwise breached; or

 

(c) Borrower shall fail to comply with any provision, term, covenant or condition contained in Section 2.6 , or ARTICLE 6 , ARTICLE 7 or ARTICLE 8 of this Agreement; or

 

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(d) other than with respect to the provisions, terms, covenants and conditions contained in Section 2.6 , or ARTICLE 6 , ARTICLE 7 and ARTICLE 8 of this Agreement, if Borrower shall fail to comply with any provision, term, covenant, or condition contained in this Agreement, and such failure continues for a period in excess of ten (10) Banking Days after the date that Borrower failed to comply with such provision, term, covenant or condition, respectively; or

 

(e) the occurrence of any “default” or “event of default” under any other Loan Document (as such terms are defined in the respective Loan Document), after taking into consideration any applicable period of grace, notice and/or cure as provided for in such Loan Document, if any; or

 

(f) Borrower shall (i) cease to be Solvent, (ii) make an assignment for the benefit of its creditors, (iii) call a meeting of its creditors to obtain any general financial accommodation, (iv) suspend business, or (v) commence any case under any provision of the Bankruptcy Code, or under any federal, state, local or other applicable law including provisions for reorganizations or liquidations; or

 

(g) (i) if any case under any provision of the Bankruptcy Code, or under any under federal, state, local or other applicable law including provisions for reorganizations or liquidations, shall be commenced against Borrower, or (ii) if a receiver, trustee or equivalent officer under the Bankruptcy Code, or under any federal, state, local or other applicable law including provisions for reorganizations or liquidations, shall be appointed for Borrower or for all or any of the Collateral or for all or any of Borrower’s Property, and any of the following events also occur in connection with such case or appointment: (A) Borrower consents to the institution of such case or the appointment of such receiver, trustee or equivalent officer, (B) the petition commencing such case or appointment is not timely controverted, (C) the petition commencing such case or appointment is not dismissed within sixty (60) calendar days of the date of the filing thereof, (D) an interim trustee is appointed to take possession of all or any substantial portion of the Property of, or to operate all or any substantial portion of the business of, Borrower, or (E) an order for relief shall have been issued or entered therein; provided that Lender shall have no obligation to provide any Advance to Borrower during such sixty (60) calendar day period specified in clause (C); or

 

(h) if any federal or state tax Lien is filed or recorded against Borrower and is not bonded or discharged within fifteen (15) calendar days of the date of filing or recording; or

 

(i) if a Material judgment shall be entered against Borrower in any action or proceeding and shall not be stayed, vacated, bonded, paid or discharged within twenty (20) calendar days of entry, except a judgment where the claim is fully covered by insurance and the insurer has accepted full liability therefor in writing and such writing has been delivered to Lender; or

 

(j) if, other than with respect to the Obligations (i) any Material Indebtedness of Borrower shall be declared to be or shall become due and payable prior to its stated maturity; or (ii) any obligation of Borrower with respect to any Material Indebtedness shall not be paid or performed as and when the same becomes due; or (iii) any payment by Borrower with respect to any Material Indebtedness shall be declared to be or shall become due and payable prior to its stated maturity; or (iv) there shall occur any event or condition which constitutes an event of default under any mortgage, indenture, Instrument, agreement or evidence of Indebtedness relating to any Material Indebtedness of Borrower the effect of which is to permit the holder or the holders of such mortgage, indenture, Instrument, agreement or evidence of Indebtedness, or a trustee, agent or other representative on behalf of such holder or holders, to cause the Indebtedness evidenced thereby to become due prior to its stated maturity; or

 

(k) if Borrower becomes obligated to pay any Material amount under any Third Party Obligation (other than a commercial letter of credit issued by Lender or an Affiliate of Lender), or any Third Party Obligation is not renewed or replaced on terms substantially similar to or more favorable to Borrower than the original Third Party Obligation; or

 

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(l) the occurrence of any Reportable Event that could in Lender’s permitted discretion result in the termination of any Employee Benefit Plan, or if a trustee shall be appointed by a United States District Court or other court or administrative tribunal to administer any Employee Benefit Plan, or if the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Employee Benefit Plan or to appoint a trustee to administer any Employee Benefit Plan; or

 

(m) the occurrence of a loss, theft, damage or destruction with respect to any Collateral in a Material amount not covered by insurance;

 

(n) any Guarantor repudiates, revokes or attempts to revoke its guaranty or any Support Party repudiates, revokes or attempts to revoke its validity and support agreement; Borrower, any Guarantor, any Support Party or third party denies or contests the validity or enforceability of any Loan Documents or Obligations or the perfection or priority of any Lien granted to lender; or any Loan Document ceases to be in full force or effect for any reason (other than a waiver or release by Lender);

 

(o) Borrower or any Guarantor or any of its respective officers is criminally indicted or convicted for (i) a felony committed in the conduct of such Person’s business, or (ii) violating any state or federal law (including the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any Material Property or any Collateral; or

 

(p) there shall be a Material disruption in the supply of Inventory available to Borrower from its suppliers; or

 

(q) with respect to any recall of Inventory sold by Borrower, (i) Borrower voluntarily recalls any Inventory if the amount recalled that is not covered by insurance exceeds $100,000, or (xxi) any other recall of Inventory occurs or is required by any Governmental Unit if the amount recalled that is not covered by insurance exceeds $100,000; or

 

(r) the commencement of any Material claim or proceeding is brought against Borrower alleging any product defect or adulteration, whether such product is subject to a recall or otherwise; or

 

(s) Borrower shall have failed to receive the proceeds of the Additional Specified Subordinated Indebtedness required under Section 7.16(a) on or before the date set forth therein; or

 

(t) the occurrence of any Material Adverse Change.

 

9.2. Continuation of Events of Default. For purposes of this Agreement, a Default or an Event of Default shall be deemed to be continuing from the date of occurrence of such Default or Event of Default until the earlier of (a) the date, if any, Lender waives such Default or Event of Default in writing, or (b) in the case of a Default, the date that Borrower cures such Default to Lender’s satisfaction in Lender’s sole discretion within any period of cure expressly provided in this Agreement.

 

9.3. Rights and Remedies with Respect to Loans and Advances.

 

(a) Termination of Lending Obligations . Upon the occurrence and during the continuation of an Event of Default Lender may, in Lender’s sole discretion (i) terminate any or all Loans and correspondingly terminate its obligations to otherwise lend to or extend credit to Borrower under this Agreement, under any Note and/or any other Loan Document, without prior notice to Borrower, and/or (ii) increase the amount of interest payable on any Loan to the applicable Default Rate, and/or (iii) increase any or all fees payable to Borrower under this Agreement that may be increased upon the occurrence of an Event of Default pursuant to the terms of this Agreement, and/or (iv) demand payment in full of all or any portion of the Obligations or any Note (whether or not payable on demand prior to such Event of Default), and/or (v) take all other and further actions and avail itself of any and all rights, powers, remedies and privileges available to Lender under this Agreement, any other Loan Document, under law or in equity.

 

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(b) Obligations Immediately Due . Notwithstanding the provisions of Section 9.3(a) immediately above, upon the occurrence of any Event of Default described in Section 9.1(f) or Section 9.1(g) , without notice, demand or other action by Lender (i) all of Borrower’s Obligations to Lender, including but not limited to, all outstanding and unpaid principal of each Loan, interest due thereon, and all fees, costs and expenses payable with respect thereto, shall immediately become due and payable whether or not payable on demand prior to such Event of Default, and (ii) all interest payable on the Obligations shall immediately increase to the applicable Default Rate, and (iii) all fees payable to Borrower under this Agreement that may be increased upon the occurrence of an Event of Default shall immediately increase to their applicable amount after an Event of Default, (iv) all obligations to lend to or extend credit to Borrower under this Agreement, under any Note and/or any other Loan Document shall immediately terminate, and (v) Lender may take all other and further actions and avail itself of any and all rights, powers, remedies and privileges available to Lender under this Agreement, any other Loan Document, under law or in equity.

 

9.4. Rights and Remedies with Respect to Collateral. Without limiting any rights, powers, remedies or privileges Lender may have pursuant to this Agreement, under applicable law or otherwise, and in addition to all rights, powers, remedies and privileges granted to Lender as a Secured Party under the UCC, under applicable law or otherwise upon the occurrence and during the continuation of an Event of Default:

 

(a) Notification of Account Debtors . (i) Lender may, and without any notice to, consent of or any other action by Borrower (such notice, consent or other action being expressly waived), notify Account Debtors of Lender’s security interest in and to Accounts and Receivables and direct Account Debtors to make payment directly to Lender without notice to, consent of, or any other action by Borrower, or (ii) Borrower, at the request of Lender, shall notify Account Debtors of Lender’s security interest in Borrower’s Accounts and Receivables and direct Account Debtors to make payment directly to Lender. Borrower hereby authorizes Account Debtors to make payments directly to Lender and to rely on notice from Lender without further inquiry. Lender may on Borrower’s behalf endorse all items of payment received by Lender that are payable to Borrower for the purposes described above.

 

(b) Collections; Modifications of Terms . Lender may but shall be under no obligation to (i) notify all appropriate parties that the Collateral, or any part thereof, has been assigned to Lender; (ii) demand, sue for, collect and give receipts for and take all necessary or desirable steps to collect any Collateral or Proceeds in its or Borrower’s name, and apply any such collections against the Obligations in such amounts and in such order as Lender determines in Lender’s sole discretion; (iii) take control of any Collateral and any cash and non-cash Proceeds of any Collateral; (iv) enforce, compromise, extend, renew settle or discharge any rights or benefits of Borrower with respect to or in and to any Collateral, or deal with the Collateral as Lender may deem advisable; and (v) make any compromises, exchanges, substitutions or surrenders of Collateral Lender deems necessary or proper in its sole discretion, including without limitation, extending the time of payment, permitting payment in installments, or otherwise modifying the terms or rights relating to any of the Collateral, all of which may be effected without notice to, consent of, or any other action of Borrower and without otherwise discharging or affecting the Obligations, the Collateral or the security interests granted to Lender under this Agreement or any other Loan Document.

 

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(c) Insurance . Lender may file proofs of loss and claim with respect to any of the Collateral with the appropriate insurer, and may endorse in its own and Borrower’s name any checks or drafts constituting Proceeds of insurance. Any Proceeds of insurance received by Lender may be applied by Lender against payment of all or any portion of the Obligations as Lender may elect in its sole discretion.

 

(d) Possession and Assembly of Collateral . Lender may take possession of the Collateral and/or without removal render Borrower’s Equipment unusable. Upon Lender’s request, Borrower shall assemble the Collateral and make it available to Lender at a place or places to be designated by Lender that is reasonably convenient to Lender and Borrower.

 

(e) Set-off . Lender may, and without any notice to, consent of or any other action by Borrower (such notice, consent or other action being expressly waived), set-off or apply (i) any and all deposits (general or special, time or demand, provisional or final) at any time held by or for the account of Lender, and/or (ii) any Indebtedness at any time owing by Lender or any Affiliate of Lender or any participant in the Loans to or for the credit or the account of Borrower, to the repayment of the Obligations irrespective of whether any demand for payment of the Obligations has been made.

 

(f) Disposition of Collateral .

 

(i) Sale, Lease, etc. of Collateral . Lender may, without demand, advertising or notice, all of which Borrower hereby waives (except as the same may be required by the UCC or other applicable law), at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, at such prices and upon such terms as are commercially reasonable (within the meaning of the UCC) (A) sell, lease, license or otherwise dispose of any and all Collateral, and/or (B) deliver and grant options to a third party to purchase, lease, license or otherwise dispose of any and all Collateral. Lender may sell, lease, license or otherwise dispose of any Collateral in its then-present condition or following any preparation or processing deemed necessary by Lender in its sole discretion. Lender may be the purchaser at any such public or private sale or other disposition of Collateral, and in such case Lender may make payment of all or any portion of the purchase price therefor by the application of all or any portion of the Obligations due to Lender to the purchase price payable in connection with such sale or disposition. Lender may, if it deems it reasonable, postpone or adjourn any sale or other disposition of any Collateral from time to time by an announcement at the time and place of the sale or disposition to be so postponed or adjourned without being required to give a new notice of sale or disposition; provided, however , that Lender shall provide Borrower with written notice of the time and place of such postponed or adjourned sale or disposition. Borrower hereby acknowledges and agrees that Lender’s compliance with any requirements of applicable law in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any sale, lease, license or other disposition of such Collateral.

 

(ii) Application of Disposition Proceeds . Borrower shall be obligated for, and the Proceeds of any sale, lease, license or other disposition of Collateral pursuant to this paragraph (f) shall be applied (A) first to the costs of retaking, holding, preparing for disposition, processing, and disposing of Collateral, including the fees and disbursements of attorneys, auctioneers, appraisers, consultants and accountants employed by Lender in connection with the foregoing, and then (B) to the payment of the Obligations in whatever order Lender may elect. Borrower shall remain liable for all amounts of the Obligations remaining unpaid as a result of any deficiency of the Proceeds of the sale, lease, license or other disposition of Collateral after such Proceeds are applied as provided in the foregoing sentence. Lender shall pay any Proceeds of the sale, lease, license or other disposition of Collateral remaining after application as provided in clause (A) and (B), above, in accordance with the applicable provisions of the UCC.

 

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(iii) Warranties; Sales on Credit . Lender may sell, lease, license or otherwise dispose of the Collateral without giving any warranties and may specifically disclaim any and all warranties, including but not limited to warranties of title, possession, merchantability and fitness. Borrower hereby acknowledges and agrees that Lender’s disclaimer of any and all warranties in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any such disposition of the Collateral. If Lender sells, leases, licenses or otherwise disposes of any of the Collateral on credit, Borrower will be credited only with payments actually made by the recipient of such Collateral and received by Lender and applied to the Obligations. If any Person fails to pay for Collateral acquired pursuant to this paragraph (f) on credit, Lender may re-offer the Collateral for sale, lease, license or other disposition.

 

(g) Election of Remedies for Non-Collateral Property . Notwithstanding Lender’s Lien in and to the Collateral, to the extent that the Obligations are now or are hereafter secured by any Property other than the Collateral, or by the guaranty, endorsement, assets or Property of any other Person, Lender shall have the right in Lender’s sole discretion to determine which rights, remedies, powers, privileges, security, or Liens Lender may at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way impairing, modifying or affecting any of Lender’s other rights, remedies, powers, privileges, security, or Liens with respect to such Property, or any of Lender’s rights, remedies, powers or privileges under this Agreement or any other Loan Document.

 

(h) Lender’s Obligations . Borrower agrees that Lender shall not have any obligation to preserve rights to any Collateral against prior parties or to marshal any Collateral of any kind for the benefit of any other creditor of Borrower or any other Person. Lender shall not be responsible to Borrower for loss or damage resulting from Lender’s failure to enforce its security interests or collect any Collateral or Proceeds or any monies due or to become due under the Obligations or any other liability or obligation of Borrower to Lender.

 

(i) Waiver of Rights by Borrower . Except as may be otherwise specifically provided in this Agreement, Borrower waives, to the extent permitted by law, all bonds, security or sureties required by any Governmental Rule or otherwise as an incident to Lender’s taking of possession of, or sale, lease, license or other disposition of, any Collateral. Borrower authorizes Lender, upon the occurrence of an Event of Default to enter upon any premises owned by or leased to Borrower where the Collateral is kept, without obligation to pay rent or for use and occupancy, through self help, without judicial process and without having first given notice to Borrower or obtained an order of any court, and peacefully retake possession thereof by securing at or removing same from such premises.

 

ARTICLE 10. GENERAL PROVISIONS.

 

10.1. Rights and Remedies Cumulative. Lender’s rights, powers, remedies and privileges under this Agreement (specifically including all rights, powers, remedies and privileges of Lender under ARTICLE 9 ) shall be cumulative and not alternative or exclusive, irrespective of any other rights, powers, remedies or privileges that may be available to Lender under any other Loan Document, by operation of law or otherwise, and may be exercised by Lender at such time or times and in such order as Lender in Lender’s sole discretion may determine, and are for the sole benefit of Lender. No course of dealing and no delay or failure of Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall (a) affect any other or future exercise thereof, or (b) operate as a waiver thereof, (c) preclude Lender from exercising, or operate as a waiver of, any other right, power, remedy or privilege of Lender under this Agreement or any other Loan Document, or (d) result in liability to Lender or Lender’s Affiliates or their respective members, managers, shareholders, directors, officers, partners, employees, consultants or agents. No single or partial exercise by Lender of any right, power, remedy or privilege under this Agreement or any other Loan Document, or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege, shall preclude any further exercise thereof or of any such other right, power, remedy or privilege.

 

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10.2. Reinstatement. Lender’s rights, powers, remedies and privileges under this Agreement and the agreements, covenants, liabilities and obligations of Borrower set forth in this Agreement (including, but not limited to, Full Payment of the Obligations, and all Liens granted to Lender under this Agreement) shall continue to be effective, or be reinstated, as the case may be, if at any time (a) any payment in respect of the Obligations is rescinded or must otherwise be restored or returned by Lender by reason of any bankruptcy, reorganization, arrangement, composition or similar proceeding or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Borrower or any other Person, or any Property of Borrower or any other Person, or otherwise, all as though such payment had not been made. Furthermore, to the extent that Borrower, any Guarantor or any other Person makes a payment or payments to Lender, or Lender enforces any right, power, remedy, privilege, or Lien or exercises any right of setoff, granted to Lender under this Agreement or any other Loan Document, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all rights, powers, remedies, privileges, or Lien, granted to Lender under this Agreement, under any other Loan Document, and under applicable law, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred, or (b) Lender or any “Indemnitee” suffers or incurs any “Indemnified Liability” (as such terms are defined in Section 10.12 and Lender and/or such Indemnitee is not promptly reimbursed for the full amount of such Indemnified Liability, or (c) any expense, tax, assessment, charge or levy to be reimbursed by Borrower pursuant to Section 10.8 is not promptly paid to Lender in full.

 

10.3. Successors and Assigns. This Agreement is entered into for the benefit of the parties hereto and their successors and assigns and shall be binding upon the parties, their successors and assigns. Lender shall have the right, without the necessity of any consent, authorization or other action by Borrower, to sell, hypothecate, assign, securitize or grant participations in all or a portion of Lender’s interest in the Loans and the Loan Documents to other financial institutions or other Persons of Lender’s choice and on such terms as are acceptable to Lender in Lender’s sole discretion. Borrower shall not assign, exchange or otherwise hypothecate this Agreement, or any rights, liabilities or obligations under this Agreement, in whole or in part, without the prior written consent of Lender, which consent may be granted or withheld in Lender’s sole discretion, and any attempted assignment, exchange or hypothecation without Lender’s written consent shall be void and be of no effect.

 

10.4. Notice. Wherever this Agreement provides for notice to any party (except as expressly provided to the contrary), it shall be given by messenger, facsimile, certified U.S. mail with return receipt requested, or nationally recognized overnight courier with receipt requested, effective when either received or receipt rejected by the party to whom addressed, and shall be addressed as provided in the Disclosure Schedule , or to such other address as the party affected may hereafter designate.

 

10.5. Strict Performance. The failure by Lender at any time to require Borrower’s strict compliance with or performance of any provision of this Agreement shall not waive, affect, impair or diminish any right of Lender thereafter to demand Borrower’s strict compliance with and performance of such provision. Any suspension or waiver by Lender of any Default or Event of Default shall not suspend, waive or affect any other Default or Event of Default, whether the same is prior or subsequent to such suspension or waiver and whether of the same or a different type.

 

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10.6. Waiver. Borrower waives presentment, protest, notice of dishonor and notice of protest with respect to any Document or Instrument on or for which it may be liable to Lender as maker, endorser, guarantor or otherwise (including but not limited to this Agreement and each Note).

 

10.7. Construction of Agreement. The parties hereto agree that the terms, provisions and language of this Agreement were the result of negotiations between the parties, and, as a result, there shall be no presumption that any ambiguities in this Agreement shall be resolved against either party. Any controversy over the construction of this Agreement shall be decided without regard to events of authorship or negotiation.

 

10.8. Expenses; Taxes.

 

(a) Borrower shall reimburse Lender for all reasonable expenses incurred by Lender in connection with the transactions contemplated by this Agreement or the other Loan Documents, including, without limitation, fees in connection with any bank account, the Lockbox, the Blocked Account, wire charges, automatic clearing house fees and other similar costs and expenses incurred by Lender in carrying out the transactions contemplated by this Agreement.

 

(b) If, at any time or times prior or subsequent to the Effective Date, regardless of any of the transactions contemplated by this Agreement are concluded, or whether or not a Default or an Event of Default then exists, Lender employs counsel for advice or other representation, incurs legal fees or expenses, consulting fees or expenses, fees, costs or expenses of external professionals engaged by Lender, or other out-of-pocket costs or expenses in connection with: (i) the exercise of any right, power, remedy or privilege of Lender described in this Agreement or any other Loan Document; (ii) the negotiation and preparation of this Agreement or any other Loan Document, or any amendment, modification or restatement of this Agreement or any other Loan Document; (iii) the administration of this Agreement or any other Loan Document and the transactions contemplated hereby and thereby; (iv) periodic field exams or audits and appraisals performed by Lender as limited by the terms hereof; (v) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement or any other Loan Document or Borrower’s business or affairs; (vi) the establishment, attachment, perfection or protection of any Lien on the Collateral; (vii) any attempt to enforce any right, power, remedy or privilege of Lender against Borrower or any other Person who may be obligated to Lender by virtue of this Agreement or any other Loan Document including, without limitation, Account Debtors, including but not limited to, collection of all or any portion of the Obligations; or (viii) any attempt to inspect, verify, protect, preserve, restore, collect, sell, lease, license, liquidate or otherwise dispose of or realize upon the Collateral; then, in any such event, all reasonable attorneys’ fees arising from such services and all expenses, costs and charges of such counsel, all fees, costs, expenses and charges of consultants and professionals engaged by Lender, and all other costs and out-of-pocket expenses of Lender relating to any of the events or actions described above shall be payable by Borrower to Lender, and shall be additional Obligations under this Agreement secured by the Collateral.

 

(c) Additionally, if any tax, levy or charge (including any intangibles tax, stamp tax or recording tax but excluding any tax based on the income or revenues of Lender) shall be imposed upon or payable by Lender in connection with the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any other Loan Document, or the creation of any of the Obligations under this Agreement (i) Borrower will pay (or will promptly reimburse Lender for the payment of) all such taxes, levies and charges including, but not limited to, any interest and penalties thereon, (ii) following receipt of notice from Lender regarding the claim for payment of, or imposition of, any such tax, levy or charge, with the consent of Lender, which consent may not be unreasonably withheld, conditioned or delayed, Borrower shall have the right, at its own cost and expense, to contest the imposition of such tax, levy or charge, and with the consent of the Lender, which consent may not be unreasonably withheld, conditioned or delayed, to compromise or settle such claim for such tax, levy or charge and pay the same following such compromise or settlement, and (iii) in any circumstance described in clause (i) or (ii) above, Borrower will indemnify, defend and hold Lender harmless from and against any liability in connection therewith.

 

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(d) Borrower’s obligations under this Section 10.8 shall survive termination of Lender’s commitment to make Loans and Advances hereunder and the termination of this Agreement.

 

10.9. Interest, Fees and Reimbursements Charged to Revolving Credit. Borrower agrees that Lender may (a) charge all interest, fees, costs and expenses payable by Borrower to Lender pursuant to the terms of this Agreement and the other Loan Documents (including any amount paid by Lender and required to be reimbursed by Borrower pursuant to the provisions of Section 10.8 ) to the Revolving Credit, (b) pay such amounts to Lender from the proceeds of the Revolving Credit, and (c) treat each such payment as an Advance of the Revolving Credit on the date the proceeds of an Advance described immediately above are paid to Lender.

 

10.10. Marketing and Advertising. Borrower hereby authorizes and gives permission for Lender and Lender’s Affiliates to use the legal or fictional company name, logo, trademark and/or personal quotes in connection with promotional materials that Lender may disseminate to the public relating to Lender’s relationship with Borrower. Promotional materials may include, but are not limited to, brochures, video tapes, emails, internet websites, advertising in newspapers and/or other periodicals, lucites, pictures and photographs. Lender shall provide Borrower with a copy of promotional materials prepared by Lender or Lender’s Affiliates prior to making such promotional materials available to the public.

 

10.11. Waiver of Right to Jury Trial. Borrower and Lender recognize that in matters related to the Loans, this Agreement and/or the other Loan Documents, and as each may be subsequently modified and/or amended, either party may be entitled to a trial in which matters of fact are determined by a jury (as opposed to a trial in which such matters are determined by a judge, magistrate, referee or other elected or appointed decider of facts). By executing this Agreement, Lender and Borrower will give up their respective right to a trial by jury. Borrower and Lender each hereby expressly acknowledges that this waiver is entered into to avoid delays, minimize trial expenses, and streamline the legal proceedings in order to accomplish a quick resolution of claims arising under or in connection with this Agreement, the other Loan Documents, the Loan(s), the Note(s) and the transactions contemplated by this Agreement.

 

(a) WAIVER OF JURY TRIAL . TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT BORROWER OR LENDER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION, ACTION, SUIT OR PROCEEDING, DIRECTLY OR INDIRECTLY, AT ANY TIME ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, ANY LOAN, ANY NOTE, ANY LOAN DOCUMENT OR ANY TRANSACTION CONTEMPLATED BY THIS AGREEMENT, BEFORE OR AFTER MATURITY.

 

(b) CERTIFICATIONS . BORROWER HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE NOR AGENT OF LENDER NOR LENDER’S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT LENDER WOULD NOT, IN THE EVENT OF ANY LITIGATION, ACTION SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER. BORROWER ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATION HEREIN.

 

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10.12. Indemnification by Borrower. Borrower hereby covenants and agrees to indemnify, defend (with counsel selected by Lender) and hold harmless Lender, Lender’s Affiliates and their respective servicers, members, managers, directors, shareholders, officers, partners, employees, attorneys, consultants and agents (collectively, the “Indemnitees” ) from and against any and all claims, damages, liabilities, reasonable costs and expenses (including, without limitation, actual attorney’s fees and expenses and other costs of investigation or defense, including those incurred upon any appeal), which may be incurred by or asserted against any Indemnitee (whether for breach of contract, in tort or under any other theory of liability) in connection with or as a result of credit having been extended, suspended or terminated under this Agreement or the other Loan Documents or with respect to the execution, delivery, enforcement, performance or administration of, or in any other way arising out of relating to, this Agreement or the other Loan Documents or any other documents or transactions contemplated by or referred to in this Agreement, or any action or failure to act with respect to any of the foregoing, including any and all product liabilities, environmental liabilities, taxes and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents, the correctness, validity or genuineness of any Instrument or Document that may be released or endorsed to Borrower by Lender (which shall automatically be deemed to be without recourse to Lender in any event), the existence, character, quantity, quality, condition, value or delivery of any Goods purporting to be represented by any such Instruments or Documents, or any broker’s commission, finder’s fee or similar charge or fee payable by Borrower in connection with the Loans and the transactions contemplated by this Agreement (collectively, the “ Indemnified Liabilities ”), except to the extent that any such Indemnified Liability is determined by a court of competent jurisdiction in a final non-appealable judgment to have resulted from such Indemnitee’s gross negligence or willful misconduct. BORROWER, FOR ITSELF AND FOR ALL SUCCESSORS, ASSIGNS, THIRD PARTY BENEFICIARIES AND ALL OTHER PERSONS THAT MAY ASSERT CLAIMS DERIVATIVELY THROUGH SUCH PARTY, HEREBY WAIVES ANY AND ALL CLAIMS FOR INDEMNIFIED LIABILITIES AGAINST ALL INDEMNITEES EXCEPT TO THE EXTENT THAT ANY SUCH INDEMNIFIED LIABILITY IS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL, NON-APPEALABLE JUDGMENT TO HAVE RESULTED FROM SUCH INDEMNITEE’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. NO INDEMNITEE SHALL BE RESPONSIBLE OR LIABLE TO BORROWER, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR FOR INDIRECT PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. THE PROVISIONS OF THIS SECTION 10.12 SHALL SURVIVE TERMINATION OF LENDER’S COMMITMENT TO MAKE LOANS AND ADVANCES HEREUNDER AND THE TERMINATION OF THIS AGREEMENT.

 

10.13. Savings Clause for Indemnification. To the extent that Borrower’s undertaking to indemnify, pay and hold harmless set forth in Section 10.12 above may be unenforceable because it violates any law or public policy, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all matters referred to under Section 10.12 .

 

10.14. Lender’s Performance. Lender shall not be responsible for any failure of any Advance to be credited to any account of Borrower (i) if such failure is caused by conditions beyond Lender’s control including, but not limited to Acts of God, restrictions of Governmental Units (including the denial or cancellation of any necessary license, registration or permit), wars, insurrections, or interruptions of telephone service or internet access caused by a service provider or resulting from the failure of a service provider’s equipment, software or personnel, and (ii) if such failure is not caused by or due to an event, occurrence or condition described in clause (i) immediately above, unless such failure is caused by or due to Lender’s gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, non-appealable judgment.

 

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10.15. Entire Agreement; Amendments; Lender’s Consent. This Agreement (including the Schedules and Exhibits) constitutes the entire agreement between Lender and Borrower with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions between Lender and Borrower, whether express or implied, oral, written, inscribed on a tangible medium or stored in an electronic or other medium, with respect to the subject matter hereof. No amendment or waiver of any provision of this Agreement, nor consent by Lender to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and Authenticated by Lender in such writing, and then such amendment, waiver or consent shall be effective only to the extent specifically set forth in such writing. No discussions, negotiations or statements, whether oral, or in electronic or other format, by Lender or between Borrower and Lender with respect to the subject matter of this Agreement or any of the other Loan Document shall be valid and binding against Lender, nor shall the same create a binding obligation on Lender to lend money or to take any other action with respect to the Loans or Borrower, unless the same is reduced to writing and Authenticated by Lender in such writing.

 

10.16. Cross Default; Cross Collateralization. Borrower hereby acknowledges and agrees that (a) each other Loan Document and agreement between Borrower and Lender is hereby amended, to the extent necessary, to provide that a Default or an Event of Default under this Agreement is a default or event of default, respectively, under each such Loan Document or agreement, and a default or event of default under any Loan Document or agreement between Borrower and Lender is a Default or an Event of Default, respectively, under this Agreement, and (b) the Collateral secures the Full Payment to Lender in cash and performance of the Obligations, whether now or hereafter outstanding under all other Loan Documents and agreements between Borrower and Lender, and that the Collateral and any other Property of any other Person pledged to Lender in connection with the transactions contemplated by this Agreement under any other Loan Document or agreement with Lender secures the Full Payment to Lender in cash and performance of the Obligations.

 

10.17. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.

 

10.18. Severability of Provisions. Any provision of this Agreement or any of the other Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or the other Loan Documents or affecting the validity or enforceability of such provision in any other jurisdiction.

 

10.19. Governing Law; Consent to Jurisdiction.

 

(a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF EACH NOTE DELIVERED PURSUANT HERETO WERE AND ARE DISBURSED FROM THE STATE OF NEW YORK. THE PARTIES AGREE THAT THE STATE OF NEW YORK HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED ENTIRELY IN SUCH STATE WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD RESULT IN A GOVERNING LAW OTHER THAN THE LAW OF THE STATE OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY LAW, LENDER AND BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT OR ANY NOTE ISSUED BY BORROWER TO LENDER IN CONNECTION HEREWITH.

 

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(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN THE SOLE OPTION OF LENDER IN ANY FEDERAL OR STATE COURT LOCATED IN WESTCHESTER COUNTY, NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW; HOWEVER, LENDER MAY, AT ITS OPTION, COMMENCE ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION TO OBTAIN POSSESSION OF OR FORECLOSE UPON ANY COLLATERAL, TO OBTAIN EQUITABLE RELIEF OR TO ENFORCE ANY JUDGMENT OR ORDER OBTAINED BY LENDER AGAINST BORROWER OR WITH RESPECT TO ANY COLLATERAL, TO ENFORCE ANY RIGHT, POWER, REMEDY OR PRIVILEGE UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR UNDER APPLICABLE LAW OR TO OBTAIN ANY OTHER RELIEF DEEMED APPROPRIATE BY LENDER, AND LENDER AND BORROWER EACH WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND LENDER AND BORROWER EACH HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER REPRESENTS AND ACKNOWLEDGES THAT IT HAS REVIEWED THIS CONSENT TO JURISDICTION PROVISION WITH ITS LEGAL COUNSEL, AND HAS MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY, WITHOUT COERCION OR DURESS.

 

10.20. Rules of Construction. The terms “herein”, “hereof,” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph, or subdivision. Any pronoun used shall be deemed to cover all genders. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding.” The section titles, table of contents, and list of exhibits and schedules appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All references to (a) statutes and related regulations shall include all related rules and implementing regulations and any amendments of same and any successor statutes, rules, and regulations; (b) any agreement, instrument, or other documents (including any of the Loan Documents) shall include any and all modifications and supplements thereto and any and all restatements, extensions, or renewals thereof to the extent such modifications, supplements, restatements, extensions, or renewals of any such documents are permitted by the terms thereof; (c) any Person (including Borrower or Lender) shall mean and include the successors and permitted assigns of such Person; or (d) “including” and “include” shall be understood to mean “including, without limitation,” regardless of whether the “without limitation” is included in some instances and not in others (and, for purposes of each Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned).

 

[SIGNATURE PAGE IMMEDIATELY FOLLOWS]

 

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LENDER:  
     
ACF FINCO I LP  
     
By: /s/ John Nooney  
Name: John Nooney  
Its: Managing Director  
Effective Date : August 31, 2016  

 

BORROWER:  
     
JOHN KEELER & CO. INC.  
     
By: /s/ John Keeler  
Name: John Keeler  
Its: CEO  
Date: August 31, 2016  

 

DEFINITIONS SCHEDULE

 

Additional Specified Subordinated Indebtedness ” means subordinated Indebtedness in an amount not less than $500,000 incurred by Borrower pursuant to loans made to it by Specified Subordinated Creditor, evidenced by a promissory note or other instrument in form and substance acceptable to Lender.

 

“Advance” means each principal amount of the Revolving Credit delivered to Borrower in connection with a Notice of Borrowing, and each other amount charged to the principal of the Revolving Credit pursuant to this Agreement.

 

“Affiliate” of a Person means a “Person related to” such Person as defined in Sections 9-102(62) and 9-102(63) of the UCC, and for purposes of this Agreement also includes any employee of such Person, and any entity controlled by or under common control with any such employee. For purposes of this definition the term “control” as used in Section 9-102(63) of the UCC means the possession, directly or indirectly, of the power to direct or cause the direction of the management and/or policies of a Person, whether through the ownership of voting stock or other equity interests, by agreement or otherwise.

 

“Anti-Terrorism Laws” shall mean any and all laws, regulations, rules, orders, etc. in effect from time to time relating to anti-money laundering and terrorism, including, without limitation, Executive Order No. 13224 (effective September 24, 2001) and the USA Patriot Act (Pub. L. No. 107-56 (Oct. 12, 2001)).

 

Bacolod ” means Bacolod Blue Star Export Corp., a Philippine corporation.

 

 

“Banking Day” means a day on which commercial banks are not authorized or required to close in New York State.

 

[Loan and Security Agreement]

 

 

 

 

“Bankruptcy Code” means the United States Bankruptcy Code (11 U.S.C. § 101, et seq .), as amended.

 

“Blocked Person” shall mean (a) any person (i) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224 or any other applicable regulations of the U.S. Department of Treasury Office of Foreign Asset Control or any successor agency ( “OFAC” ), (ii) owned or controlled by, or acting for or on behalf of, any person listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224 or other applicable OFAC regulations, (iii) with which Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (iv) that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224 or other applicable OFAC regulations, (v) that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list, or (vi) that is named a “denied person” on the most current list published by the U.S. Commerce Department, (b) an agency of the government of a Sanctioned Country, (c) an organization controlled by a Sanctioned Country, or (d) a person resident in a Sanctioned Country to the extent subject to a sanctions program administered by OFAC.

 

“Borrowing Base” means, at any time, an amount equal to:

 

(a) an amount not to exceed eighty-five percent (85%) of the aggregate amount of Eligible Receivables at such time; plus

 

(b) the least of (i) $10,000,000, (ii) seventy-five percent (75%) of the Value of Eligible Inventory at such time, and (iii) eighty-five percent (85%) of the NOLV of Eligible Inventory, and

 

(c) the aggregate amount of all Reserves in effect at such time;

 

provided, however , that the portion of the Borrowing Base calculated on any date with reference to (I) Eligible Inventory shall not exceed seventy-five percent (75%) of the total Borrowing Base, and (II) Eligible In-Transit Inventory shall not exceed $3,500,000.

 

For purposes of determining the amount to be advanced against Inventory in calculating the Borrowing Base as described above, the “ Value ” of Inventory shall mean the lesser of cost or the fair market value of such Inventory, and all amounts of an item of Inventory maintained by Borrower at any time exceeding the average amount of such item sold by Borrower during the preceding twelve (12) consecutive calendar months shall be disregarded.

 

“Borrowing Base Certificate” means a certificate in the form of Exhibit B prepared by Borrower.

 

“Borrowing Capacity” means, with respect to the Revolving Credit, at any time, an amount equal to (a) the lesser of (i) the Revolving Credit Limit, or (ii) the Borrowing Base at such time, minus (b) the Borrowing Capacity Block at such time.

 

“Borrowing Capacity Block” means an amount equal to $500,000 which, after Borrower’s receipt of the Additional Specified Subordinated Indebtedness, is subject to the following reductions:

 

(a) if Borrower achieves year-to-date EBITDA for Fiscal Year 2016 (as reported in the financial statements required by Section 6.5 ) of at least $250,000, a reduction to $375,000 on the first day of the calendar month following Lender’s receipt of such financial statements and at all times thereafter (unless further reduced as set forth in paragraph (b) below), and

 

(b) if Borrower achieves year-to-date EBITDA for Fiscal Year 2016 (as reported in the financial statements required by Section 6.5 ) of at least $500,000, a reduction (or further reduction, if applicable) to $250,000 on the first day of the calendar month following Lender’s receipt of such financial statements and at all times thereafter, and

 

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(c) Beginning with the calendar month ending December 31, 2016 and as of the last day of any month thereafter, if Borrower achieves EBITDA (as reported in the financial statements required by Section 6.5 ) for any trailing six (6) month period of at least $600,000, a reduction (or further reduction, if applicable) to $250,000 on the first day of the calendar month following Lender’s receipt of such financial statements and at all times thereafter.

 

“Capital Expenditures” means for any period, as determined in accordance with GAAP, the dollar amount of gross expenditures (including obligations under capital leases) made or incurred for fixed assets, real property, plant and equipment, and all renewals, improvements and replacements thereto (but not repairs thereof) during such period.

 

“Charter Documents ” means (a) with respect to a corporation, such corporation’s certificate or articles of incorporation (as applicable) and bylaws in effect on the Effective Date, and as the same may be amended, restated or otherwise modified after the date hereof, (b) with respect to a partnership, such partnership’s articles or certificate of formation or certificate of partnership (as applicable) or other certificate required to be filed with any Governmental Unit in order to form such partnership, and partnership agreement in effect on the Effective Date, and as the same may be amended, restated or otherwise modified after the date hereof, and (c) with respect to a limited liability company or limited liability partnership, such limited liability company’s or limited liability partnership’s articles or certificate of formation (as applicable) and limited liability company agreement, limited liability partnership agreement or operating agreement (as applicable) in effect on the Effective Date, and as the same may be amended, restated or otherwise modified after the date hereof.

 

“Code” means the United States Internal Revenue Code (26 U.S.C. §1, et seq .), as the same may be amended.

 

“Collateral” means all of Borrower’s right, title and interest in and to the following, wherever located and whether owned on the Effective Date or thereafter acquired, whether owned or held by Borrower or by any other Person in any manner for Borrower’s account (and specifically includes all accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of all of the following): all cash, Money (as defined in Section 1-201(24) of the UCC), Accessions, Accounts (including without limitation all Receivables and unearned premiums with respect to insurance policies insuring any of the Collateral and claims against any Person for loss of, damage to, or destruction of any or all of the Collateral), Certificates of title, Chattel Paper, Commercial Tort Claims (specifically including all Commercial Tort Claims arising from or in connection with the matters described in the attached Disclosure Schedule ), Deposit Accounts, Documents (including but not limited all to books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including, without limitation, writings, plans, specifications, schematics customer lists, credit files, computer programs, printouts and other computer materials and records of Borrower pertaining to any of the items or subject matter described in this paragraph), Equipment, General Intangibles, Goods, Health-Care-Insurance Receivables, Instruments, Inventory, Investment Property, Letter-Of-Credit Rights, Proceeds, Records, Software and Supporting Obligations, all rights to payment for money or funds advanced or sold, and all monies or other Property of any kind now or at any time or times hereafter in the possession or under the control of Lender or any Affiliate of Lender or any representative, agent or correspondent of Lender pertaining to any of the items or subject matter described in this paragraph, and to the extent not otherwise included in the foregoing, all other property in which a security interest may be granted under the UCC or which may be delivered to and held by Lender pursuant to the terms hereof. Notwithstanding the foregoing, if on or prior to the Effective Date Borrower has not obtained the written consent of a Governmental Unit necessary to permit the assignment of any Document, Instrument, Chattel Paper, contract or agreement by and between Borrower and any Governmental Unit (a “ Government Contract ”) in connection with the granting by Borrower to Lender of the security interests described herein, the Collateral and Lender’s security interests described herein shall specifically exclude each such Government Contract, and all of Borrower’s rights, title and interests therein, however, in such case the Collateral and Lender’s security interests granted herein shall specifically include and shall be limited to all Accounts and Receivables in connection with such Government Contract and all of Borrower’s rights, title and interests in and to such Accounts and Receivables, and all such Accounts and Receivables shall be considered as Collateral for purposes hereof. Notwithstanding anything contained in this Agreement or the other Loan Documents to the contrary, the term “Collateral” shall not include the following:

 

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(a) Borrower’s rights or interests in or under any license, contract or agreement to the extent, but only to the extent that such a grant would, under the terms of such license, contract or agreement, constitute or result in a breach or default under such license, contract or agreement (other than to the extent that any such term has been waived or would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions)), provided that (A) immediately upon either (i) an Event of Default pursuant to Section 9.1(f) or Section 9.1(g) or (ii) the ineffectiveness, lapse, termination or waiver of any such term, the Collateral shall include, and Borrower shall be deemed to have granted a security interest as of the Effective Date in all such rights and interests as if such term had never been in effect, and (B) to the extent that any such lease, license, contract or agreement would otherwise constitute Collateral (but for the provisions of this paragraph), all Receivables or other amounts due and payable or to become due and payable from Borrower’s performance under such license, contract or agreement and all proceeds resulting from the sale or disposition by Borrower of any rights of Borrower under such license, contract or agreement shall constitute Collateral, or

 

(b) any real property, or

 

(c) any Equity Interests in Borrower which Guarantor is prohibited from pledging under the terms of any settlement agreement entered into in connection with, or court order issued in, case number 07-29085 FC (28) pending in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County Florida, styled as In re: The Marriage of Maria Fernanda Keeler and John R. Keeler .

 

“Compliance Certificate” means a certificate in the form of Exhibit C prepared by Borrower.

 

“Contract Year” means initially the period of twelve (12) consecutive calendar months commencing on the Effective Date, and thereafter each period of twelve (12) consecutive calendar months commencing on the annual anniversary of the Effective Date.

 

“Default” means each event, occurrence or condition, or series of events, occurrences or conditions (individually and collectively, an “Occurrence”), that would constitute an Event of Default as defined in Section 9.1 , disregarding (a) all requirements of notice to be delivered to Borrower under this Agreement in connection with such Occurrence as a condition to the existence of such prospective Event of Default, and (b) all periods of time, grace or cure under this Agreement that must pass prior to the existent of such prospective Event of Default.

 

“Default Rate” means an annualized rate of interest that is equal to three percent (3.00%) more than the Revolving Credit Rate.

 

“Eastern Time” means North American Eastern Standard Time, including Eastern standard time when observing standard time, and Eastern daylight time when observing daylight saving time.

 

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“EBITDA” means, for any period, (a) Borrower’s total income before interest expense, taxes, depreciation, amortization and fees, costs and expenses paid or payable by Borrower with respect to the Obligations for such period, plus (b) any restructuring, consulting or attorneys’ fees actually paid by Borrower to Conway MacKenzie or Frost Brown and Todd LLC during such period which directly relate to Borrower’s restructuring, plus (c) any early termination, exit or accommodation fee charged by AloStar Bank of Commerce and actually paid by Borrower during such period, plus (d) any legal fees charged by AloStar Bank of Commerce and actually paid by Borrower during such period, in each case calculated in accordance with GAAP, consistently applied and determined as of and at the end of such period; provided, that for each of the months listed below, EBITDA for such month, and year-to-date EBITDA for the period beginning January 1, 2016 through the last day of such month, shall be deemed to be the amount corresponding thereto:

 

Month   EBITDA for such Month     Year to Date EBITDA  
January 31, 2016   $ (87,183 )   $ (87,183 )
February 29, 2016   $ 27,248     $ (59,935 )
March 31, 2016   $ (37,480 )   $ (97,415 )
April 30, 2016   $ (36,600 )   $ (134,015 )
May 31, 2016   $ 66,639     $ (67,376 )
June 30, 2016   $ 138,873     $ 71,497  
July 31, 2016   $ 120,844     $ 192,340  

 

For purposes of this Agreement, adjustments to EBITDA for any period with respect to extraordinary items of income and expense during such period shall be made by Lender in its sole discretion.

 

“Eligible In-Transit Inventory” means Inventory that meets all of the criteria for Eligible Inventory except that it constitutes In-Transit Inventory, but only if:

 

(a) title and risk of loss with respect to such Inventory has passed to Borrower on or before such date;

 

(b) Borrower is in default of any of its obligations to the Vendor thereof (whether related to such Inventory or otherwise), and such Vendor does not have any right on such date, under applicable law or pursuant to any document relating to the sale of such Inventory, to reclaim, divert the shipment of, reroute, repossess, stop delivery of or otherwise assert any Lien rights or title retention with respect to such Inventory;

 

(c) all inspection or other requirements of law in the country of origin that are applicable to such Inventory and are a prerequisite to the shipment thereof have been satisfied;

 

(d) such Inventory is fully insured by Borrower in such amounts, with such insurance companies and subject to such deductibles as are satisfactory to Lender (including, without limitation, marine cargo insurance) and in respect of which Lender has been named as first lender loss payee pursuant to a loss payable endorsement satisfactory to Lender;

 

(e) such Inventory complies in all material respects with all United States laws concerning food safety and other similar laws applicable to such Inventory;

 

(f) such Inventory is in the possession of a common carrier, which is not an Affiliate of such Vendor or Borrower;

 

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(g) such Inventory is evidenced by a tangible negotiable bill of lading that (i) is issued by such carrier to the order of Borrower (or, if otherwise required by Lender in its discretion, to the order of Lender), (ii) covers only such Inventory, (ii) for all bills of lading issued on or after October 1, 2016, bears a conspicuous notation on its face of Lender’s security interest therein and lists Lender as a notify party (unless such bill of lading is issued to the order of Lender), and (iv) is otherwise in form and substance satisfactory to Lender;

 

(h) all original counterparts of the bill of lading covering such Inventory are in the United States and are in the possession of Lender or an Eligible Logistics Provider no later than three (3) Banking Days after Borrower’s receipt from the Vendor of such Inventory or the carrier engaged by such Vendor with respect to such Inventory;

 

(i) such Inventory is not subject to a hold by the U.S. Food and Drug Administration or any other Governmental Unit for more than 30 calendar days, whether for inspection purposes or otherwise; and

 

(j) such Inventory has not been in transit for more than 75 calendar days.

 

“Eligible Inventory” means Inventory that Borrower has identified and described to Lender and that is in all other respects acceptable to Lender in Lender’s permitted discretion, and that meets all of the following criteria on the date of any Advance or Loan based thereon and on each day thereafter while any Obligation is outstanding:

 

(a) the Inventory consists of saleable and non-obsolete refrigerated or frozen seafood finished goods acquired by Borrower in the Ordinary Course of Business of Borrower; and

 

(b) the Inventory does not consist of packaging supplies, labels or maintenance items; and

 

(c) the Inventory shall not have been in Borrower’s possession or control for a period of more than twelve (12) calendar months in the case of refrigerated Inventory or eighteen (18) calendar months in the case of frozen Inventory; and

 

(d) Borrower is the sole owner of the Inventory; none of the Inventory is being held or shipped by Borrower on a consignment or approval basis; Borrower has not sold, assigned or otherwise transferred all or any portion thereof; and none of the Inventory is subject to any claim or Lien (other than a Permitted Lien); and

 

(e) if any of the Inventory is represented or covered by any Certificate Of Title, Instrument, Document or Chattel Paper, Borrower is the sole owner of each such Certificate Of Title, Instrument, Document or Chattel Paper, each of which is in the possession of Borrower (or, for all Documents consisting of bills of lading, in the possession of an Eligible Logistics Provider no later than three (3) Banking Days after Borrower’s receipt thereof), none of which has been sold, assigned or otherwise transferred, and none of which is subject to any claim or Lien; and

 

(f) the Inventory is not In Transit Inventory unless it is Eligible In-Transit Inventory;

 

(g) unless it is Eligible In-Transit Inventory, the Inventory is subject to Borrower’s contract or sole possession, is located at a facility described on the Disclosure Schedule that is (i) owned, operated or used by Borrower, or (ii) if located at a facility that is not owned by Borrower, (A) the landlord, warehouseman or bailee of such facility has delivered a waiver in form and substance acceptable to Lender in Lender’s permitted discretion and (B) if a warehouseman or bailee, such Person is otherwise acceptable to Lender in permitted discretion (it being understood that Los Angeles Cold Storage is acceptable to Lender);

 

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(h) any representation contained in this Agreement with respect to such Inventory or with respect to whether such Inventory is Eligible Inventory was inaccurate when made; and

 

(i) Lender has a valid and perfected first priority security interest in the Inventory.

 

Eligible Logistics Provider ” means any customs broker or non-vessel operating common carrier which has its principal assets, place of organization and place of business in the United States, which is acceptable to Lender, with whom Lender has entered into an Imported Goods Agreement, and which has not asserted any adverse claim or Lien against any In-Transit Inventory.

 

Eligible Receivable ” means each Receivable: for which the Records and accounts are located at Borrower’s facilities where such Records are maintained as described in the Disclosure Schedule ; arising out of a sale in the Ordinary Course of Business of Borrower; relating to a sale made by Borrower to a Person that is not an Affiliate of Borrower; that is not in dispute; with respect to which each representation with respect to Eligible Receivables set forth in this Agreement is accurate, and; that is acceptable to Lender in Lender’s permitted discretion. Lender may treat any Receivable as ineligible if:

 

(a) more than ninety (90) consecutive calendar days has passed from the original invoice date for such Receivable or sixty (60) consecutive calendar days have passed from the original due date for such Receivable; or

 

(b) any representation contained in this Agreement with respect to such Receivable or with respect to whether such Receivable is an Eligible Receivable was inaccurate when made; or

 

(c) the Account Debtor has disputed liability or made any claim with respect to such Receivable; or

 

(d) the Account Debtor (i) has filed a case for bankruptcy or reorganization under the Bankruptcy Code, or (ii) has had filed against it any case under the Bankruptcy Code, or (iii) has made an assignment for the benefit of creditors, or (iv) has failed, suspended business operations, become insolvent, (v) has had a receiver or a trustee appointed for all or a significant portion of its assets or affairs, or (vi) has provided notice, or Lender has received notice, of an imminent insolvency proceeding of such Account Debtor; or

 

(e) the Account Debtor is a supplier to or creditor of Borrower; or

 

(f) the Account Debtor has or asserts any right of offset with respect to such Receivable or asserts any claim or counterclaim against Borrower with respect to such Receivable; or

 

(g) Borrower is not the sole owner of the Receivable; Borrower has sold, assigned or otherwise transferred all or any portion thereof; or any portion of the Receivable is subject to any claim or Lien (other than a Permitted Lien); or

 

(h) the sale giving rise to such receivable is to an Account Debtor domiciled outside of the United States or Canada excluding the Province of Quebec (each, a “ Canadian Receivables ”); provided , however , that, any such Canadian Receivables shall be billed in U.S. Dollars and the aggregate amount of Canadian Receivables that constitute Eligible Receivables shall not exceed $250,000 on any date; or

 

(i) fifty percent (50%) or more of the Receivables of any Account Debtor and/or its Affiliates is ineligible, then all the Receivables of such Account Debtor and its Affiliates shall be treated as ineligible; or

 

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(j) any portion of the Eligible Receivables of the Account Debtor and/or its Affiliates exceeds twenty percent (20%) of the total amount of all Eligible Receivables, then the amount of such excess shall be treated as ineligible; provided, however , such percentage shall be (i) forty percent (40%) with respect to US Foods Holding Company and its Affiliates and (ii) thirty percent (30%) with respect to Performance Food Group Company and its Affiliates;

 

(k) such Receivable relates to a sale of goods or services to the United States of America, or to a Governmental unit of the United States of America, unless Borrower assigns its right to payment of such Receivable to Lender in compliance with the Assignment of Claims Act of 1940, as amended; or

 

(l) such Receivable relates to a sale of goods or services to any State of the United States of America, or to any Governmental Unit of any State of the United States of America, unless Borrower assigns its right to payment of such Receivable to Lender in compliance with all applicable laws, rules, regulations or administrative or judicial determinations relating to the assignment (in whole or in part) of any agreement or contract pursuant to which such sale was made; or

 

(m) the goods or services covered by such Receivable were shipped to the customer or performed for the customer, as applicable, prior to or after the date of the invoice giving rise to such Receivable, or such Receivable consists of a sale to an Account Debtor: on consignment; on any bill and hold basis; on any guaranteed sale, sale or return, sale on approval or other repurchase or return basis; on any billing in advance of shipment or other “pre-billing” basis; or under any payment plan, scheduled installment plan, or other extended payment terms basis, or such Receivable consists of progress billing; or

 

(n) the Account Debtor is located in a state in which Borrower is deemed to be doing business under the laws of such state and such state denies creditors access to its courts in the absence of Borrower’s qualification to transact business in such state or of Borrower’s filing of any reports with such state, unless Borrower has qualified as a foreign corporation authorized to do business in such state or has filed all required reports; or

 

(o) such Receivable is evidenced by chattel paper or an instrument of any kind which has not been assigned or endorsed and delivered to Lender, or such Receivable has been reduced to judgment; or

 

(p) such Receivable arises from a sale of goods or services to an individual who is purchasing such goods primarily for personal, family or household purposes; or

 

(q) Lender reasonably believes that collection of such Receivable is insecure or that such Receivable may not be paid by reason of the Account Debtor’s financial inability to pay; or

 

(r) Lender does not have a valid and perfected first priority security interest in such Receivable.

 

“Environmental Law” means each federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation law, statute, ordinance or code relating to the protection of any water or water vapor, any land surface or subsurface, air, fish, wildlife, biota or any other natural resources and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of “hazardous substances” and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of any Governmental Unit with respect thereto.

 

“Equity Interests” of a Person means such Person’s issued and outstanding equity securities, or membership, partnership or profits interests, as applicable, or debt or securities (or combinations thereof) convertible into such Person’s equity securities, or membership, partnership or profits interests, as applicable.

 

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“ERISA” means the Employee Retirement Income Security Act of 1974 (29 U.S.C. Ch. 18) and related sections of the Code, as amended.

 

“Fiscal Quarter” means the three (3) consecutive calendar month period commencing on the first day of the Fiscal Year, and each three (3) consecutive calendar month period in such Fiscal Year commencing on the day immediately following end of the preceding Fiscal Quarter.

 

“Fiscal Year” means a year of 365 or 366 days, as the case may be, ending on the last day of December in any calendar year.

 

“Fixed Charge Coverage Ratio” means, for any period, the ratio of (a) EBITDA for such period, divided by (b) the sum of the following for such period (calculated on a pre-tax basis): (i) all regularly scheduled cash repayments of principal of the Obligations and other Indebtedness of Borrower (including the principal component of any payments in respect of capital lease obligations), whether or not actually paid or whether accrued or capitalized during such period; plus (ii) all regularly scheduled cash payments of interest payable by Borrower in respect of the Obligations and other Indebtedness (including the interest component of any payments in respect of capital lease obligations), whether or not actually paid or whether accrued or capitalized during such period; plus (iii) all fees, costs and expenses paid or payable by Borrower with respect to the Obligations (including all collateral management fees, unused line fees and other amounts other than the Facility Fee) and other Indebtedness whether or not actually paid or whether accrued or capitalized during such period; plus (iv) with respect to the Facility Fee, an amount equal to $5,833 per month to be multiplied by the number of months (of portion thereof) during such period, plus (v) Unfunded Capital Expenditures during such period, plus (vi) all cash dividends or distributions on Borrower’s equity, membership or partnership interests (as applicable) during such period, plus (vii) all taxes and Tax Distributions actually paid during such period.

 

Full Payment ” means the full, final and indefeasible payment in full of all of the Obligations (or, in the case of any contingent Obligations, such as letters of credit, the cash collateralization of such contingent Obligations in a manner satisfactory to Lender and to the extent of 105% of the liquidated or estimated amount of such contingent Obligations); termination of Lender’s commitments to make Loans and Advances hereunder; and release by each Borrower, Guarantor or other person obligated to pay the Obligations (and by any representative of creditors of each such Person in any bankruptcy or other insolvency proceeding of such Person) of any claims that such Person has or asserts to have against Lender or any of its Affiliates.

 

“GAAP” means generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practice of Borrower, except for changes mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing.

 

“Governmental Rules” means all federal, state and local governmental rules, ordinances and regulations applicable to Borrower or Borrower’s ownership or use of properties or the operation or conduct of its business.

 

“Governmental Unit” means, with respect to the government of the United States, a State of the United States or a foreign country (a “government”) (a) a subdivision, agency, department, county, parish, municipality or other unit of such government, or (b) an entity exercising executive, legislative, judicial, taxing, law enforcement, regulatory or administrative powers or functions of or pertaining to such government.

 

9

 

 

Guarantor ” means John R. Keeler and any other Person now or hereafter guaranteeing, endorsing, acting as surety of, or otherwise becoming liable for any Obligations, but excluding a Support Party that has not otherwise also executed a guaranty agreement in favor of Lender.

 

Imported Goods Agreement ” means an agreement among Lender, Borrower and an Eligible Logistics Provider, that is in form and substance satisfactory to Lender and pursuant to which, among other things, the parties shall agree upon their relative rights with respect to In-Transit Inventory of Borrower.

 

“Indebtedness” of a Person means all obligations for borrowed money of any kind or nature, including funded debt and unfunded liabilities, contingent obligations under guaranties or letters of credit or similar financial instruments or accommodations, and all obligations for the acquisition or use of any fixed asset or improvements, including capitalized leases, which are payable over a period longer than one (1) year, regardless of the term thereof or the Person or Persons to whom the same is payable.

 

In Transit Inventory ” means Inventory that has been purchased by Borrower and that is being shipped or otherwise transported to Borrower from a point of origin within the continental United States or is being shipped or otherwise transported to Borrower from a point of origin outside of the continental United States.

 

“Lender’s permitted discretion ” means, that in connection with a determination to be made by Lender under this Agreement, or in connection with an election by Lender to take or refrain from taking an action under this Agreement, Lender may make such determination, or elect to take or not take such action, as applicable, in good faith and in the exercise of reasonable business judgment from the perspective of a secured asset based lender.

 

“LIBOR Rate” means the annual rate of interest for deposits in U.S. Dollars for a term of three (3) months as quoted on LIBOR01 Page as of 11:00 a.m. London Time on the second (2nd) Banking Day prior to the date of an Advance until the first day of the first full month following the date of such Advance, and for each calendar month thereafter on the second (2nd) Banking Day prior to the first day of each calendar month, adjusted for reserve requirements and such other requirements as may be imposed by federal, state or local government and regulatory agencies.

 

“LIBOR01 Page” means the Reuters Screen LIBOR01 Page (or such other page as may replace or substitute the LIBOR01 Page on that service), or such other service as may be selected by Lender as the information vendor for the purpose of displaying the London interbank offered rate for U.S. Dollar deposits administered by the ICE Benchmark Administration (or any other Person that takes over the administration of such rate).

 

Lien ” means a Person’s interest in Property (whether arising by agreement or under any statute or law or otherwise) securing an obligation owed to, or a claim by, such Person, including any lien, security interest, pledge, hypothecation, assignment, trust, reservation, encroachment, easement, right-of-way, covenant, condition, restriction, lease, or other title exception or encumbrance.

 

“Loan Document” means this Agreement and each other agreement, document and instrument delivered by Borrower or any other Person to Lender or by Lender to any other Person in connection with the Obligations, the Loans, the Notes, or any other Indebtedness payable to Lender in connection with the transactions contemplated by this Agreement, as the same may be amended, modified, supplemented, extended or restated from time to time.

 

Loans” means the Revolving Credit (including all Advances thereof) and all other Indebtedness of Borrower to Lender under the terms of this Agreement.

 

10

 

 

“Material” and “Materially” mean a level of significance that (a) if capable of reduction to a monetary amount, would be reasonably expected to exceed $100,000 when aggregated with all other similar matters, and (b) if not capable of reduction to a monetary amount, would have affected any decision of a reasonable business person in Lender’s position as an asset-based lender regarding whether (i) to enter into this Agreement, or (ii) to consummate the transactions contemplated by this Agreement, or (iii) to continue to make Advances to, or to continue to extend the Loans, in whole or in part, to Borrower.

 

“Material Adverse Change” means any: (a) Material adverse change in the business, assets, operations, profits or condition (financial or otherwise), of Borrower; or (b) Material adverse change in the ability of Borrower to pay or perform the Obligations in accordance with their terms; or (c) Material adverse change in the value, collectability or salability of the Collateral taken as a whole; or (d) the occurrence of any event, development, circumstance or condition, or series of events, developments, circumstances or conditions, that has or could reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement or any of the other Loan Documents, or on the perfection or priority of Lender’s security interests in any Collateral; or (e) the occurrence of any event, development, circumstance or condition, or series of events, developments, circumstances or conditions, that has or could reasonably be expected to have a material adverse effect on Lender’s practical realization of any right, power, remedy or privilege inuring to Lender under this Agreement, under any other Loan Document, or under applicable law; or (f) the occurrence of any event, development, circumstance or condition, or series of events, developments, circumstances or conditions, that has or could reasonably be expected to materially impair Lender’s security, materially increase Lender’s risks, or materially impair (i) Borrower’s ability to perform under this Agreement, or (ii) Borrower’s or any other party’s ability to perform under any other Loan Document. The determination of whether a Material Adverse Change has occurred shall be made by Lender in Lender’s sole discretion.

 

“NOLV” means, as to any Property, the expected dollar amount to be realized at an orderly negotiated sale of such Property, net of operating expenses, liquidation expenses, and commissions, as determined by Lender from time to time based on the most recent Qualified Appraisal of such Property.

 

“Note” means a promissory note Authenticated by Borrower and delivered to Lender pursuant to the terms of this Agreement.

 

“Notice of Borrowing” means a certificate in the form of Exhibit A prepared by Borrower.

 

“Obligation” means any Indebtedness, liability, obligation, covenant or duty owed or owing by Borrower to Lender, of any kind or nature, present or future, whether or not evidenced by any note, guaranty, Supporting Obligation or other agreement, document or instrument, whether arising under this Agreement, any other Loan Document or under any other agreement, document, instrument delivered to Lender by Borrower, or by operation of law, whether or not for the payment of money, whether arising in connection with an extension of credit to Borrower or Borrower’s opening, guaranteeing or confirming of a letter of credit, loan, guaranty, indemnification or other financial accommodation, whether direct or indirect (including those acquired by purchase or assignment), absolute or contingent, due or to become due, now or hereafter arising and howsoever acquired including, without limitation, each Loan, Advance, and other Indebtedness payable by Borrower to Lender, all interest payable to Lender with respect to each Loan, Advance and other Indebtedness of Borrower to Lender, and each charge, cost, expense, fee, and other sum chargeable to Borrower under this Agreement, any other Loan Document or any other agreement, document or instrument delivered by Borrower to Lender. The Obligations shall specifically include, but not be limited to (i) Borrower’s obligations to finally and indefeasibly pay to Lender in cash the full principal amounts of all Loans, Notes and other Indebtedness of Borrower to Lender when due, whether upon termination, maturity, demand or acceleration under the terms of the Loan Documents, all interest due and payable thereon, and all fees, costs and expenses payable in connection therewith, and (ii) Borrower’s obligations to perform in full all agreements, covenants and duties of Borrower under the Loan Documents in the manner and at such times as provided by the terms of each such Loan Document.

 

11

 

 

Ordinary Course of Business ” means, with respect to any transaction involving any Person, the ordinary course of such Person’s business, as conducted by such Person in accordance with past practices and undertaken by such Person in good faith and not for the purpose of evading any covenant or restriction in any Loan Document.

 

“Permitted Liens” means:

 

(a) Liens in favor of Lender;

 

(b) Liens existing on the Effective Date that are described in the Disclosure Schedule ;

 

(c) Liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to the provisions of ERISA or Environmental Laws) (i) not yet due and payable or (ii) which are being Properly Contested;

 

(d) claims of materialmen, mechanics, carriers, warehousemen, processors or landlords arising out of operation of law so long as the obligations secured thereby (i) are not past due or (ii) are being Properly Contested;

 

(e) Liens consisting of deposits or pledges made in the ordinary course of business in connection with workers’ compensation, unemployment insurance, social security and similar laws;

 

(f) Liens on equipment (including capital leases) to secure purchase money Indebtedness permitted under Section 8.1 , so long as such security interests do not apply to any property of Borrower other than the equipment so acquired, and the Indebtedness secured thereby does not exceed the cost of such equipment; and

 

(g) Liens in, to or on any Collateral in favor of any creditor of Borrower other than Lender so long and to the extent that such Lien is junior and subordinate to the Lien in, to or on Collateral in favor of Lender pursuant to a subordination agreement executed by Lender.

 

Post-Closing Letter ” means that certain Post-Closing Letter dated on or about the date hereof, between Borrower and Lender.

 

“Person” means an individual, partnership, limited liability company, limited liability partnership, corporation, joint venture, joint stock company, land trust, business trust, unincorporated organization, or Governmental Unit.

 

“Prime Rate” means, at any time, the prime rate published in the “Money Rates” column of The Wall Street Journal at such time, and in the event that The Wall Street Journal is not available at such time, the prime rate published in another publication as determined by Lender in its sole discretion.

 

“Properly Contested” means, with respect to any Indebtedness of Borrower or any Guarantor (each, an “ Obligor ”), (a) the obligation is subject to a bona fide dispute regarding amount or the Obligor’s liability to pay; (b) the obligation is being properly contested in good faith by appropriate proceedings promptly instituted and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d) non-payment could not reasonably be expected to have a Material Adverse Change nor result in forfeiture or sale of any assets of the Obligor; (e) no Lien is imposed on assets of the Obligor, unless bonded and stayed to the satisfaction of Lender; and (f) if the obligation results from entry of a judgment or other order, such judgment or order is stayed pending appeal or other judicial review.

 

12

 

 

“Property” means, with respect to a Person, all of such Person’s tangible and intangible property, assets and interests in property and assets, whether personal, real or mixed, owned on the Effective Date or thereafter acquired.

 

Qualified Appraisal ” means an appraisal conducted in a manner and with such scope and using such methods as are acceptable to Lender by an appraiser selected by, or acceptable to, Lender, the results of which are reasonably acceptable to Lender in all respects.

 

“Receivable” means, with respect to Borrower, each (a) Account, (b) Health-Care-Insurance Receivable, (c) credit card receivable, (d) right to payment under any contract, Document Instrument promissory note, Chattel Paper, or electronic chattel paper, (e) tax refund or right to receive any tax refund, (f) bond or certificate owned or held by Borrower or held for the benefit of Borrower, (g) right to payment for the sale, lease or license of any Inventory, Equipment or General Intangible, (h) policy of insurance issued to or for the benefit of Borrower and each right to payment and Proceeds of such insurance, (i) right to payment in connection with each Investment Property, Deposit Account, book account, credit or reserve, and (j) form of obligation whatsoever owing to Borrower, together with all Instruments, Documents and Certificates of title representing any of the foregoing, and all rights in any merchandise or Goods which any of the same may represent, all files and Records with respect to any collateral or security given by Borrower to Lender in the foregoing, together with all rights, title, security, Supporting Obligations and guarantees with respect to the foregoing, including any right of stoppage in transit, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has or hereafter acquires any interest.

 

“Reportable Event” has the same definition as provided in Title IV of ERISA.

 

“Revolving Credit Limit” means an amount equal to $14,000,000.

 

“Revolving Credit Rate” means a per annum rate of interest determined as follows:

 

(a) for the period commencing on the Effective Date and ending on the first Determination Date (as defined below), equal to the greatest of (a) the sum of the LIBOR Rate plus six and one-quarter percent (6.25%), (b) the sum of the Prime Rate plus three percent (3.00%), and (c) a fixed rate of six and one-half percent (6.50%); and

 

(b) Thereafter, determined from time to time on each Determination Date for the period through (but not including) the immediately succeeding Determination Date, by reference to the following table (the “ Pricing Grid ”) and corresponding to Borrower’s EBITDA calculated as of the last day of the most recently ended calendar month for the consecutive six (6) calendar month period ending on such last day, equal to the greatest of the (a) the sum of the LIBOR Rate plus the applicable percentage in the Pricing Grid, (b) the sum of the Prime Rate plus the applicable percentage in the Pricing Grid, and (c) a fixed rate in the amount of the applicable percentage in the Pricing Grid:

 

Level   Trailing six month EBITDA     LIBOR Rate     Prime Rate     Fixed Rate  
I     $0 to < $600,000       6.25 %     3.00 %     6.50 %
II     >$600,000 and < $1,200,000       5.75 %     2.50 %     6.00 %
III     >$1,200,000       5.25 %     2.00 %     5.50 %

 

13

 

 

The Revolving Credit Rate shall be subject to reduction or increase, as applicable and as set forth in the Pricing Grid, on a monthly basis as of each Determination Date, according to Borrower’s EBITDA as set forth above and as reported in accordance with Section 6.5 . Except as otherwise provided in this paragraph, any increase or reduction in the Revolving Credit Rate provided for herein shall be effective on each Determination Date. Without limiting Lender’s rights to invoke the Default Rate, if (i) the financial statements and the Compliance Certificate of Borrower setting forth EBITDA are not received by Lender by the date required pursuant to Section 6.5 , as applicable, or (ii) an Event of Default occurs and Lender so elects, then, in each case, the Revolving Credit Rate shall be at Level I until such time as such financial statements and Compliance Certificate are received and any Event of Default (whether resulting from a failure to timely deliver such financial statements or Compliance Certificate or otherwise) is waived in writing by Lender. As used herein, “ Determination Date means the first day of the first calendar month after the date on which Borrower provides the Compliance Certificate and financial statements under Section 6.5 for each calendar month, beginning with the calendar month ending December 31, 2016.

 

In the event that any financial statement or Compliance Certificate required by Section 6.5 is shown to be inaccurate (regardless of whether this Agreement or Lender’s commitment to extend Loans and Advances hereunder is in effect when such inaccuracy is discovered), and such inaccuracy, if corrected, would have led to the application of a higher Revolving Credit Rate for any period (an “ Applicable Period ”) than the Revolving Credit Rate applied for such Applicable Period, then (i) Borrower shall immediately deliver to Lender a correct Compliance Certificate for such Applicable Period, (ii) the Revolving Credit Rate for such Applicable Period shall be determined by reference to such Compliance Certificate, and (iii) Borrower shall promptly pay Lender, on demand, the accrued additional interest owing as a result of such increased Revolving Credit Rate for such Applicable Period, which payment shall be promptly applied by Lender in accordance with the terms hereof.

 

“Revolving Credit Termination Date” means the earliest to occur of (a) the third (3rd) anniversary of the Effective Date, (b) the date Lender terminates the Revolving Credit pursuant to Section 9.3(a) , and (c) the date on which repayment of the Revolving Credit, or any portion thereof, becomes immediately due and payable pursuant to Section 9.3(b) .

 

“Sanctioned Country” means a country subject to the sanctions programs identified on the list maintained by OFAC and available at the following website or as otherwise published from time to time: http://www.treas.gov/offices/enforcement/ofac/programs/ .

 

“Settlement Account” means Lender’s account at BMO Harris Bank N.A., Chicago, IL 60603, Account Name: ACF FINCO I LP Concentration Account; Account No. 3098704, ABA No. 071000288, or such other account as Lender may advise Borrower.

 

Significant Holder ” means a Person that directly or indirectly holds ten percent (10%) or more of Borrower’s Equity Interests.

 

“Solvent” means, at any time, with respect to any Person as of any date of determination, that (a) at fair valuations, the sum of such Person’s debts (including contingent liabilities) is less than all of such Person’s assets, (b) such Person is not engaged or about to engage in a business or transaction for which the remaining assets of such Person are unreasonably small in relation to the business or transaction or for which the property remaining with such Person is an unreasonably small capital, (c) such Person has not incurred and does not intend to incur, or reasonably believes that it will not incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise), and (d) such Person is “solvent” or not “insolvent”, as applicable within the meaning given those terms and similar terms under applicable laws relating to fraudulent transfers and conveyances.

 

“Specified Subordinated Creditor” means John R. Keeler, an individual resident of the State of Florida.

 

14

 

 

Specified Subordinated Indebtedness ” means Indebtedness of Borrower owing to Specified Subordinated Creditor, whether under the Specified Subordinated Notes or otherwise, in each case so long as (a) such Indebtedness is subordinated in right of payment to the Obligations pursuant to a subordination agreement in favor of Lender in form and content acceptable to Lender in Lender’s permitted discretion, (b) such Indebtedness is not secured by any Lien on any Collateral, unless specifically consented to by Lender in a subordination agreement, and (c) upon the incurrence of such Indebtedness and after giving effect thereto, no Default or Event of Default shall occur.

 

Specified Subordinated Notes ” means, collectively, the following promissory notes issued by Borrower to the order of Specified Subordinated Creditor: (a) that certain Promissory Note dated January 4, 2006, in the original principal amount of $500,000.00, (b) that certain Promissory Note dated March 6, 2006, in the original principal amount of $500,000.00, (c) that certain Promissory Note dated March 22, 2006, in the original principal amount of $293,300.00, (d) that certain Promissory Note dated March 22, 2006, in the original principal amount of $300,000.00, (e) that certain Promissory Note dated March 31, 2006, in the original principal amount of $200,000.00, (f) that certain Promissory Note dated November 21, 2007, in the original principal amount of $100,000.00, (g) that certain Promissory Note dated July 13, 2013, in the original principal amount of $516,834.00 and (h) any promissory note or other instrument made by Borrower in connection with the Additional Specified Subordinated Indebtedness.

 

Specified Subordination Agreement ” means that certain Subordination Agreement among Lender and the Specified Subordinated Creditor dated on or about the Effective Date.

 

Support Party ” means any Person that has executed and delivered in favor of Lender a validity and support agreement.

 

“to Borrower’s knowledge” , “to the knowledge of Borrower” and all variations and derivations of such terms mean (i) the actual individual and/or collective knowledge of any of Borrower’s (as applicable) directors, officers and senior management (individually and collectively, the “Knowledge Parties” ), after due inquiry by each of the Knowledge Parties, and (ii) the individual and/or collective knowledge of any fact, condition, event, occurrence or circumstance that would have come to the attention of any of the Knowledge Parties in the course of discharging his or her duties as a director, officer, managing partner, manager, partner, member or senior manager of Borrower (as applicable) in a reasonable and prudent manner consistent with sound business practices.

 

“UCC” means the New York Uniform Commercial Code as in effect on the date of this Agreement, and as may be amended or modified after the date of this Agreement; provided, however , in the event that, by reason of mandatory provisions of law, the perfection, the effect of perfection or nonperfection or priority of Lender’s security interest in any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, then the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for the purposes of the provisions hereof relating to perfection, the effect of perfection or nonperfection or priority of Lender’s security interest in such Collateral.

 

“Unfunded Capital Expenditures” means, for any period, the aggregate amount of Capital Expenditures made by Borrower during such period, less the aggregate principal amount of all Indebtedness assumed or incurred by Borrower during such period for the purpose of financing such Capital Expenditures (other than the principal amount of Loans made for the purpose of financing such Capital Expenditures).

 

Vendor ” means a Person that sells In-Transit Inventory to Borrower.

 

Vendor Agreement ” means an agreement between Lender and a Vendor that is in form and substance satisfactory to Lender and pursuant to which, among other things, the parties shall agree upon their relative rights with respect to In-Transit Inventory of Borrower purchased from such Vendor.

 

UCC Definitions . When used in this Agreement, the following terms have the same definitions as provided in Article 9 of the UCC, but for convenience in this Agreement the first letter of all such terms shall be capitalized : “Accession”, “Account”, “Account Debtor” , “Authenticate” (and all derivations thereof), “Certificate Of Title”, “Chattel Paper”, “Commercial Tort Claim”, “Deposit Account”, “Document”, “Equipment”, “General Intangible”, “Goods”, “Health-Care-Insurance Receivable”, “Instrument”, “Inventory”, “Investment Property”, “Letter-Of-Credit Right”, “Proceeds” (as specifically defined in Section 9-102(64) of the UCC) , “Record”, “Secured Party”, “Software” and “Supporting Obligation” .

 

15

 

 

DISCLOSURE SCHEDULE

 

5.1 Organization, Qualification and Structure.
5.1(a) Borrower Jurisdiction.
 
5.1(b) Affiliates.
 
 
 
5.3 Name and Address.
 
 
 
5.4 Location of Collateral.
5.4(a) Location of Collateral Records.
 
5.4(b) Location of Inventory.
 
5.4(c) Location of Equipment.
 
 
5.5 Title; Liens; Permitted Liens.
 
 
 
5.6 Existing Indebtedness.
 
 
 
5.7 Financial Statements.
 
 
 
5.9 General Intangibles, Patents, Trademarks, Copyrights and Licenses.
 
 
 
5.10 Existing Business Relationships.
 
 
 
5.14 Litigation.
 
 
 
5.15 ERISA Matters.
 
 
 
5.17 Environmental Matters.
 
 
 
5.19 Location of Bank and Securities Accounts.
 
 
 
5.21 Capital Structure.
 
 
 
10.4 Notice.

 

  If to Lender:

ACF FinCo I LP
Attn: Ryan Cascade, President
560 White Plains Road, 4th Floor, Suite 400
Tarrytown, NY 10591

Fax: (914) 921-1154

     
   

ACF FinCo I LP
Attn: Oleh Szczupak, Executive Vice President
560 White Plains Road, 4th Floor, Suite 400
Tarrytown, NY 10591

 

Fax: (914) 921-1154

     
  With a copy to:

McGuireWoods LLP

Attn: Anthony Cianciotti, Esq.

1230 Peachtree Street, Suite 2100

Atlanta, GA 30309

Fax: (404) 443-5774

     
  If to Borrower:

John Keeler & Co. Inc.

Attn: Chief Financial Officer

3000 NW 109 Avenue

Miami, FL 33172

Fax: (305) 836-6858

     
  With a copy to:

Frost Brown Todd LLC
Attn: Ronald E. Gold, Esq.

3300 Great American Tower
301 East Fourth Street
Cincinnati, Ohio 45202
Fax: (513) 651-6981

 

 

 

 

EXHIBIT A

NOTICE OF BORROWING

 

ACF FinCo I LP

560 White Plains Road

4th Floor, Suite 400

Tarrytown, NY 10591

 

Re: Request for Advance

 

The undersigned requests the following Advance(s) of the Revolving Credit pursuant to Section 2.1 of the Loan and Security Agreement dated as of August 31, 2016, between ACF FinCo I LP and the undersigned, as the same may be amended, supplemented or otherwise modified (“ Loan Agreement ”). Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Loan Agreement.

 

Revolving Credit: $________________________

 

Please wire the requested Advance(s) to our operating account number ____________________________ at ______________________________________________ in accordance with the following wire instructions:

 

_______________________________________________

 

_______________________________________________

 

_______________________________________________

 

_______________________________________________

 

_______________________________________________

 

_______________________________________________.

 

Please call the undersigned to confirm receipt of this fax at (____) _______.

 

JOHN KEELER & CO. INC.  
     
By:    
Name:    
Title:    

 

 

 

 

EXHIBIT B

 

FORM OF BORROWING BASE CERTIFICATE

 

 

 

 

 

EXHIBIT C

 

FORM OF COMPLIANCE CERTIFICATE

 

 

JOHN KEELER & CO. INC. (“ Borrower ”) hereby certifies to ACF FINCO I LP in accordance with the provisions of the Loan and Security Agreement dated as of August 31, 2016, between ACF FinCo I LP and the undersigned, as the same may be amended, supplemented or otherwise modified (the “ Loan Agreement ”) that:

 

A. General . As of date of this Certificate:

 

  Borrower has complied in all respects with all the terms, covenants and conditions of the Loan Agreement;
     
  the representations contained in the Agreement are true, accurate and complete in all respects with the same effect as though such representations and warranties had been made on the date hereof; and
     
  there exists no Default or Event of Default as defined in the Loan Agreement.

 

B. Financial Covenants . As of and for such periods as designated below, the computations, ratios and calculations as set forth below are true, accurate and correct:

 

Unfunded Capital Expenditures as of __________________:__________________

 

Fixed Charge Coverage Ratio as of and for the period ending _____________: ________________________

 

EBITDA for the trailing twelve (12) month period ending ________________: _________________________

 

JOHN KEELER & CO. INC.  
     
By:    
Name:    
Title:    

 

 

 

 

 

 

 

 

FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND

RESERVATION OF RIGHTS

 

THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND RESERVATION OF RIGHTS (this “ Amendment ”) is made and entered into as of November 18, 2016, by and between ACF FINCO I LP , a Delaware limited partnership (“ Lender ”), and JOHN KEELER & CO. INC. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”).

 

Recitals :

 

WHEREAS, Lender and Borrower are parties to a certain Loan and Security Agreement dated as of August 31, 2016 (the “ Loan Agreement ”), pursuant to which Lender has made certain revolving credit loans to Borrower;

 

WHEREAS, an Event of Default has occurred and is continuing under the Loan Agreement;

 

WHEREAS, notwithstanding such Event of Default, Borrower has requested that Lender amend the Loan Agreement to provide for the issuance of letters of credit for the account of Borrower; and

 

WHEREAS, Lender is willing to amend the Loan Agreement on the terms and subject to the conditions as hereinafter set forth;

 

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1. Definitions . All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to such terms in the Loan Agreement.

 

2. Amendments to Loan Agreement . The Loan Agreement is hereby amended as follows:

 

(a) Section 2.1 of the Loan Agreement is amended by adding the following sentence at the end thereof:

 

Borrower acknowledges and agrees that to the extent any portion of the Revolving Credit will be made available to Borrower under any sublimit described in the Revolving Credit Sublimit Schedule (each, a “ Sublimit ”), such Sublimit shall be subject to the terms and conditions of this Agreement applicable to the Revolving Credit and to the additional terms and conditions contained in the Revolving Credit Sublimit Schedule applicable to such Sublimit.

 

(b) Section 2.7 of the Loan Agreement is amended by deleting the last sentence of the first paragraph thereof and by substituting in lieu thereof the following:

 

In the absence of an Event of Default, all funds credited to the repayment of the Obligations will be applied in the following order:

 

(a) to reimburse Lender and/or Issuing Lender, as the case may be, for any L/C Disbursements (or portion thereof) that remain outstanding and unpaid, and to any unpaid interest, fees and expenses in connection therewith;

 

   
 

 

(b) to unpaid fees and expenses;

 

(c) to unpaid interest

 

(d) the outstanding principal balance of the Revolving Credit (including, but not limited to, the outstanding principal balance of any Sublimit if then payable); and

 

(e) to all other Obligations in such order as Lender shall elect.

 

(c) Section 2.9 of the Loan Agreement is amended by deleting the first paragraph thereof and by substituting in lieu thereof the following:

 

2.9 Payment on Termination Date; Termination of Advances. On the Termination Date of the Revolving Credit or any Sublimit, Borrower shall pay to Lender in cash the entire outstanding principal balance of all Advances made pursuant to the Revolving Credit or such Sublimit, as applicable (including, without limitation, any Loans), plus all accrued and unpaid interest thereon and all fees, costs, expenses and other amounts payable to Lender under this Agreement and the other Loan Documents in connection therewith. Lender shall not be obligated to make or continue to extend any Advance to Borrower under the Revolving Credit after the Revolving Credit Termination Date.

 

(d) The Definitions Schedule to the Loan Agreement is amended by deleting the definition of “Advance” contained therein and by substituting the following in lieu thereof:

 

“Advance” means each principal amount of the Revolving Credit delivered to Borrower in connection with a Notice of Borrowing (including each principal amount delivered to Borrower under any Sublimit), the aggregate L/C Exposure, and each other amount charged to the principal of the Revolving Credit pursuant to this Agreement.

 

(e) The Definitions Schedule to the Loan Agreement is further amended by deleting the definition of “Borrowing Base” contained therein and by substituting the following in lieu thereof:

 

“Borrowing Base” means, at any time, an amount equal to:

 

(a) an amount not to exceed eighty-five percent (85%) of the aggregate amount of Eligible Receivables at such time; plus

 

(b) the least of (i) $10,000,000, (ii) seventy-five percent (75%) of the Value of Eligible Inventory at such time, and (iii) eighty-five percent (85%) of the NOLV of Eligible Inventory, less

 

(c) the aggregate amount of all Reserves (including, without limitation, the L/C Exposure Reserve) in effect at such time;

 

provided, however , that the portion of the Borrowing Base calculated on any date with reference to (I) Eligible Inventory shall not exceed seventy-five percent (75%) of the total Borrowing Base, and (II) Eligible In-Transit Inventory shall not exceed $3,500,000.

 

- 2 -  
 

 

For purposes of determining the amount to be advanced against Inventory in calculating the Borrowing Base as described above, the “ Value ” of Inventory shall mean the lesser of cost or the fair market value of such Inventory, and all amounts of an item of Inventory maintained by Borrower at any time exceeding the average amount of such item sold by Borrower during the preceding twelve (12) consecutive calendar months shall be disregarded.

 

(f) The Definitions Schedule to the Loan Agreement is further amended by adding the following definitions thereto in proper alphabetical sequence:

 

Termination Date ” means with respect to the Revolving Credit the Revolving Credit Termination Date, and with respect to any Sublimit of the Revolving Credit, the termination date of such Sublimit as described in the Revolving Credit Sublimit Schedule.

 

(g) Exhibit A to the Loan Agreement (“Notice of Borrowing”) is amended by deleting it in its entirety and by substituting in lieu thereof Exhibit A attached to this Amendment.

 

(h) The Schedules to the Loan Agreement are amended by adding the Revolving Credit Sublimit Schedule attached hereto as Annex 1 immediately following the Definitions Schedule.

 

3. Reservation of Rights . Pursuant to that certain letter dated November 2, 2016 (the “ Notice of Default Letter ”), Lender notified Borrower of (a) the existence of an Event of Default under Section 9.1(c) of the Loan Agreement due to Borrower’s failure to receive (and to deliver evidence to Lender of Borrower’s receipt of) the proceeds of the Additional Specified Subordinated Indebtedness on or before September 30, 2016, as required by Section 7.16(a) of the Loan Agreement (the “ Specified Default ”), and (b) Lender’s election to charge the Default Rate as set forth in the Notice of Default Letter. As a result of the Specified Default, Lender is legally entitled to, among other things: (i) declare all of the Obligations immediately due, payable and performable and to enforce collection of the Obligations by repossessing and disposing of any interest in the Collateral, and to proceed against any and all of Borrower and Guarantor for any deficiency, and (ii) pursue and enforce any and all of its remedies against Borrower, Guarantor, and any Collateral as are more specifically set forth in the Loan Documents or as is otherwise permitted under applicable law. Lender reserves all of its rights and remedies under the Loan Agreement, the other Loan Documents and applicable law.

 

Lender has not agreed to (and has no obligation whatsoever to discuss, negotiate or agree to) any restructuring, modification, amendment, waiver or forbearance with respect to the Obligations or any of the terms of the Loan Documents. The execution and delivery of this Amendment has not established any course of dealing between the parties or created any obligation or agreement of Lender with respect to any future restructuring, modification, amendment, waiver or forbearance with respect to the Obligations or any of the terms of the Loan Documents.

 

Lender’s honoring of any future request for one or more Loans or other Advances under the Loan Agreement will not operate as a waiver of the Specified Default or any other Event of Default or any right or remedy under the Loan Agreement or any of the other Loan Documents and will not be deemed to establish a course of dealing or course of conduct so as to justify any expectation by Borrower that Lender will make future advances during the continuance of any Event of Default (including, but not limited to, the Specified Default).

 

- 3 -  
 

 

4. Ratification and Reaffirmation . Borrower hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower’s covenants, duties, indebtedness and liabilities under the Loan Documents.

 

5. Acknowledgments and Stipulations . Borrower acknowledges and stipulates that the Loan Agreement and the other Loan Documents executed by Borrower are legal, valid and binding obligations of Borrower that are enforceable against Borrower in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by Borrower); the security interests and liens granted by Borrower in favor of Lender are duly perfected, first priority security interests and liens; and the unpaid principal amount of the Loans on and as of November 18, 2016, totaled $7,801,028.70.

 

6. Representations and Warranties . Borrower represents and warrants to Lender, to induce Lender to enter into this Amendment, that no Default or Event of Default exists on the date hereof other than the Specified Default; the execution, delivery and performance of this Amendment have been duly authorized by all requisite corporate action on the part of Borrower and this Amendment has been duly executed and delivered by Borrower; and all of the representations and warranties made by Borrower in the Loan Agreement are true and correct on and as of the date hereof.

 

7. Reference to Loan Agreement . Upon the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” or words of like import shall mean and be a reference to the Loan Agreement, as amended by this Amendment.

 

8. Breach of Amendment . This Amendment shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

 

9. Conditions Precedent . The effectiveness of the amendments contained in Section 2 hereof are subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Lender, unless satisfaction thereof is specifically waived in writing by Lender:

 

(a) Lender shall have received a counterpart of this Amendment duly executed by Borrower and acknowledged by Guarantor;

 

(b) No Default shall exist other than the Specified Default;

 

(c) Lender shall have received such other documents, instruments and agreements as Lender may require; and

 

(d) Borrower shall have paid to Lender the amendment fee referenced in Section 10 hereof.

 

10. Amendment Fee; Expenses of Lender . In consideration of Lender’s willingness to enter into this Amendment and extend the Letter of Credit Sublimit as set forth herein, Borrower agrees to pay to Lender an amendment fee in the amount of $10,000 in immediately available funds on the date hereof. Such fee shall be fully earned when due and non-refundable when paid and Borrower shall be deemed to have requested a Loan for the direct payment of such fee. Borrower also agrees to pay, on demand , all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.

 

- 4 -  
 

 

11. Governing Law . This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York.

 

12. Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

13. No Novation, etc. Except as otherwise expressly provided in this Amendment, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.

 

14. Counterparts; Facsimile Signatures . This Amendment may be executed in any number of counterparts and by different parties to this Amendment on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.

 

15. Further Assurances . Borrower agrees to take such further actions as Lender shall reasonably request from time to time in connection herewith to evidence or give effect to the amendments set forth herein or any of the transactions contemplated hereby.

 

16. Section Titles . Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

 

17. Release of Claims . To induce Lender to enter into this Amendment, Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrower now has or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise. Borrower represents and warrants to Lender that Borrower has not transferred or assigned to any Person any claim that Borrower ever had or claimed to have against Lender.

 

18. Waiver of Jury Trial . To the fullest extent permitted by applicable law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Amendment.

 

[Signature pages follow]

 

- 5 -  
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first written above.

 

LENDER:

 

ACF FINCO I LP
     
By: /s/ John Nooney  
Name: John Nooney  
Its: Managing Director  

 

BORROWER:

 

JOHN KEELER & CO. INC.
     
By: /s/ John Keeler  
Name: John Keeler  
Its: CEO  

 

[First Amendment to Loan and Security Agreement and Reservation of Rights]

 

 

 

CONSENT AND REAFFIRMATION

 

The undersigned guarantor of the Obligations of Borrower at any time owing to Lender hereby (i) acknowledges receipt of a copy of the foregoing First Amendment to Loan and Security Agreement and Reservation of Rights (the “ Amendment ”); (ii) consents to Borrower’s execution and delivery thereof; (iii) agrees to be bound thereby; (iv) affirms that nothing contained therein shall modify in any respect whatsoever its guaranty of the Obligations and reaffirms that such guaranty is and shall remain in full force and effect; and (v) hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Guarantor now has or ever had against Lender arising under or in connection with such guaranty, any of the Loan Documents or otherwise.

 

IN WITNESS WHEREOF, the undersigned has executed this Consent and Reaffirmation as of the date of the Amendment.

 

  /s/John Keeler
  JOHN R. KEELER

 

   
 

 

EXHIBIT A

 

NOTICE OF BORROWING

 

ACF FinCo I LP

560 White Plains Road

4th Floor, Suite 400

Tarrytown, NY 10591

 

Re: Request for Advance

 

The undersigned requests the following Advance(s) of the Revolving Credit pursuant to Section 2.1 of the Loan and Security Agreement dated as of August 31, 2016, between ACF FinCo I LP and the undersigned, as the same may be amended, supplemented or otherwise modified (“ Loan Agreement ”). Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Loan Agreement.

 

Revolving Credit: $ _______________________________  
     
Letters of Credit Sublimit:    
     
Letter of Credit Issued to:    
  Beneficiary: ________________________  
  Address: _________________________ _  
  __________________________________  
  Date of issuance:____________________  
  Number of Letter of Credit amended, renewed or extended:

 

Please wire the requested Advance(s) to our operating account number ____________________________ at ______________________________________________ in accordance with the following wire instructions:

______________________________________________

______________________________________________

______________________________________________

______________________________________________

______________________________________________

______________________________________________

 

Please call the undersigned to confirm receipt of this fax at (____) _______.

 

JOHN KEELER & CO. INC.

 

By:  
Name:  
Title  

 

   
 

 

ANNEX 1

 

REVOLVING CREDIT SUBLIMIT SCHEDULE

 

Letters of Credit Sublimit .

 

Subject to the terms a conditions of this Agreement, until the Revolving Credit Termination Date (the “ L/C Sublimit Termination Date ”), Lender shall provide to Borrower a portion of the Revolving Credit (the “ L/C Sublimit ”) in an aggregate principal amount not to exceed One Million and 00/100 Dollars ($1,000,000.00).

 

(a) L/C Sublimit Definitions . For purposes of this Agreement:

 

(i) “ Issuing Lender ” means Lender or any bank or financial institution selected by Lender in Lender’s sole discretion that issues a Letter of Credit;

 

(ii) “ L/C Disbursement ” means each payment or distribution made by the Issuing Lender to the beneficiary of a Letter of Credit under or in connection with such Letter of Credit;

 

(iii) “ L/C Exposure ” of a Letter of Credit shall mean, at any time, the undrawn face amount of such Letter of Credit at such time (as such face amount may have been reduced after issuance), plus the aggregate amount of all L/C Disbursements in connection with such Letter of Credit that have not been paid or reimbursed to the Issuing Lender at such time;

 

(iv) “ L/C Exposure Reserve ” means with respect to each Letter of Credit, an amount equal to the difference between (a) the stated amount of such Letter of Credit minus (b) the product of (i) the Value of In the Transit Inventory to be paid for with such Letter of Credit multiplied by (ii) the lesser of (A) seventy-five percent (75%) and (B) eighty-five percent (85%) of the NOLV of such In Transit Inventory.

 

(v) “ L/C Sublimit Borrowing Capacity ” means amount equal to One Million and 00/100 Dollars ($1,000,000.00); and

 

(vi) “ Letter of Credit ” means each documentary letter of credit, if any, issued to the account of Borrower under the Revolving Credit as further described in this Revolving Credit Sublimit Schedule.

 

(b) Advances of the L/C Sublimit . Until the date that is 30 days prior to the L/C Sublimit Termination Date (the “ L/C Issuance Expiration Date ”), Borrower may request Lender to issue or cause to be issued under the Revolving Credit one or more Letters of Credit for its own account in such form as is acceptable to Lender and the Issuing Lender (if not Lender) in the Issuing Lender’s or Lender’s sole discretion, respectively. Each Letter of Credit shall constitute an Advance of the Revolving Credit in an amount equal to the face amount of such Letter of Credit at the time of issuance, and in an amount equal to the L/C Exposure attributable to such Letter of Credit thereafter. Each Letter of Credit issued hereunder shall apply to one or more identifiable shipments of In Transit Inventory of Borrower from a point of origin outside of the continental United States, and such Inventory must otherwise satisfy all requirements for Eligible In-Transit Inventory provided for in this Agreement other than the passage of title, which shall occur no later than the date on which such Letter of Credit is presented for payment to Issuing Lender. Without the prior written consent of Lender, in no event shall Borrower make any request for, or Lender recognize any request by Borrower for, the issuance of any Letter of Credit after the L/C Issuance Expiration Date.

 

   
 

 

(c) Requests for Issuance of Letters of Credit; Amendment; Renewal or Extension . Borrower shall deliver to Lender a Notice of Borrowing requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Banking Day) at least [5] Banking Days prior to such date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (in compliance with paragraph (e) , below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit as applicable. Borrower also shall submit a letter of credit application on the Issuing Lender’s standard form in connection with any request for a Letter of Credit or any request to amend, renew or extend a Letter of Credit, and copies of all invoices, purchase orders and shipping documents relating to the Inventory to be covered by such Letter of Credit as Lender and the Issuing Lender may request. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by Borrower to, or entered into by Borrower with, the Issuing Lender relating to any Letter of Credit, the terms and conditions of this Agreement shall control.

 

(d) Limitations on Amounts . A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the L/C Exposure with respect to such Letter of Credit shall not exceed to One Million and 00/100 Dollars ($1,000,000.00), (ii) the issuance, amendment, renewal or extension of such Letter of Credit would not cause the aggregate amount of L/C Exposures under the L/C Sublimit to exceed the L/C Sublimit Borrowing Capacity, and (C) the issuance, amendment, renewal or extension of such Letter of Credit would not cause Obligations under the Revolving Credit to exceed the Revolving Credit Limit.

 

(e) Expiration Date . Each Letter of Credit issued hereunder shall expire at or prior to the close of business on the earlier of (A) the date which is twelve (12) months after the date of the issuance of such Letter of Credit (or, in the case of any amendment, renewal or extension thereof, twelve (12) months after the then current expiration date of such Letter of Credit, so long as such amendment, renewal or extension occurs within three (3) months of such then current expiration date), and (B) the L/C Sublimit Termination Date.

 

(f) Reimbursement . If the Issuing Lender shall make any L/C Disbursement in respect of a Letter of Credit, Borrower shall reimburse the Issuing Lender and/or Lender in respect of such L/C Disbursement as directed by the Issuing Lender and Lender in a joint written instruction, by paying to the Issuing Lender and/or Lender, as so directed, an amount equal to such L/C Disbursement not later than 12:00 noon, Eastern Time, on (A) the Banking Day that Borrower receives notice of such L/C Disbursement, if such notice is received prior to 10:00 a.m., Eastern Time, or (B) the Banking Day immediately following the day that Borrower receives such notice, if such notice is not received prior to such time; provided that , Borrower may, subject to the conditions to borrowing set forth in this Agreement, request in accordance with the applicable provisions of this Agreement that such payment be financed with an Advance of the Revolving Credit in an equivalent amount and, to the extent so financed, Borrower’s obligation to make such payment in connection with an L/C Disbursement shall be discharged and replaced by the resulting Advance. Each such request for an Advance shall be subject to all applicable terms and conditions of this Agreement. With respect to any amount advanced by Lender and required to be reimbursed by Borrower pursuant to the foregoing provisions of this paragraph (f) , Borrower agrees that Lender may charge any such amount to the Revolving Credit on the dates such reimbursement is made.

 

   
 

 

(g) Obligations Absolute . Borrower’s obligation to reimburse L/C Disbursements as provided in paragraph (f) above, shall survive termination of the other provisions of this Agreement, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Lender under a Letter of Credit against presentation of a draft or other document that does not comply strictly with the terms of such Letter of Credit, and (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of Borrower’s obligations hereunder. Neither Lender nor the Issuing Lender, nor any of their Affiliates, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit by the Issuing Lender or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Lender; provided that the foregoing shall not be construed to excuse the Issuing Lender from liability to Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by Borrower to the extent permitted by applicable law) suffered by Borrower that are caused by the Issuing Lender’s gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final, non-appealable judgment) when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. Borrower expressly agrees that:

 

(i) the Issuing Lender may accept documents that appear on their face to be in substantial compliance with the terms of a Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Letter of Credit;

 

(ii) the Issuing Lender shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Letter of Credit; and

 

(iii) unless specifically provided otherwise by the Issuing Lender, this paragraph shall establish the standard of care to be exercised by the Issuing Lender when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by applicable law, any standard of care inconsistent with the foregoing).

 

(h) Disbursement Procedures . The examination of all demands for payment under a Letter of Credit, and the delivery and examination of documents and instruments under a Letter of Credit, and the manner and timing of any L/C Disbursement made in connection therewith, shall be prescribed by the Issuing Lender and any agreement, document or instrument executed by Borrower and delivered to the Issuing Lender in connection with the application for or issuance of a Letter of Credit hereunder.

 

   
 

 

(i) Letter of Credit Fees . Borrower shall pay to Lender or Issuing Lender, as applicable, the following fees in respect of each Letter of Credit: (a) to Lender, an issuance fee of one-quarter of one percent (0.25%) of the face amount of such Letter of Credit, payable on the date of issuance or extension or renewal of such Letter of Credit; (b) to Lender, a letter of credit fee calculated as three percent (3.00%) per annum of the outstanding face amount of the Letters of Credit, payable monthly in arrears on the first day of each calendar month with respect to the immediately preceding calendar month or portion thereof (prorated, as applicable), commencing on the first such date following the issuance of such Letter of Credit, calculated on the basis of a three hundred sixty (360) day year for the actual number of days elapsed; and (c) to Lender (or, if billed directly to Borrower by Issuing Lender, to Issuing Lender), customary amendment, time negotiation, document examination and other administrative processing fees, payable in such amounts and at such times as customarily charged by such Issuing Lender.

 

(j) Schedule; Borrower Acknowledgment . Borrower acknowledges that the above provisions relating to the L/C Sublimit, although set apart in this Schedule, are not intended to and do not set forth all terms, provisions and conditions between Lender and Borrower relating to the L/C Sublimit, that the L/C Sublimit constitutes a portion of the Revolving Credit, and that the L/C Sublimit is subject to all terms, provisions and conditions set forth elsewhere in this Agreement, whether in the body of this Agreement, any Exhibit or any other Schedule, including, but not limited to, all terms, provisions and conditions relating to the Revolving Credit.

 

   
 

 

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “ Amendment ”) is made and entered into as of June 19, 2017, by and between ACF FINCO I LP , a Delaware limited partnership (“ Lender ”), and JOHN KEELER & CO. INC. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”).

 

Recitals :

 

WHEREAS, Lender and Borrower are parties to a certain Loan and Security Agreement dated as of August 31, 2016 (as at any time amended, restated, supplemented or otherwise modified, the “ Loan Agreement ”), pursuant to which Lender has made certain revolving credit loans to Borrower;

 

WHEREAS, Events of Default previously occurred under the Loan Agreement, in response to which Lender and Borrower entered into that certain Forbearance Agreement dated April 4, 2017 (the “ Forbearance Agreement ”);

 

WHEREAS, the Forbearance Agreement expired by its terms on May 15, 2017;

 

WHEREAS, Borrower has requested that Lender waive the Events of Default referenced in the Forbearance Agreement and amend the Loan Agreement; and

 

WHEREAS, Lender is willing to waive such Events of Default and amend the Loan Agreement on the terms and subject to the conditions as hereinafter set forth;

 

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1. Definitions . All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to such terms in the Loan Agreement.

 

2. Amendments to Loan Agreement . The Loan Agreement is hereby amended as follows:

 

(a) Section 3.7 of the Loan Agreement is amended by deleting the second paragraph thereof and by substituting in following in lieu thereof:

 

If prior to the fourth (4th) anniversary of the Effective Date (a) Borrower prepays all Obligations outstanding in full pursuant to the foregoing paragraph, or (b) pursuant to the terms of this Agreement or any other Loan Document, either (i) Lender demands repayment of the outstanding Obligations in whole or in part, or (ii) repayment of the outstanding Obligations are otherwise accelerated in whole or in part, then (c) at the time of such prepayment, repayment, demand or acceleration, and in addition to the principal balance of the Revolving Credit, all accrued and unpaid interest thereon, all fees, costs, expenses and other amounts payable to Lender in connection with the Revolving Credit, and all other Obligations paid to Lender under this Agreement and the other Loan Documents, Borrower shall pay liquidated damages to Lender in an amount equal to the Revolving Credit Limit multiplied by (i) three percent (3.00%) if such prepayment, repayment, demand or acceleration occurs prior to the second (2nd) anniversary of the Effective Date, (ii) one percent (1.00%) if such prepayment, repayment, demand or acceleration occurs on or after the second (2nd) anniversary of the Effective Date but prior to the third (3rd) anniversary of the Effective Date, and (iii) one-half of one percent (0.50%) if such prepayment, repayment, demand or acceleration occurs on or after the third (3rd) anniversary of the Effective Date but prior to the date that is ten (10) calendar days in advance of the fourth (4th) anniversary of the Effective Date.

 

     
     

 

(b) Section 8.19(b) of the Loan Agreement is amended by deleting the table contained therein and by substituting the following in lieu thereof:

 

Test Date   Amount  
June 30, 2017   $ 1,200,000  
July 31, 2017   $ 1,200,000  
August 31, 2017   $ 1,200,000  
September 30, 2017   $ 1,000,000  
October 31, 2017   $ 1,000,000  
November 30, 2017   $ 1,000,000  
December 31, 2017   $ 850,000  
January 31, 2018   $ 850,000  
February 28, 2018   $ 850,000  
March 31, 2018   $ 650,000  
April 30, 2018   $ 650,000  
May 31, 2018   $ 650,000  
June 30, 2018   $ 650,000  
July 31, 2018   $ 550,000  
August 31, 2018 and the last day of each month thereafter   $ 450,000  

 

(c) The Definitions Schedule to the Loan Agreement is amended by deleting from the definition of “Eligible Receivables” clause (j) contained therein and by substituting the following in lieu thereof:

 

(j) any portion of the Eligible Receivables of the Account Debtor and/or its Affiliates exceeds twenty percent (20%) of the total amount of all Eligible Receivables, then the amount of such excess shall be treated as ineligible; provided, however , such percentage shall be (i) fifty percent (50%) with respect to US Foods Holding Company and its Affiliates and (ii) thirty percent (30%) with respect to Performance Food Group Company and its Affiliates;

 

(d) The Definitions Schedule to the Loan Agreement is further amended by adding to the definition of “Revolving Credit Rate” the following new sentence at the end of the paragraph immediately following the Pricing Grid in clause (b) thereof:

 

Notwithstanding the foregoing, at no time shall the Revolving Credit Rate be calculated with reference to Level II or Level III of the Pricing Grid if, at such time, (A) the balance of prepaid deposits in respect of Borrower’s purchase of Inventory from Bacolod exceeds $650,000, or (b) the portion of the Borrowing Base consisting of Eligible Receivables owing by US Foods Holding Company and its Affiliates exceeds forty percent (40%) of the total amount of all Eligible Receivables.

 

  - 2 -  
     

 

(e) The Definitions Schedule to the Loan Agreement is further amended by deleting the definition of “Revolving Credit Termination Date” contained therein and by substituting the following in lieu thereof:

 

“Revolving Credit Termination Date” means the earliest to occur of (a) the fourth (4th) anniversary of the Effective Date, (b) the date Lender terminates the Revolving Credit pursuant to Section 9.3(a) , and (c) the date on which repayment of the Revolving Credit, or any portion thereof, becomes immediately due and payable pursuant to Section 9.3(b) .

 

(f) The Revolving Credit Sublimit Schedule to the Loan Agreement is amended by deleting the definition of “L/C Sublimit Borrowing Capacity” in clause (a)(v) contained under the heading “Letters of Credit Sublimit” and by substituting the following in lieu thereof:

 

(v) “ L/C Sublimit Borrowing Capacity ” means an amount equal to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00); and

 

3. Limited Waiver of Default . Events of Default have occurred and currently exists under the Loan Agreement as a result of (a) Borrower’s failure to receive (and to deliver to evidence to Lender of Borrower’s receipt of) the proceeds of the Additional Specified Subordinated Indebtedness on or before September 30, 2016, as required by Section 7.16(a) of the Loan Agreement; (b) Borrower’s failure to achieve a Fixed Charge Coverage Ratio of at least 1.10 to 1.00 for the six (6) month period ending December 31, 2016, the seven (7) month period ending January 31, 2017, the eight (8) month period ending February 28, 2017, and the nine (9) month period ending March 31, 2017, in each case as required under Section 8.21 of the Loan Agreement (collectively, the “ Specified Defaults ”). The Specified Defaults are the only Defaults or Events of Default that exists under the Loan Agreement and the other Loan Documents as of the date hereof. Subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, Lender hereby waives the Specified Defaults. In no event shall such waiver be deemed to constitute a waiver of (a) any Default or Event of Default other than the Specified Defaults or (b) Borrower’s obligation to comply with all of the terms and conditions of the Loan Agreement and the other Loan Documents from and after the date hereof. Notwithstanding any prior, temporary mutual disregard of the terms of any contracts between the parties, Borrower hereby agrees that it shall be required strictly to comply with all of the terms of the Loan Documents on and after the date hereof.

 

4. Ratification and Reaffirmation . Borrower hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower’s covenants, duties, indebtedness and liabilities under the Loan Documents.

 

5. Acknowledgments and Stipulations . Borrower acknowledges and stipulates that the Loan Agreement and the other Loan Documents executed by Borrower are legal, valid and binding obligations of Borrower that are enforceable against Borrower in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by Borrower); the security interests and liens granted by Borrower in favor of Lender are duly perfected, first priority security interests and liens; and the unpaid principal amount of the Loans on and as of June 19, 2017, totaled $7,878,875.98.

 

  - 3 -  
     

 

6. Representations and Warranties . Borrower represents and warrants to Lender, to induce Lender to enter into this Amendment, that (after giving effect to this Amendment) no Default or Event of Default exists on the date hereof; the execution, delivery and performance of this Amendment have been duly authorized by all requisite corporate action on the part of Borrower and this Amendment has been duly executed and delivered by Borrower; and all of the representations and warranties made by Borrower in the Loan Agreement are true and correct on and as of the date hereof, except to the extent such representations and warranties were specific to a prior date, in which case, such representations and warranties were true and correct on and as of such prior date.

 

7. Reference to Loan Agreement . Upon the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” or words of like import shall mean and be a reference to the Loan Agreement, as amended by this Amendment.

 

8. Breach of Amendment . This Amendment shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

 

9. Conditions Precedent . The effectiveness of the amendments contained in Section 2 hereof and limited waiver contained in Section 3 hereof are subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Lender, unless satisfaction thereof is specifically waived in writing by Lender:

 

(a) Lender shall have received a counterpart of this Amendment duly executed by Borrower and acknowledged by Guarantor;

 

(b) No Default or Event of Default shall exist after giving effect to this Amendment;

 

(c) Lender shall have received such other documents, instruments and agreements as Lender may require; and

 

(d) Borrower shall have paid to Lender the amendment fee referenced in Section 10 hereof.

 

10. Amendment Fee; Expenses of Lender . In consideration of Lender’s willingness to enter into this Amendment and waive the Specified Defaults as set forth herein, Borrower agrees to pay to Lender an amendment fee in the amount of $25,000 in immediately available funds on the date hereof. Such fee shall be fully earned when due and non-refundable when paid and Borrower shall be deemed to have requested a Loan for the direct payment of such fee. Borrower also agrees to pay, on demand , all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.

 

11. Governing Law . This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York.

 

12. Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

13. No Novation, etc. Except as otherwise expressly provided in this Amendment, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.

 

  - 4 -  
     

 

14. Counterparts; Facsimile Signatures . This Amendment may be executed in any number of counterparts and by different parties to this Amendment on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.

 

15. Further Assurances . Borrower agrees to take such further actions as Lender shall reasonably request from time to time in connection herewith to evidence or give effect to the amendments set forth herein or any of the transactions contemplated hereby.

 

16. Section Titles . Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

 

17. Release of Claims . To induce Lender to enter into this Amendment, Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrower now has or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise. Borrower represents and warrants to Lender that Borrower has not transferred or assigned to any Person any claim that Borrower ever had or claimed to have against Lender.

 

18. Waiver of Jury Trial . To the fullest extent permitted by applicable law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Amendment.

 

[Signature pages follow]

 

  - 5 -  
     

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first written above.

 

LENDER:  
   
ACF FINCO I LP  
   
By: /s/ John Nooney  
Name: John Nooney  
Its: Managing Director  

 

BORROWER:  
   
JOHN KEELER & CO. INC.  
   
By: / s/ John Keeler  
Name: John Keeler  
Its: CEO  

 

[Second Amendment to Loan and Security Agreement]

 

     
     

 

CONSENT AND REAFFIRMATION

 

The undersigned guarantor of the Obligations of Borrower at any time owing to Lender hereby (i) acknowledges receipt of a copy of the foregoing Second Amendment to Loan and Security Agreement (the “ Amendment ”); (ii) consents to Borrower’s execution and delivery thereof; (iii) agrees to be bound thereby; (iv) affirms that nothing contained therein shall modify in any respect whatsoever its guaranty of the Obligations and reaffirms that such guaranty is and shall remain in full force and effect; and (v) hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Guarantor now has or ever had against Lender arising under or in connection with such guaranty, any of the Loan Documents or otherwise.

 

IN WITNESS WHEREOF, the undersigned has executed this Consent and Reaffirmation as of the date of the Amendment.

 

  /s/ John Keeler
  JOHN R. KEELER

 

     
     

 

 

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “ Amendment ”) is made and entered into as of October 16, 2017, by and between ACF FINCO I LP , a Delaware limited partnership (“ Lender ”), and JOHN KEELER & CO. INC. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”).

 

Recitals :

 

WHEREAS, Lender and Borrower are parties to a certain Loan and Security Agreement dated as of August 31, 2016 (as at any time amended, restated, supplemented or otherwise modified, the “ Loan Agreement ”), pursuant to which Lender has made certain revolving credit loans to Borrower; and

 

WHEREAS, Lender and Borrower desire to amend the Loan Agreement on the terms and subject to the conditions as hereinafter set forth.

 

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1. Definitions . All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to such terms in the Loan Agreement.

 

2. Amendments to Loan Agreement . The Loan Agreement is hereby amended as follows

 

(a) Section 8.19(b) of the Loan Agreement is amended by deleting such Section and substituting the following in lieu thereof:

 

(b) Maintain a balance of prepaid deposits in respect of Borrower’s purchase of Inventory from Bacolod that is equal to or exceeds $1,200,000 at all times.

 

(b) The Definitions Schedule to the Loan Agreement is amended by deleting the definition of “Borrowing Base” contained therein and by substituting the following in lieu thereof:

 

“Borrowing Base” means, at any time, an amount equal to:

 

(a) an amount not to exceed eighty-five percent (85%) of the aggregate amount of Eligible Receivables at such time; plus

 

(b) the least of (i) $10,000,000, (ii) seventy-five percent (75%) of the Value of Eligible Inventory at such time, and (iii) eighty-five percent (85%) of the NOLV of Eligible Inventory, less

 

(c) the aggregate amount of all Reserves (including, without limitation, the L/C Exposure Reserve) in effect at such time;

 

provided, however , that the portion of the Borrowing Base calculated on any date with reference to (I) Eligible Inventory shall not exceed seventy-five percent (75%) of the total Borrowing Base, and (II) Eligible In-Transit Inventory shall not exceed $5,000,000.

 

 
 

 

(c) The Definitions Schedule to the Loan Agreement is further amended by deleting from the definition of “Revolving Credit Rate” contained therein the last sentence at the end of the paragraph immediately following the Pricing Grid in clause (b) thereof (which sentence was previously added to clause (b) pursuant to that certain Second Amendment to Loan and Security Agreement dated as of June 19, 2017, between Lender and Borrower).

 

3. Ratification and Reaffirmation . Borrower hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower’s covenants, duties, indebtedness and liabilities under the Loan Documents.

 

4. Acknowledgments and Stipulations . Borrower acknowledges and stipulates that the Loan Agreement and the other Loan Documents executed by Borrower are legal, valid and binding obligations of Borrower that are enforceable against Borrower in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by Borrower); the security interests and liens granted by Borrower in favor of Lender are duly perfected, first priority security interests and liens; and the unpaid principal amount of the Loans on and as of October 16, 2017, totaled $10,188,483.55.

 

5. Representations and Warranties . Borrower represents and warrants to Lender, to induce Lender to enter into this Amendment, that no Default or Event of Default exists on the date hereof; the execution, delivery and performance of this Amendment have been duly authorized by all requisite corporate action on the part of Borrower and this Amendment has been duly executed and delivered by Borrower; and all of the representations and warranties made by Borrower in the Loan Agreement are true and correct on and as of the date hereof, except to the extent such representations and warranties were specific to a prior date, in which case, such representations and warranties were true and correct on and as of such prior date.

 

6. Reference to Loan Agreement . Upon the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” or words of like import shall mean and be a reference to the Loan Agreement, as amended by this Amendment.

 

7. Breach of Amendment . This Amendment shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

 

8. Conditions Precedent . The effectiveness of the amendments contained in Section 2 hereof are subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Lender, unless satisfaction thereof is specifically waived in writing by Lender:

 

(a) Lender shall have received a counterpart of this Amendment duly executed by Borrower and acknowledged by Guarantor;

 

(b) No Default or Event of Default shall exist;

 

(c) Lender shall have received such other documents, instruments and agreements as Lender may require; and

 

(d) Borrower shall have paid to Lender the amendment fee referenced in Section 9 hereof.

 

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9. Amendment Fee; Expenses of Lender . In consideration of Lender’s willingness to enter into this Amendment, Borrower agrees to pay to Lender an amendment fee in the amount of $20,000 in immediately available funds on the date hereof. Such fee shall be fully earned when due and non-refundable when paid and Borrower shall be deemed to have requested a Loan for the direct payment of such fee. Borrower also agrees to pay, on demand , all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.

 

10. Governing Law . This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York.

 

11. Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

12. No Novation, etc. Except as otherwise expressly provided in this Amendment, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.

 

13. Counterparts; Facsimile Signatures . This Amendment may be executed in any number of counterparts and by different parties to this Amendment on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.

 

14. Further Assurances . Borrower agrees to take such further actions as Lender shall reasonably request from time to time in connection herewith to evidence or give effect to the amendments set forth herein or any of the transactions contemplated hereby.

 

15. Section Titles . Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

 

16. Release of Claims . To induce Lender to enter into this Amendment, Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrower now has or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise. Borrower represents and warrants to Lender that Borrower has not transferred or assigned to any Person any claim that Borrower ever had or claimed to have against Lender.

 

17. Waiver of Jury Trial . To the fullest extent permitted by applicable law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Amendment.

 

[Signature pages follow]

 

- 3 -
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first written above.

 

LENDER:

 

ACF FINCO I LP
     
By: /s/ John Nooney  
Name: John Nooney  
Its: Managing Director  

 

BORROWER:

 

JOHN KEELER & CO. INC.  
     
By: /s/ John Keeler  
Name: John Keeler  
Its: CEO  

 

[Third Amendment to Loan and Security Agreement]

 

 
 

 

CONSENT AND REAFFIRMATION

 

The undersigned guarantor of the Obligations of Borrower at any time owing to Lender hereby (i) acknowledges receipt of a copy of the foregoing Third Amendment to Loan and Security Agreement (the “ Amendment ”); (ii) consents to Borrower’s execution and delivery thereof; (iii) agrees to be bound thereby; (iv) affirms that nothing contained therein shall modify in any respect whatsoever its guaranty of the Obligations and reaffirms that such guaranty is and shall remain in full force and effect; and (v) hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Guarantor now has or ever had against Lender arising under or in connection with such guaranty, any of the Loan Documents or otherwise.

 

IN WITNESS WHEREOF, the undersigned has executed this Consent and Reaffirmation as of the date of the Amendment.

 

/s/ John Keeler
  JOHN R. KEELER

 

 
 

 

 

FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “ Amendment ”) is made and entered into as of September 19, 2018, by and between ACF FINCO I LP , a Delaware limited partnership (“ Lender ”), and JOHN KEELER & CO. INC. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”).

 

Recitals :

 

WHEREAS, Lender and Borrower are parties to a certain Loan and Security Agreement dated as of August 31, 2016 (as at any time amended, restated, supplemented or otherwise modified, the “ Loan Agreement ”), pursuant to which Lender has made certain revolving credit loans to Borrower; and

 

WHEREAS, Events of Default currently exist under the Loan Agreement;

 

WHEREAS, Borrower has requested that Lender waive such Events of Default and amend the Loan Agreement; and

 

WHEREAS, Lender is willing to waive such Events of Default and amend the Loan Agreement on the terms and subject to the conditions as hereinafter set forth.

 

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1. Definitions . All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to such terms in the Loan Agreement.

 

2. Amendments to Loan Agreement . The Loan Agreement is hereby amended as follows:

 

(a) Section 3.7 of the Loan Agreement is amended by deleting the second paragraph thereof and by substituting in following in lieu thereof:

 

If prior to the fifth (5th) anniversary of the Effective Date (a) Borrower prepays all Obligations outstanding in full pursuant to the foregoing paragraph, or (b) pursuant to the terms of this Agreement or any other Loan Document, either (i) Lender demands repayment of the outstanding Obligations in whole or in part, or (ii) repayment of the outstanding Obligations are otherwise accelerated in whole or in part, then (c) at the time of such prepayment, repayment, demand or acceleration, and in addition to the principal balance of the Revolving Credit, all accrued and unpaid interest thereon, all fees, costs, expenses and other amounts payable to Lender in connection with the Revolving Credit, and all other Obligations paid to Lender under this Agreement and the other Loan Documents, Borrower shall pay liquidated damages to Lender in an amount equal to the Revolving Credit Limit multiplied by (i) two percent (2.00%) if such prepayment, repayment, demand or acceleration occurs prior to the third (3rd) anniversary of the Effective Date, (ii) one and one half percent (1.50%) if such prepayment, repayment, demand or acceleration occurs on or after the third (3rd) anniversary of the Effective Date but prior to the fourth (4th) anniversary of the Effective Date, and (iii) three quarters of one percent (0.75%) if such prepayment, repayment, demand or acceleration occurs on or after the fourth (4th) anniversary of the Effective Date but prior to the date that is ten (10) calendar days in advance of the fifth (5th) anniversary of the Effective Date.

 

 
 

 

(b) Section 8.21 of the Loan Agreement is amended by deleting such Section and substituting the following in lieu thereof:

 

8.21 Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio as of and for the last day of each calendar quarter, beginning with the calendar quarter ending June 30, 2018, to be less than the amount set forth below for the period corresponding thereto:

 

Period   Ratio
One (1) calendar quarter ending June 30, 2018   1.10 to 1.00
Two (2) calendar quarters ending September 30, 2018   1.10 to 1.00
Three (3) calendar quarters ending December 31, 2018   1.10 to 1.00
Four (4) calendar quarters ending March 31, 2019 and ending on the last day of each calendar quarter thereafter   1.10 to 1.00

 

(c) The Definitions Schedule to the Loan Agreement is amended by deleting from the definition of “Eligible Receivables” clause (a) contained therein and by substituting the following in lieu thereof:

 

(a) more than (i) ninety (90) consecutive calendar days has passed from the original invoice date for such Receivable or (ii) sixty (60) consecutive calendar days (or, solely with respect to any Receivable owing by US Foods Holding Company or its Affiliates, thirty (30) consecutive days) have passed from the original due date for such Receivable; or

 

(d) The Definitions Schedule to the Loan Agreement is further amended by deleting from the definition of “Eligible Receivables” clause (j) contained therein and by substituting the following in lieu thereof:

 

(j) any portion of the Eligible Receivables of the Account Debtor and/or its Affiliates exceeds twenty percent (20%) of the total amount of all Eligible Receivables, then the amount of such excess shall be treated as ineligible; provided, however , such percentage shall be (i) sixty percent (60%) with respect to US Foods Holding Company and its Affiliates and (ii) thirty percent (30%) with respect to Performance Food Group Company and its Affiliates;

 

(e) The Definitions Schedule to the Loan Agreement is further amended by adding to the definition of “Revolving Credit Rate” the following new proviso immediately after the Pricing Grid in clause (b) thereof:

 

; provided , that each applicable percentage in the Pricing Grid shall be increased by one-half percent (0.50%) at any time the portion of the Borrowing Base consisting of Eligible Receivables owing by US Foods Holding Company and its Affiliates exceeds fifty percent (50%) of the total amount of all Eligible Receivables.

 

- 2
 

 

(f) The Definitions Schedule to the Loan Agreement is further amended by deleting the definition of “Revolving Credit Termination Date” contained therein and by substituting the following in lieu thereof:

 

“Revolving Credit Termination Date” means the earliest to occur of (a) the fifth (5th) anniversary of the Effective Date, (b) the date Lender terminates the Revolving Credit pursuant to Section 9.3(a) , and (c) the date on which repayment of the Revolving Credit, or any portion thereof, becomes immediately due and payable pursuant to Section 9.3(b) .

 

3. Limited Waiver of Default . Events of Default have occurred and currently exist under the Loan Agreement as a result of Borrower’s failure to achieve a Fixed Charge Coverage Ratio of at least 1.10 to 1.00 for each of the twelve (12) calendar month periods ending March 31, 2018, April 30, 2018, May 31, 2018 and June 30, 2018, in each case as required under Section 8.21 of the Loan Agreement (collectively, the “ Specified Defaults ”). The Specified Defaults are the only Defaults or Events of Default that exist under the Loan Agreement and the other Loan Documents as of the date hereof. Subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, Lender hereby waives the Specified Defaults. In no event shall such waiver be deemed to constitute a waiver of (a) any Default or Event of Default other than the Specified Defaults or (b) Borrower’s obligation to comply with all of the terms and conditions of the Loan Agreement and the other Loan Documents from and after the date hereof. Notwithstanding any prior, temporary mutual disregard of the terms of any contracts between the parties, Borrower hereby agrees that it shall be required strictly to comply with all of the terms of the Loan Documents on and after the date hereof.

 

4. Ratification and Reaffirmation . Borrower hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower’s covenants, duties, indebtedness and liabilities under the Loan Documents.

 

5. Acknowledgments and Stipulations . Borrower acknowledges and stipulates that the Loan Agreement and the other Loan Documents executed by Borrower are legal, valid and binding obligations of Borrower that are enforceable against Borrower in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by Borrower); the security interests and liens granted by Borrower in favor of Lender are duly perfected, first priority security interests and liens; and the unpaid principal amount of the Loans on and as of August __, 2018, totaled $___________.

 

6. Representations and Warranties . Borrower represents and warrants to Lender, to induce Lender to enter into this Amendment, that (after giving effect to this Amendment) no Default or Event of Default exists on the date hereof; the execution, delivery and performance of this Amendment have been duly authorized by all requisite corporate action on the part of Borrower and this Amendment has been duly executed and delivered by Borrower; and all of the representations and warranties made by Borrower in the Loan Agreement are true and correct on and as of the date hereof, except to the extent such representations and warranties were specific to a prior date, in which case, such representations and warranties were true and correct on and as of such prior date.

 

7. Reference to Loan Agreement . Upon the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” or words of like import shall mean and be a reference to the Loan Agreement, as amended by this Amendment.

 

- 3
 

 

8. Breach of Amendment . This Amendment shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

 

9. Conditions Precedent . The effectiveness of the amendments contained in Section 2 hereof and limited waiver contained in Section 3 hereof are subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Lender, unless satisfaction thereof is specifically waived in writing by Lender:

 

(a) Lender shall have received a counterpart of this Amendment duly executed by Borrower and acknowledged by Guarantor;

 

(b) No Default or Event of Default shall exist after giving effect to this Amendment;

 

(c) Lender shall have received such other documents, instruments and agreements as Lender may require; and

 

(d) Borrower shall have paid to Lender the amendment fee referenced in Section 10 hereof.

 

10. Amendment Fee; Expenses of Lender . In consideration of Lender’s willingness to enter into this Amendment and waive the Specified Defaults as set forth herein, Borrower agrees to pay to Lender an amendment fee in the amount of $10,000 in immediately available funds on the date hereof. Such fee shall be fully earned when due and non-refundable when paid and Borrower shall be deemed to have requested a Loan for the direct payment of such fee. Borrower also agrees to pay, on demand , all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.

 

11. Governing Law . This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York.

 

12. Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

13. No Novation, etc. Except as otherwise expressly provided in this Amendment, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.

 

14. Counterparts; Facsimile Signatures . This Amendment may be executed in any number of counterparts and by different parties to this Amendment on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.

 

15. Further Assurances . Borrower agrees to take such further actions as Lender shall reasonably request from time to time in connection herewith to evidence or give effect to the amendments set forth herein or any of the transactions contemplated hereby.

 

- 4
 

 

16. Section Titles . Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

 

17. Release of Claims . To induce Lender to enter into this Amendment, Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrower now has or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise. Borrower represents and warrants to Lender that Borrower has not transferred or assigned to any Person any claim that Borrower ever had or claimed to have against Lender.

 

18. Waiver of Jury Trial . To the fullest extent permitted by applicable law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Amendment.

 

[Signature pages follow]

 

- 5
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first written above.

 

LENDER:  
     
ACF FINCO I LP  
                                         
By: /s/ John Nooney  
Name: John Nooney  
Its: Managing Director  
     
BORROWER:  
     
JOHN KEELER & CO. INC.  
     
By: /s/ John Keeler  
Name: John Keeler  
Its: CEO  

 

[Fourth Amendment to Loan and Security Agreement]

 

 
 

 

CONSENT AND REAFFIRMATION

 

The undersigned guarantor of the Obligations of Borrower at any time owing to Lender hereby (i) acknowledges receipt of a copy of the foregoing Fourth Amendment to Loan and Security Agreement (the “ Amendment ”); (ii) consents to Borrower’s execution and delivery thereof; (iii) agrees to be bound thereby; (iv) affirms that nothing contained therein shall modify in any respect whatsoever its guaranty of the Obligations and reaffirms that such guaranty is and shall remain in full force and effect; and (v) hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Guarantor now has or ever had against Lender arising under or in connection with such guaranty, any of the Loan Documents or otherwise.

 

IN WITNESS WHEREOF, the undersigned has executed this Consent and Reaffirmation as of the date of the Amendment.

 

  /s/ John Keeler
  JOHN R. KEELER

 

 
 

 

FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “ Amendment ”) is made and entered into as of November 8, 2018, by and between ACF FINCO I LP , a Delaware limited partnership (“ Lender ”), and JOHN KEELER & CO. INC. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”).

 

Recitals :

 

WHEREAS, Lender and Borrower are parties to a certain Loan and Security Agreement dated as of August 31, 2016 (as at any time amended, restated, supplemented or otherwise modified, the “ Loan Agreement ”), pursuant to which Lender has made certain revolving credit loans to Borrower; and

 

WHEREAS, Borrower has informed Lender of the proposed merger (the “ Merger ”) of Borrower with Blue Star Acquisition, Inc., a Florida corporation (“ Merger Sub ”), pursuant to which Borrower will be the surviving entity, and whose sole shareholder and immediate parent would be Blue Star Foods Corp., a Delaware corporation (“ BSFC ”), pursuant to a certain Agreement and Plan of Merger and Reorganization dated November 8, 2018, among BSFC, Merger Sub, Borrower and John R. Keeler (the “ Merger Agreement ”);

 

WHEREAS, the Merger, if consummated, would not be permitted under the Loan Agreement;

 

WHEREAS, Borrower has requested that Lender consent to the Merger and amend the Loan Agreement and Lender is willing to do so on the terms and subject to the conditions as hereinafter set forth.

 

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1. Definitions . All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to such terms in the Loan Agreement.

 

2. Consent . Section 8.2 of the Loan Agreement prohibits Borrower from entering into any transaction or series of transactions that directly or indirectly would constitute a merger. In addition, Section 8.3 of the Loan Agreement prohibits Borrower from changing its ownership structure. Notwithstanding the restrictions contained in Section 8.2 and 8.3 of the Loan Agreement, subject to satisfaction of each of the conditions precedent contained in Section 9 of this Amendment, Lender hereby consents to the consummation of the Merger pursuant to the terms of the Merger Agreement. The consent granted herein relates solely to the matters as specifically described in this Section and nothing in this Amendment is intended or shall be construed as Lender’s consent to any other transaction (including, without limitation, Borrower’s taking or omitting to take any action similar to the aforesaid matter).

 

     
 

 

3. Amendments to Loan Agreement . The Loan Agreement is hereby amended as follows:

 

(a) Section 6.11 of the Loan Agreement is amended by deleting such Section and substituting the following in lieu thereof:

 

6.11. Other Information .

 

(a) Promptly after the sending or filing thereof, copies of any proxy statements, financial statements or reports that Borrower has made generally available to its shareholders; copies of any regular, periodic and special reports or registration statements or prospectuses that Borrower files with the Securities and Exchange Commission or any other Governmental Unit, or any securities exchange; and copies of any press releases or other statements made available by Borrower to the public concerning material changes to or developments in the business of Borrower; and

 

(b) Such other information relating to the financial condition of Borrower, or any Property or Collateral of Borrower in, on or respect to which Lender may have a Lien, as Lender may from time to time reasonably request.

 

(b) Section 8.3 of the Loan Agreement is amended by deleting such Section and substituting the following in lieu thereof:

 

8.3 Change of Management; Change of Control. (a) Allow a change in the ownership structure of Borrower, whether by the issuance, sale, transfer, exchange, assignment or other direct or indirect hypothecation of Equity Interests, or by the issuance of subscriptions, warrants, options, convertible securities, or other rights (fixed, contingent or otherwise), to purchase or otherwise acquire Equity Interests, such that (i) Controlling Equity Holder shall cease to beneficially own and control at least 51% on a fully diluted basis of the economic and voting interests in the Equity Interests of Parent, (ii) Parent ceases to beneficially own and control 100% on a fully diluted basis of the economic and voting interests in the Equity Interests of Borrower, (iii) any Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended) other than the Controlling Equity Holder shall have obtained the power (whether or not exercised) to elect a majority of the members of the Board of Directors (or similar governing body) of Borrower, or (iv) Borrower shall cease to beneficially own and control 100% on a fully diluted basis of the economic and voting interest in the Equity Interests in its subsidiaries (if any), or (b) permit any person other than (i) John R. Keeler to hold the office of executive chairman of Borrower (or to perform the duties generally associated with such office as existing on the Fifth Amendment Date), (ii) Carlos Faria to hold the office of chief executive officer of Borrower (or to perform the duties generally associated with such office as existing on the Fifth Amendment Date), or (iii) Christopher Constable to hold the office of chief financial officer of Borrower (or to perform the duties generally associated with such office as existing on the Effective Date), in each case unless a replacement reasonably acceptable to Lender is appointed within sixty (60) calendar days.

 

(c) Section 8.7 of the Loan Agreement is amended by deleting paragraph (b) thereof.

 

(d) The Definitions Schedule to the Loan Agreement is amended by deleting from the definition of “Collateral” clauses (b) and (c) contained therein and substituting the following in lieu thereof:

 

(b) any real property.

 

- 2 -

 

 

(e) The Definitions Schedule to the Loan Agreement is further amended by deleting from the definition of “Fixed Charge Coverage Ratio” clause (b)(vii) contained therein and substituting the following in lieu thereof:

 

(vii) all taxes (and, for any period prior to the Fifth Amendment Date, any distributions made by Borrower to the holders of its equity interests to enable such holders to pay applicable federal and state income taxes directly attributable to the net income of Borrower) actually paid during such period.

 

(f) The Definitions Schedule to the Loan Agreement is further amended deleting the definition of “Guarantor” contained therein and substituting the following in lieu thereof:

 

Guarantor ” means each of John R. Keeler, Parent and any other Person now or hereafter guaranteeing, endorsing, acting as surety of, or otherwise becoming liable for any Obligations, but excluding a Support Party that has not otherwise also executed a guaranty agreement in favor of Lender.

 

(g) The Definitions Schedule to the Loan Agreement is further amended by adding the following new definitions thereto in proper alphabetical sequence:

 

Controlling Equity Holder ” means John R. Keeler.

 

Fifth Amendment Date ” means November [___], 2018.

 

Parent ” means Blue Star Foods Corp., a Delaware corporation.

 

(h) The Disclosure Schedule to the Loan Agreement is amended by amending and restating disclosure items 5.1, 5.14, 5.19, and 5.21 contained therein as shown on Exhibit A attached hereto.

 

4. Ratification and Reaffirmation . Borrower hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower’s covenants, duties, indebtedness and liabilities under the Loan Documents.

 

5. Acknowledgments and Stipulations . Borrower acknowledges and stipulates that the Loan Agreement and the other Loan Documents executed by Borrower are legal, valid and binding obligations of Borrower that are enforceable against Borrower in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by Borrower); the Liens granted by Borrower in favor of Lender are duly perfected, first priority Liens; and the unpaid principal amount of the Loans on and as of the opening of business on November 8, 2018, totaled $7,425,386.97.

 

6. Representations and Warranties . Borrower represents and warrants to Lender, to induce Lender to enter into this Amendment, that no Default or Event of Default exists on the date hereof; the execution, delivery and performance of this Amendment have been duly authorized by all requisite corporate action on the part of Borrower and this Amendment has been duly executed and delivered by Borrower; and all of the representations and warranties made by Borrower in the Loan Agreement are true and correct on and as of the date hereof, except to the extent such representations and warranties were specific to a prior date, in which case, such representations and warranties were true and correct on and as of such prior date.

 

7. Reference to Loan Agreement . Upon the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” or words of like import shall mean and be a reference to the Loan Agreement, as amended by this Amendment.

 

- 3 -

 

 

8. Breach of Amendment . This Amendment shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

 

9. Conditions Precedent . The effectiveness of the consent contained in Section 2 hereof and amendments contained in Section 3 hereof are subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Lender, unless satisfaction thereof is specifically waived in writing by Lender:

 

(a) Lender shall have received:

 

(i) a counterpart of this Amendment duly executed by Borrower and acknowledged by Guarantors;

 

(ii) true, correct and complete copies of (A) the Merger Agreement (including all disclosure schedules), (B) Borrower’s officer’s closing certificate delivered in connection therewith, and (C) Parent’s officer’s closing certificate delivered in connection therewith;

 

(iii) a true, correct and complete copy of the Articles of Merger filed with the Secretary of State of the State of Florida (and promptly upon receipt thereof, a file-stamped copy from such Secretary of State);

 

(iv) a guaranty, pledge agreement, and security agreement each duly executed by Parent (collectively, the “ Parent Loan Documents ”);

 

(v) a certificate of the secretary of Parent, to which is attached (A) Parent’s certificate of incorporation, certified by the Secretary of State of the State of Delaware as of a recent date, (B) Parent’s by-laws, (C) resolutions of the board of directors of Parent authorizing entry into the Parent Loan Documents, and (D) the names, titles and specimen signatures of the officers of Parent authorized to execute and deliver the Parent Loan Documents on behalf of Parent, and (E) a good standing certificate for Parent issued by the Secretary of State of the State of Delaware as of a recent date;

 

(vi) a certificate of secretary of Borrower, which (A) certifies that there have been no changes to the articles of incorporation or by-laws of Borrower since the Effective Date, and (B) attaches (1) resolutions of the board of directors of Borrower authorizing entry into the Merger and this Amendment, (2) the names, titles and specific signatures of the officers of Borrower authorized to execute and deliver this Amendment and any other Loan Documents on behalf of Borrower, and (3) a good standing certificate for Borrower issued by the Secretary of State of the State of Florida as of a recent date;

 

(vii) a wire transfer in immediately available funds in an amount not less than $725,000 (consisting of proceeds of a capital contribution by Parent in Borrower) for application to repayment of the Loans then outstanding;

 

(b) No Default or Event of Default shall exist after giving effect to this Amendment; and

 

(c) Lender shall have received such other documents, instruments and agreements as Lender may require.

 

- 4 -

 

 

10. Additional Covenant . To induce Lender to enter into this Amendment, Borrower covenants and agrees to deliver to Lender:

 

(a) Within thirty (30) days after the date hereof, the original stock certificates issued by Borrower to Parent upon consummation of the Merger together with an irrevocable stock power executed in blank; and

 

(b) Within ninety (90) days after the date hereof, evidence of Parent’s receipt of an amount not less than $250,000 in gross proceeds from the sale of its equity interest.

 

11. Expenses of Lender . Borrower agrees to pay, on demand , all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.

 

12. Governing Law . This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York.

 

13. Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

14. No Novation . Except as otherwise expressly provided in this Amendment, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.

 

15. Counterparts; Facsimile Signatures . This Amendment may be executed in any number of counterparts and by different parties to this Amendment on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.

 

16. Further Assurances . Borrower agrees to take such further actions as Lender shall reasonably request from time to time in connection herewith to evidence or give effect to the amendments set forth herein or any of the transactions contemplated hereby.

 

17. Section Titles . Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

 

18. Release of Claims . To induce Lender to enter into this Amendment, Borrower hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrower now has or ever had against Lender arising under or in connection with any of the Loan Documents or otherwise. Borrower represents and warrants to Lender that Borrower has not transferred or assigned to any Person any claim that Borrower ever had or claimed to have against Lender.

 

19. Waiver of Jury Trial . To the fullest extent permitted by applicable law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Amendment.

 

[Signature pages follow]

 

- 5 -

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first written above.

 

LENDER:

 

ACF FINCO I LP  
     
By: /s/ John Nooney  
Name: John Nooney  
Its: Managing Director  
     
BORROWER:  
     
JOHN KEELER & CO. INC.  
     
By: /s/John Keeler  
Name: John Keeler  
Its: Executive Chairman  

 

[Fifth Amendment to Loan and Security Agreement]

 

     
 

 

CONSENT AND REAFFIRMATION

 

Each of the undersigned guarantors of the Obligations of Borrower at any time owing to Lender hereby (i) acknowledges receipt of a copy of the foregoing Fifth Amendment to Loan and Security Agreement (the “ Amendment ”); (ii) consents to Borrower’s execution and delivery thereof; (iii) agrees to be bound thereby; (iv) affirms that nothing contained therein shall modify in any respect whatsoever such guarantor’s guaranty of the Obligations and reaffirms that such guaranty is and shall remain in full force and effect; and (v) hereby releases, acquits and forever discharges Lender, and all officers, directors, agents, employees, successors and assigns of Lender, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that such guarantor now has or ever had against Lender arising under or in connection with such guaranty, any of the Loan Documents or otherwise.

 

IN WITNESS WHEREOF, each of the undersigned has executed this Consent and Reaffirmation as of the date of the Amendment.

 

  /s/ John Keeler
  JOHN R. KEELER
     
  BLUE STAR FOODS CORP.
     
  By: /s/ John Keeler
  Name: John Keeler
  Title: Executive Chairman

 

     
 

 

 

REVOLVING CREDIT NOTE

 

August 31, 2016
$14,000,000.00 Tarrytown, New York

 

FOR VALUE RECEIVED, John Keeler & Co. Inc. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”), promises to pay to the order of ACF FINCO I LP , a Delaware limited partnership (“ Lender ”), at 560 White Plains Road, 4 th Floor, Suite 400, Tarrytown, New York 10591 or at such other place as Lender may from time to time in writing designate, the principal sum of each Advance made by Lender to Borrower under that certain Loan and Security Agreement dated on or about the date hereof between Borrower and Lender (together with all Exhibits and Schedules thereto, as the same may be subsequently amended, extended, restated or otherwise modified, the “ Loan Agreement ”). The aggregate unpaid principal balance hereof shall not exceed at any time the sum of Fourteen Million and 00/Dollars ($14,000,000.00). Unless defined herein, capitalized terms shall have the meanings given such terms in the Loan Agreement.

 

The entire unpaid principal balance of this Revolving Credit Note (this “Note”), all accrued and unpaid interest thereon, all fees, costs and expenses payable in connection with the Revolving Credit, and all other sums due hereunder and under the Loan Documents in connection with the Revolving Credit, shall be due and payable in cash IN FULL on the Revolving Credit Termination Date.

 

Borrower shall pay interest on the outstanding principal amount of this Note to Lender until all Obligations with respect to this Note and the Revolving Credit have been finally and indefeasibly paid to Lender in cash and performed in full. Interest shall accrue daily on the daily unpaid principal amount of this Note, and Borrower shall pay interest to Lender monthly in arrears commencing on the first Banking Day of the calendar month immediately following the Effective Date and on the first Banking Day of each calendar month thereafter. The principal balance of this Note shall bear interest at the rate set forth in Section 3.1 of the Loan Agreement, unless otherwise provided for by the terms of the Loan Agreement.

 

All repayments or prepayments of principal, all payments of interest and all payments of fees, costs and expenses payable in connection with the Revolving Credit shall be made by Borrower, or credited to the account of Borrower by Lender, pursuant to the terms of the Loan Agreement. Borrower may prepay the indebtedness evidenced by this Note in whole pursuant to, and subject to, the applicable provisions of the Loan Agreement and Loan Documents.

 

This is the “Revolving Credit Note” referred to in the Loan Agreement and is entitled to the benefit of all of the terms and conditions and the security of all of the security interests and liens granted by Borrower or any other person to Lender pursuant to the Loan Agreement, all collateral security agreements executed and/or delivered by Borrower, and all of the other Loan Documents including, without limitation, supplemental provisions regarding mandatory and/or optional prepayment rights and premiums.

 

The entire unpaid Obligations and Indebtedness evidenced by this Note shall become immediately due and payable, without further notice to or demand of Borrower upon the happening of any Event of Default. After an Event of Default, Lender shall have all of the rights and remedies available to Lender as set forth in the Loan Documents, including but not limited to those relating to the enforcement of this Note and the collection of the Obligations owing in connection with this Note and the Revolving Credit.

 

The agreements, covenants, Indebtedness, liabilities and Obligations of Borrower set forth in this Note shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of the Revolving Credit is rescinded or must otherwise be restored or returned by Lender by reason of any bankruptcy, reorganization, arrangement, composition or similar proceeding or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Borrower or any other Person, or any Property of Borrower or any other Person, or otherwise, all as though such payment had not been made.

 

 
     

 

Whenever any payment to be made under this Note shall be stated to be due on a day other than a Banking Day, such payment shall be made on the next succeeding Banking Day and such extension of time shall be included in the computation of any interest then due and payable hereunder.

 

Borrower and all other parties who, at any time, may be liable hereon in any capacity waive presentment, demand for payment, protest and notice of dishonor of this Note. This Note and any provision hereof may not be waived, modified, amended or discharged orally, but only by an agreement in writing which is signed by the holder and the party or parties against whom enforcement of any waiver, change, modification, amendment or discharge is sought.

 

This Note shall be governed by and construed in accordance with the internal laws of the State of New York, as the same may from time to time be in effect, without regard to principles of conflicts of laws thereof. This Note shall be binding upon Borrower, its successors and assigns, and shall inure to the benefit of Lender, its successors and assigns. Lender shall have the right, without the necessity of any further consent of or other action by Borrower, to sell, assign, securitize or grant participations in all or a portion of Lender’s interest in this Note to other financial institutions of Lender’s choice and on such terms as are acceptable to Lender in Lender’s sole discretion. Borrower shall not assign, exchange or otherwise hypothecate any Obligations under this Note or any other rights, liabilities or obligations of Borrower in connection with this Note, in whole or in part, without the prior written consent of the Lender, and any attempted assignment, exchange or hypothecation without such written consent shall be void and be of no effect.

 

[Signature page follows]

 

2
     

 

IN WITNESS WHEREOF, the undersigned has executed this Note on the day and year first above written.

 

  John Keeler & Co. Inc.
     
  By: /s/ John Keeler
  Name: John Keeler
  Title: CEO

 

STATE OF   )    
    ) SS.:    
COUNTY OF   )      

 

On the ___ day of ________________ in the year 2016, before me, the undersigned, a notary public in and for said state, personally appeared _________________________ , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

 

   
  Notary Public

 

[Revolving Credit Note]

 

 
 

 

 

 

PATENT SECURITY AGREEMENT

 

This PATENT SECURITY AGREEMENT (this “ Agreement ”), dated as of August 31, 2016 is made between John Keeler & Co. Inc. , a Florida corporation doing business as Blue Star Foods (“ Borrower ”), and ACF FINCO I LP , a Delaware limited partnership with a place of business at 560 White Plains Road, 4 th Floor, Suite 400, Tarrytown, New York 10591 (“ Lender ”).

 

RECITALS:

 

Borrower has executed and delivered to Lender a Loan and Security Agreement dated on or about the date hereof (the “ Obligation Agreement ”), and other agreements, documents, and instruments contemplated by the transactions contained in the Obligation Agreement. The Obligation Agreement, together with all agreements, documents and instruments executed and/or delivered to Lender by any person in connection therewith, as the same may be amended, restated, extended, replaced or otherwise modified from time to time, shall be referred to collectively as the “ Loan Documents ”. Pursuant to the terms of the Obligation Agreement Borrower is liable for the payment and performance of the “Obligations” (as such term is defined in the Obligation Agreement) as further described therein. Pursuant to the terms of this Agreement Borrower is granting to Lender a security interest in and to the “Patent Collateral” (as defined below) in order to secure repayment of Obligations pursuant to the Obligation Agreement.

 

AGREEMENT:

 

Section 1. Definitions . Unless defined in the introductory paragraph, above, in the Recitals, above, in the body of this Agreement, or in the Exhibits or other Schedules hereto, capitalized terms have the meanings given to such terms in the Loan Documents. Each term defined in the singular shall be interpreted in a collective manner when used in the plural, and each term defined in the plural shall be interpreted in an individual manner when used in the singular.

 

Section 2. Grant of Security Interest . For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, to secure the prompt payment and performance of all of the Obligations to Lender, Borrower does hereby mortgage, pledge and hypothecate to Lender, and grant to Lender for its benefit, first priority liens and security interests in and to, all of the following property, whether now owned or hereafter acquired or existing by Borrower (the “ Patent Collateral ”):

 

(a) all patents and applications for patents now existing anywhere in the world or hereafter adopted or acquired throughout the world, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Patent Office or in any office or agency of the United States of America or any State thereof or any foreign country, including each issued patent and patent application referred to in Exhibit A attached hereto;

 

(b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in paragraph (a) , immediately above;

 

(c) all patent licenses, granted by Borrower in any of the items described in paragraph (a) and paragraph (b) , immediately above, including each patent license referred to in Exhibit B attached hereto; and

 

 
 

 

(d) all proceeds of, and rights associated with, all of the foregoing (including license royalties and proceeds of infringement suits), all claims and rights of Borrower to sue third parties for past, present or future infringement or dilution of any patent or patent application, including any patent or patent application referred to in Exhibit A attached hereto, or for any injury to the goodwill associated with the use of any such patent, and for breach or enforcement of any patent license, including any patent license referred to in Exhibit B attached hereto, and all rights corresponding thereto throughout the world.

 

The security interests and rights, powers, remedies and privileges granted to Lender hereby have been granted as a supplement to, and not in limitation of, the security interests and rights, powers, remedies and privileges granted to Lender for its benefit under the other Loan Documents. The Loan Documents (and all rights, powers, remedies and privileges of Lender thereunder) shall remain in full force and effect in accordance with their terms notwithstanding Borrower’s execution, delivery or performance of this Agreement.

 

Section 3. Perfection . Borrower acknowledges and agrees that this Agreement has been executed and delivered by Borrower for the purpose of registering the security interests of Lender in the Patent Collateral with the United States Patent and Patent Office and corresponding offices in other countries of the world. Borrower further agrees that it will execute and deliver to Lender such security agreements, assignments, and other documents and instruments as Lender may at any time or from time to time reasonably request that are required to perfect or protect the security interests granted to Leader hereby. Borrower shall also cooperate with Lender in obtaining appropriate waivers or subordinations of interests from such third parties in any Patent Collateral as may be required by Lender in its sole and absolute discretion. Borrower authorizes Lender to execute alone any financing statements or other documents or instruments that Lender may require to perfect, protect or establish any lien or security interest granted to Lender by Borrower hereunder and further authorizes Lender to sign Borrower’s name on the same and/or to file or record the same without Borrower’s signature thereon. Borrower hereby appoints Lender as its attorney in fact to execute and deliver notices of lien, financing statements, assignments, and any other documents, notices, and agreements necessary for the perfection of Lender’s security interests in the Patent Collateral. The powers granted to Lender herein, being coupled with an interest, are irrevocable, and Borrower approves and ratifies all acts of the Lender when acting as attorney-in-fact for the limited purposes stated above. In acting in accordance with the terms of this Agreement, Lender shall not be liable for any act or omission, error in judgment or mistake of law when acting as the attorney-in-fact for the limited purposes stated above, except for Lender’s gross negligence or willful misconduct. Borrower agrees to pay the costs of the continuation of Lender’s security interests and releases or assignments of Lender’s interests granted herein.

 

Section 4. Representations and Warranties; Covenants . Borrower represents, warrants and covenants to Lender, and shall be deemed to continually do so, as long as this Agreement shall remain in force, that:

 

(a) Validity and Enforceability . The execution, delivery and performance of this Agreement, and the creation of all security interests, pledges, liens, charges, mortgages or other encumbrances in favor of Lender pursuant to this Agreement are within Borrower’s organizational power, and have been duly authorized by all necessary or proper actions of or pertaining to Borrower (including the consent of directors, officers, managers, partners, shareholders and/or members, as applicable);

 

(b) Title to Patent Collateral . Borrower has good and marketable title to the Patent Collateral as sole owner thereof. There are no existing liens on or other security interests in or to any Patent Collateral, except for liens and security interests in favor of Lender, and security interests of third parties with respect to which Lender has consented to in writing in advance, all of which as of the date hereof are described on Exhibit B attached hereto. Except as set forth on Exhibit B attached hereto, none of the Patent Collateral is subject to any prohibition against encumbering, pledging, hypothecating or assigning the same or requires notice or consent in connection therewith;

 

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(c) No Violation or Restrictions . Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the performance of or compliance with the provisions of this Agreement, will (i) conflict with or result in a breach of any of the terms, covenants, conditions or provisions of Borrower’s Charter Documents, any agreement, indenture, judgment or order to which Borrower is a party or by which Borrower or the Pledged Collateral is bound, or will constitute a default under any of the foregoing, or (ii) result in the creation or imposition of any lien, security interest, charge, mortgage or other encumbrances of any nature whatsoever in, to or on the Pledged Collateral, (iii) violate any order, writ, judgment, injunction, or decree of any court of competent jurisdiction binding on Borrower or its property, or any provision of applicable law, or (iv) require the consent or approval of any Governmental Unit or any other Person that has not been obtained, and each such consent or approval obtained by Borrower has been furnished to Lender prior to the date of this Agreement;

 

(d) Compliance with Law . Borrower is not in violation of any law, ordinance, governmental rule, regulation, order or judgment to which Borrower may be subject which is likely to materially affect the financial condition of Borrower or Borrower’s rights, title and interest in and to the Patent Collateral;

 

(e) Protection of Patent Collateral . Until Full Payment of the Obligations, Borrower will continually take such steps as are necessary and prudent to protect the interests of Lender in the Patent Collateral granted hereunder including, but not limited to, the following:

 

(i) Defend the Patent Collateral against the claims and demands of all other parties and keep the Patent Collateral free of all liens, encumbrances, mortgages or security interests in, on or to any of the Patent Collateral, or in, to or on rights thereto, except for the security interests of Lender pursuant to the terms hereof, and security interests of third parties with respect to which Lender has consented to in writing in advance, all of which as of the date hereof are described on Exhibit B attached hereto, and defend the Patent Collateral against all claims and demands of third parties at any time claiming the same or any interest therein;

 

(ii) Neither directly nor indirectly sell, transfer hypothecate or otherwise dispose of the Patent Collateral or any interest therein, in bulk or otherwise, or grant any Person an option to acquire any right, title or interest in or to all or any portion of the Patent Collateral, or grant any rights in or to the Patent Collateral other than rights to use the Patent Collateral as described in Exhibit B attached hereto, the security interests in the Patent Collateral granted to Lender pursuant to the terms hereof, and non-exclusive licenses to customers, vendors or suppliers in the Ordinary Course of Business of Borrower;

 

(iii) Execute and deliver to Lender such assignments and other documents and do such other things relating to the Patent Collateral and the security interest granted hereunder as Lender may request, and pay all costs of title searches and filing financing statements, assignments and other documents in all public offices requested by Lender;

 

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(iv) Pay all taxes, assessments and other charges of every nature which may be imposed, levied or assessed against the Patent Collateral;

 

(v) Maintain books and records relating to the Patent Collateral satisfactory to Lender and allow Lender or its representatives access to such records and the Patent Collateral at all reasonable times for the purpose of examining, inspecting, verifying, copying, extracting and other reasonable purposes as Lender may reasonably require; and

 

(vi) Maintain the Patent Collateral and the books and records relating to the Patent Collateral at Borrower’s address indicated in the Obligation Agreement.

 

Section 5. Events Of Default . Any of the following events or occurrences shall constitute an “ Event of Default ” under this Agreement:

 

(a) the failure of Borrower to perform or comply with any provision of this Agreement and the continuance of such failure beyond any applicable grace and/or notice period provided for herein, if any;

 

(b) any representation by or on behalf of Borrower contained in this Agreement shall have been breached or otherwise shall have been inaccurate in any material respect when made;

 

(c) Borrower purports to terminate this Agreement; or

 

(d) the occurrence of any “Default” or “Event of Default” under the Obligation Agreement or any other Loan Document (as defined in the respective Loan Document).

 

Section 6. Preservation of Patent Collateral . Borrower agrees that Lender shall not have any obligation to preserve rights to any Patent Collateral against prior parties or to marshal any Patent Collateral of any kind for the benefit of any other creditor of Borrower or any other Person. Lender is hereby granted, effective upon the occurrence and during the continuation of an Event of Default, a license or other right to use, without charge, Borrower’s labels, Patents, patents, copyrights, rights of use of any name, trade secrets, trade names, Patents and advertising matter, or any property of a similar nature, as it pertains to the Patent Collateral, in advertising for sale, lease or license of and selling, leasing or licensing of any Patent Collateral and Borrower’s rights under all licenses and any franchise, sales or distribution agreements shall inure to Lender’s benefit for such purposes.

 

Section 7. Rights and Remedies on Default .

 

(a) Upon the occurrence of any Event of Default, Lender shall have, in addition to all other rights, powers, remedies and privileges granted to Lender under this Agreement (i) all rights, powers, remedies and privileges granted to a secured party in the UCC, and (ii) all rights, powers, remedies and privileges with respect to Collateral granted to Lender under the other Loan Documents, and (iii) all rights, powers, remedies and privileges granted to Lender with respect to the Collateral available under applicable law.

 

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(b) Upon the occurrence of any Event of Default, Lender may, without demand, advertising or notice, all of which Borrower hereby waives (except as the same may be required by law), sell, lease, license, dispose of, deliver and grant options to a third party to purchase, lease, license or otherwise dispose of any and all Patent Collateral at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, at such prices and upon such terms as are commercially reasonable (within the meaning of the UCC). All requirements of reasonable notice that may be applicable under this section shall be met if such notice is mailed, postage prepaid, to Borrower at its address set forth herein or such other address as Borrower may have provided to Lender, in a Record, at least ten (10) days before the time of such sale or disposition. Lender may, if it deems it reasonable, postpone or adjourn any sale of any Patent Collateral from time to time by an announcement at the time and place of the sale to be so postponed or adjourned without being required to give a new notice of sale; provided, however , that Lender shall provide Borrower with written notice of the time and place of such postponed or adjourned sale. Lender may be the purchaser at any such public or private sale, and payment may be made, in whole or in part, in respect of such purchase price by the application of Obligations due from Borrower to Lender. Borrower shall be obligated for, and the proceeds of sale shall be applied first to, the costs of retaking, refurbishing, storing, guarding, insuring, preparing for sale, and selling the Patent Collateral, including the fees and disbursements of attorneys, auctioneers, appraisers, consultants and accountants employed by Lender in its discretion. Proceeds from the sale or other disposition of Patent Collateral shall be applied to the payment, in whatever order Lender may elect, of all Obligations of Borrower. Lender shall return any excess to Borrower. Patent Collateral securing purchase money security interests also secures non-purchase money security interests. Upon request of Lender, following the occurrence of any Event of Default, Borrower will assemble and make the Patent Collateral available to Lender, at a reasonable place and time designated by Lender. Lender’s failure to take possession of any Patent Collateral at any time and place reasonably specified by Lender in a Record to Borrower shall not constitute an abandonment of such Patent Collateral unless specifically acknowledged by Lender in an Authenticated Record delivered to Borrower by Lender.

 

(c) Lender shall not be responsible to Borrower for loss or damage resulting from Lender’s failure to enforce or collect any Patent Collateral or any monies due or to become due under any liability of Borrower to Lender.

 

(d) After an Event of Default, Borrower (i) will make no change in any Patent Collateral, and (ii) shall receive as the sole property of Lender and hold in trust for Lender all monies, checks, notes, drafts, and other property (collectively called “Items of Payment”) representing the proceeds of any Patent Collateral including but not limited to, all royalty and other amounts paid in connection with any lease or license of the Patent Collateral by Borrower to any third party.

 

(e) After an Event of Default, Lender may, but shall be under no obligation to: (i) notify any party that the Patent Collateral, or any part thereof, has been assigned to Lender; (ii) take control of any cash or non-cash proceeds of any item of the Patent Collateral; (iii) compromise, extend or renew any Patent Collateral, or any document or instrument relating thereto, or deal with the same as it may deem advisable; and (iv) make exchanges, substitutions or surrender of items comprising the Patent Collateral.

 

Section 8. Expense of Collection and Sale, Lease or License . Borrower agrees to pay all reasonable costs and expenses incurred by Lender in connection with the negotiation and preparation of this Agreement or any other document or instrument executed in connection herewith, in determining its rights under and enforcing the security interests created by this Agreement, including, without limitation, costs and expenses relating to taking, holding, insuring, preparing for sale, lease, license or other disposition, appraising, selling, leasing, licensing or otherwise realizing on the Patent Collateral, and reasonable attorneys’ fees and expenses in connection with any of the foregoing. All such reasonable costs and expenses shall be payable on demand, and shall bear interest at the highest rate charged on any Obligation, payable on demand, from the date of Lender’s payment of such costs and expenses until payment in full is made by Borrower. The provisions of this Section 8 shall survive termination of the Obligations and the termination of this Agreement.

 

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Section 9. Compliance with Other Laws . Lender may comply with the requirements of any applicable law in connection with a sale, lease, license or other disposition of the Patent Collateral, and Borrower hereby acknowledges and agrees that Lender’s compliance therewith will not be considered to adversely affect the commercial reasonableness of any sale of the Patent Collateral.

 

Section 10. Warranties on Disposition . Upon the occurrence of an Event of Default, Lender may sell, lease, license or otherwise dispose of the Patent Collateral without giving any warranties. Lender may specifically disclaim any warranties of title or the like. Borrower hereby acknowledges and agrees this procedure will not be considered to adversely affect the commercial reasonableness of any sale, lease or license of the Patent Collateral.

 

Section 11. Waiver of Rights by Borrower . Except as may be otherwise specifically provided herein, Borrower waives, to the extent permitted by law, any bonds, security or sureties required by any statute, rule or otherwise by law as an incident to any taking of possession by Lender of any Patent Collateral. Borrower authorizes Lender, upon the occurrence of an Event of Default, to enter upon any premises owned by or leased to Borrower where the Patent Collateral is kept, without obligation to pay rent or for use and occupancy, through self help, without judicial process and without having first given notice to Borrower or obtained an order of any court, and peacefully retake possession thereof by securing at or removing same from such premises.

 

Section 12. Release of Security Interests . Upon Full Payment of the Obligations, Lender shall, at Borrower’s expense, execute and deliver to Borrower all instruments and other documents as may be necessary or proper to release Lender’s liens on and security interests in and to the Patent Collateral that have been granted to Lender hereunder.

 

Section 13. General Provisions .

 

(a) Rights and Remedies Cumulative . Lender’s rights, powers, remedies and privileges under this Agreement shall be cumulative and not alternative or exclusive, irrespective of any other rights, powers, remedies or privileges that may be available to Lender under any other Loan Document, by operation of law or otherwise, and may be exercised by Lender at such time or times and in such order as Lender in Lender’s sole discretion may determine, and are for the sole benefit of Lender. No course of dealing and no delay or failure of Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall (a) affect any other or future exercise thereof, or (b) operate as a waiver thereof, (c) preclude Lender from exercising, or operate as a waiver of, any other right, power, remedy or privilege of Lender under this Agreement or any other Loan Document, or (d) result in liability to Lender or Lender’s Affiliates or their respective members, managers, shareholders, directors, officers, partners, employees, consultants or agents. No single or partial exercise by Lender of any right, power, remedy or privilege under this Agreement or any other Loan Document, or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege, shall preclude any further exercise thereof or of any such other right, power, remedy or privilege.

 

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(b) Reinstatement . Lender’s rights, powers, remedies and privileges under this Agreement, and the agreements, covenants, liabilities and obligations of Borrower set forth in this Agreement (including, but not limited to, all security interests, liens, charges and other encumbrances, granted to Lender under this Agreement), shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of the Obligations is rescinded or must otherwise be restored or returned by Lender by reason of any bankruptcy, reorganization, arrangement, composition or similar proceeding or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Borrower or any other Person, or any Property of Borrower or any other Person, or otherwise, all as though such payment had not been made. Furthermore, to the extent that Borrower, any Support Party or any other Person makes a payment or payments to Lender, or Lender enforces any right, power, remedy, privilege, security interest, lien, charge or other encumbrance, or exercises any right of setoff, granted to Lender under this Agreement or any other Loan Document, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all rights, powers, remedies, privileges, security interests, liens, charges and other encumbrances, granted to Lender under this Agreement, under any other Loan Document, and under applicable law, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.

 

(a) Successors and Assigns . This Agreement is entered into for the benefit of the parties hereto and their successors and assigns and shall be binding upon the parties, their successors and assigns. Lender shall have the right, without the necessity of any consent, authorization or other action by Borrower, to sell, hypothecate, assign, securitize or grant participations in all or a portion of Lender’s interest in the Loans, this Agreement and the other Loan Documents to other financial institutions or other Persons of Lender’s choice and on such terms as are acceptable to Lender in Lender’s sole discretion. Borrower shall not assign, exchange or otherwise hypothecate this Agreement, or any rights, liabilities or obligations under this Agreement, in whole or in part, without the prior written consent of Lender, which consent may be granted or withheld in Lender’s sole discretion, and any attempted assignment, exchange or hypothecation without Lender’s written consent shall be void and be of no effect.

 

(b) Notice . Wherever this Agreement provides for notice to any party (except as expressly provided to the contrary), it shall be given by messenger, facsimile, certified U.S. mail with return receipt requested, or nationally recognized overnight courier with receipt requested, effective when either received or receipt rejected by the party to whom addressed, and shall be addressed as provided below, or to such other address as the party affected may hereafter designate:

 

If to Lender:

ACF FinCo I LP

Attn: Ryan Cascade, President

560 White Plains Road, 4 th Floor, Suite 400

Tarrytown, NY 10591

Fax: (914) 921-1154

   
 

ACF FinCo I LP

Attn: Oleh Szczupak, Executive Vice President

560 White Plains Road, 4 th Floor, Suite 400

Tarrytown, NY 10591

Fax: (914) 921-1154

 

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With a copy to:

McGuireWoods LLP

Attn: Anthony Cianciotti, Esq.

1230 Peachtree Street N.E.

Suite 2100

Atlanta, GA 30309-3534

Fax: (404) 443-5774

   
If to Borrower:

John Keeler & Co. Inc.

3000 NW 109th Avenue

Miami, Florida 33172

Fax: (305) 836-6858

   
With a copy to:

Frost Brown Todd LLC

Ronald E. Gold, Esq.

3300 Great American Tower

301 East Fourth Street

Cincinnati, Ohio 45202

Fax: (513) 651-6981

 

(c) Strict Performance . The failure by Lender at any time to require Borrower’s strict compliance with or performance of any provision of this Agreement shall not waive, affect, impair or diminish any right of Lender thereafter to demand Borrower’s strict compliance with and performance of such provision. Any suspension or waiver by Lender of any Default or Event of Default shall not suspend, waive or affect any other Default or Event of Default, whether the same is prior or subsequent to such suspension or waiver and whether of the same or a different type.

 

(d) Waiver . Borrower waives presentment, protest, notice of dishonor and notice of protest with respect to any Document or Instrument on or for which it may be liable to Lender as maker, endorser, guarantor or otherwise (including but not limited to this Agreement).

 

(e) Construction of Agreement . The parties hereto agree that the terms, provisions and language of this Agreement were the result of negotiations between the parties, and, as a result, there shall be no presumption that any ambiguities in this Agreement shall be resolved against either party. Any controversy over the construction of this Agreement shall be decided without regard to events of authorship or negotiation.

 

(f) Loan Document, etc . This Agreement is a Loan Document executed pursuant to the Obligation Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Obligation Agreement and the other Loan Documents.

 

(g) WAIVER OF RIGHT TO JURY TRIAL . Borrower and Lender recognize that in matters related to the Loans, this Agreement and/or the other Loan Documents, and as each may be subsequently modified and/or amended, either party may be entitled to a trial in which matters of fact are determined by a jury (as opposed to a trial in which such matters are determined by a judge, magistrate, referee or other elected or appointed decider of facts). By executing this Agreement, Lender and Borrower will give up their respective right to a trial by jury. Borrower and Lender each hereby expressly acknowledges that this waiver is entered into to avoid delays, minimize trial expenses, and streamline the legal proceedings in order to accomplish a quick resolution of claims arising under or in connection with this Agreement, the other Loan Documents, the Loan(s), the Note(s) and the transactions contemplated by this Agreement.

 

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(i) WAIVER OF JURY TRIAL . TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT BORROWER OR LENDER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION, ACTION, SUIT OR PROCEEDING, DIRECTLY OR INDIRECTLY, AT ANY TIME ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, ANY LOAN, ANY NOTE, ANY LOAN DOCUMENT OR ANY TRANSACTION CONTEMPLATED BY THIS AGREEMENT, BEFORE OR AFTER MATURITY.

 

(ii) CERTIFICATIONS . BORROWER HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE NOR AGENT OF LENDER NOR LENDER’S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT LENDER WOULD NOT, IN THE EVENT OF ANY LITIGATION, ACTION SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER. BORROWER ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATION HEREIN.

 

(k) Entire Agreement; Amendments; Lender’s Consent . This Agreement (including the Schedules and Exhibits) constitutes the entire agreement between Lender and Borrower with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions between Lender and Borrower, whether express or implied, oral, written, inscribed on a tangible medium or stored in an electronic or other medium, with respect to the subject matter hereof. No amendment or waiver of any provision of this Agreement, nor consent by Lender to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and Authenticated by Borrower and Lender in such writing, and then such amendment, waiver or consent shall be effective only to the extent specifically set forth in such writing. No discussions, negotiations or statements, whether oral, or in electronic or other format, by Lender or between Borrower and Lender with respect to the subject matter of this Agreement or any of the other Loan Document shall be valid and binding against Lender, nor shall the same create a binding obligation on Lender to lend money or to take any other action with respect to the Loans or Borrower, unless the same is reduced to writing and Authenticated by Lender in such writing.

 

(l) Execution in Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.

 

(m) Severability of Provisions . Any provision of this Agreement or any of the other Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or the other Loan Documents or affecting the validity or enforceability of such provision in any other jurisdiction.

 

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(n) Governing Law; Consent To Jurisdiction .

 

(i) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF EACH NOTE DELIVERED PURSUANT HERETO WERE AND ARE DISBURSED FROM THE STATE OF NEW YORK. THE PARTIES AGREE THAT THE STATE OF NEW YORK HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED ENTIRELY IN SUCH STATE WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD RESULT IN A GOVERNING LAW OTHER THAN THE LAW OF THE STATE OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY LAW, LENDER AND BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT OR ANY NOTE ISSUED BY BORROWER TO LENDER IN CONNECTION HEREWITH.

 

(ii) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN THE SOLE OPTION OF LENDER IN ANY FEDERAL OR STATE COURT LOCATED IN WESTCHESTER COUNTY, NEW YORK PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW; HOWEVER, LENDER MAY, AT ITS OPTION, COMMENCE ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION TO OBTAIN POSSESSION OF OR FORECLOSE UPON ANY COLLATERAL, TO OBTAIN EQUITABLE RELIEF OR TO ENFORCE ANY JUDGMENT OR ORDER OBTAINED BY LENDER AGAINST BORROWER OR WITH RESPECT TO ANY COLLATERAL, TO ENFORCE ANY RIGHT, POWER, REMEDY OR PRIVILEGE UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR UNDER APPLICABLE LAW OR TO OBTAIN ANY OTHER RELIEF DEEMED APPROPRIATE BY LENDER, AND LENDER AND BORROWER EACH WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND LENDER AND BORROWER EACH HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER REPRESENTS AND ACKNOWLEDGES THAT IT HAS REVIEWED THIS CONSENT TO JURISDICTION PROVISION WITH ITS LEGAL COUNSEL, AND HAS MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY, WITHOUT COERCION OR DURESS.

 

(o) Table of Contents; Headings . The table of contents and headings preceding the text of this Agreement are inserted solely for convenience of reference and shall not constitute a part of this Agreement or affect its meaning, construction or effect.

 

(p) Exhibits and Schedules . All of the Exhibits and Schedules to this Agreement are hereby incorporated by reference herein and made a part hereof.

 

[Signature page follows]

 

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IN WITNESS WHEREOF , Borrower and Lender have caused this Agreement to be duly executed and delivered by its respective duly authorized officer as of the day and year first above written.

 

BORROWER :  
     
John Keeler & Co. Inc.  
     
By: /s/ John Keeler  
Name: John Keeler  
Title: CEO  
     
LENDER :  
     
ACF FINCO I LP  
     
By: /s/ John Nooney  
Name: John Nooney  
Title: Managing Director  

 

 
 

 

THIS AGREEMENT , Entered into this 1ST day of May, 2001 between JOHN KEELER REAL ESTATEHOLDINGS, INC. Hereinafter called the Lessor, party of the first part, and JOHN KEELER & CO., INC., and of the County of Miami Dade and State of Florida hereinafter called the Lessee or Tenant, party of the second part:

 

WITNESSETH , That the said Lessor does this day lease undo said Lessee, and said Lessee does hereby hire and take as tenant under said Lessor 3000 N.W. 109th Ave., situated at Beacon Industrial Park in Miami, Florida suite # 205 to be used and occupied by the Lessee as office space, for the term of Twenty (20) year(s), subject and conditioned on the provisions of clause tenth of this lease.

 

Lessee shall pay to lessor the following:A. July 1, 2001 through June 30, 2021; US$3,795,000.00 annually, payable in twelve (240) monthly installments of US$15,812.50 plus $1,106.88 sales tax and any other charges pursuant to this lease.

 

DOWN PAYMENT: - July 1st , 2001 US$ 15,812.50

-Security Deposit US$ 10,000.00

TOTAL US$ 25,812.50

 

 

All payments to be made to the Lessor on the first (1) day of each and every month in advance without demand at the office of JOHN KEELER REAL ESTATE HOLDINGS, INC. in the city of Miami, Florida or at such other place and to such other person, as the Lessor may from time to time designate in writing.

 

The following express stipulations and conditions are made a part of this lease and are hereby assented to be the Lessee:

 

FIRST : The Lessee shall not assign this lease, nor sub-let the premises, or any part thereof nor use the same, or any part thereof, nor permit the same, or any part thereof, to be used for any other purpose than as above stipulated, nor make any alterations therein, and additions thereto, without the written consent of the Lessor, and all additions, fixtures or improvements which may be made Lessee, except movable office furniture, shall become the property of the Lessor and remain upon the premises as a part thereof, and be surrendered with the premises at the termination of this lease.

 

SECOND : All personal property placed or moved in the premises above described shall be at the risk of the Lessee or owner thereof, and Lessor shall not be liable for any damage to said personal property, or to the Lessee arising from the bursting of leaking of water pipes, or from any act of negligence of any co-tenant or occupants of the building or any other person whomsoever.

 

THIRD : That the tenant(s) shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention and abatement of nuisances or other grievances, in upon, or connected with said premises during said term; and shall also promptly comply with and execute all rules, orders and regulations of the Southeastern Underwriters Association for the prevention of fires, at his own cost and expense.

 

 
 

 

FOURTH : In the event the premises shall be destroyed or so damage or injured by fire or other casualty during the life of this agreement, whereby the same shall be rendered unatenantable, then the Lessor shall have the right to render said premises tenantable, by repairs within ninety days therefrom. If said premises are not rendered tenantable within said time, it shall be optional with either party hereto to cancel this lease, and in the event of such cancellation the rent shall be paid only to the date of such fire or casualty. The cancellation herein mentioned shall be evidence in writing.

 

FIFTH: The prompt payment of the rent for said premises upon the dates named, and the faithful observance of the rules and regulations printed upon this lease, and which are hereby made a part of this covenant, and of such other and further rules or regulations as made by the Lessor, are the conditions upon which the lease is made and accepted and may failure on the part of the Lessee to comply with the terms of said lease, or any of said lease, or any of said rules and regulations now in existence, or which may be hereafter prescribed by the Lessor, shall at the option of the Lessor, work a forfeiture of this contract, and all of the rights of the Lessee thereunder, and thereupon the Lessor, his agents or attorneys, shall have the right to enter said premises, and remove all persons therefrom forcibly or otherwise, and the Lessee thereby expressly waives any and all notice required bylaw to terminate tenancy, and also waives any and all legal proceedings to recover possession at said premises, and expressly agrees that in the event of a violation of any of the terms of this lease, or of said rules and regulations now in existence, or which may hereafter be made, said Lessor, his agent or attorneys, any immediately re-enter said premises and dispossess Lessee without legal notice or the institution of any legal proceedings whatsoever.

 

The Lessee also waived the right to have a trail by jury .

 

SIXTH : If the Lessee shall abandon or vacate said premises before the end of the term of this lease, or shall sufferthe rent to be in arrears, the Lessor may, at this option, forthwith cancel this lease or he may enter said premises as the agent of the Lessee, by force or otherwise, without being liable in any way therefor, and relate the premises with or without any furniture that may be therein, as the agent the Lessee, at such price and upon such terms and for such duration of time as the lessor may determine, and receive the rent therefor, applying the same to the payment of the rent due by those presents, and if the full rental herein provided shall not be realized by the lessor over and above the expenses to Lessor in such re-letting, the said Lessee shall pay any deficiency, and if more than the full rental is realized Lessor will pay over to said Lessee the excess of demand. The Lessee give up the proprietary rights on any personal and/or Company property if Lessee abandon property for morethan 15 calendar Days from the 1 st day of the month, which rent is due and not pay as a whole or in part by the 5 th calendar day of such said month.

 

SEVENTH : Lessee agrees to pay the cost of collection and (20%) twenty percent attorney’s fee on any part of said rental that may be collected by suit or by attorney, after the same is past due.

 

 
 

 

EIGHTH : The Lessee agrees that he will pay all charges for rent, electricity, and should said charges for rent, herein provided for at any time remain due and unpaid for the space of five days after the same shall have become due, the Lessor may at its option consider the said Lessee tenant at sufferance and immediately re-enter upon said premises and the entire rent for the rental period then next ensuing shall at once be due and payable and may forthwith be collected by distress or otherwise.

 

NINTH : It is hereby agreed and understood between Lessor and Lessee that in the event the Lessor decides to remodel, alter or demolish all or any part of the premises leased hereunder, or in the event of the sale or long term lease of all or any part of the building; requiring this space, the Lessee hereby agrees to vacate same upon receipt of sixty (60) days’ written notice and the return of any advance rental paid on account of this lease.

 

TENTH : The Lessor, or any of his agents, shall have the right to enter said premises during all reasonable hours, to examine the same to make such repairs, additions or alterations as may be deemed necessary for the safety, comfort, or preservation thereof, or of said building, or to exhibit said premises, sand to put or keep upon the doors or windows thereof a notice “FOR RENT” at any time within thirty (30) days before the expiration of this lease. The right of entry shall likewise exist for the purpose of removing placards, signs, fixtures, alternation, or additions, which do not conform to this agreement, or to the rules and regulations of the building.

 

ELEVENTH : Lessee hereby accepts the premises in the condition they are in at the beginning of this lease and agrees to maintain said premises in the same condition, order and repair as they are at the commencement of said term, excepting only reasonable wear and tear arising from the use therefore under this agreement, and to make good to said Lessor immediately upon demand, any damage to water apparatus, or electric lights or any fixtures, appliances or appurtenances of said premises, or of the building, caused by any act or neglect of Lessee, or of any person or persons in the employ or under the control of the Lessee.

 

TWELFTH : It is expressly agreed and understood by and between the parties to this agreement, that the landlord shall not be liable for any damage or injury by water, which may be sustained by the said tenant or other person or for any damage or injury resulting from the carelessness, negligence, or improper conduct of the part of any other tenant or agents, or employees, or by reason of the breakage, leakage, or obstruction of the water, sewer or soil pipes, or other leakage in or about the said building.

 

THIRTEENTH : If the Lessee shall become insolvent or if bankruptcy proceedings shall begun by or against the Lessee, before the end of said term the Lessor is hereby irrevocably authorized at its option, to forthwith cancel this lease, as for a default. Lessor may elect to accept rent from such receiver trustee, or other judicial officer during the term of their occupancy in their fiduciary capacity without affecting Lessor’s rights as contained in this contract, but no receiver, trustee or other judicial officer shall ever have any right, title or interest in or to the above described property by virtue of this contract.

 

FOURTEENTH : This contract shall bind the Lessor and its assigns or successors, and the heirs, assigns, administrators, legal representatives, executors or successors as the case may be, of the Lessee.

 

 
 

 

FIFTEENTH : It is understood and agreed between the parties hereto that time is of the essence of this contract and this applies to all terms and conditions contained herein.

 

SIXTEENTH: It is understood and agreed between the parties hereto that written notice mailed or delivered to the premises leased hereunder shall constitute sufficient notice to the Lessee and written notice to the Lessee and written notice mailed or delivered to the office of the Lessor shall constitute notice to the Lessor, to comply with the terms of this contract.

 

SEVENTEENTH: The rights of the Lessor under the foregoing shall be cumulative, and failure on the part of the Lessor to exercise promptly any rights given hereunder shall not operate to forfeit any of the said rights.

 

EIGHTEENTH: It is further understood and agreed that any signs or advertising to be used, including awnings, in connection with the premises leased hereunder shall be first submitted to the Lessor for approval before installation of same.

 

NINETEENTH : Rent is due the first day of the month and shall be paid on time. Rent received after the 5th day of the month will be considered late, and is subject to a 5% penalty and after the 10th of the month is subject to a 10% penalty. After the 15 th of the month, Lease agreement will be cancel and the Lessor has the right to execute the Lessee’s security deposit as a whole.

 

TWENTIETH: Lessee agrees to comply with all laws and/or ordinance of the City or County, covering the type of business licensed for this location in Florida.

 

TWENTY-FIRST : Tenant agrees to carry no less than $100,000/$300,000 dollars liability insurance naming landlord as additional insured. Proof of such coverage shall be sent to Landlord within 15 days of tenant’s occupancy of the demised premises. It is further understood and agreed that in case of existence of any glass, door window or store front, the Lessee shall secure plate glass insurance coverage and shall the Lessor with the copy of such coverage. In the event that Tenants fails to carry such said insurance, The Landlord Have the right to add 25 % premium to the existing lease rate commencing from the 1 st day of this agreement and compounded month, including said security deposit.

 

TWENTY-SECOND: Tax Increase. In the event that there is any increase during any parts of the term of this lease in the City or County, Real Estate Taxes over and above the amount of such taxes assessed for the year 2001, whether because increased rate or valuation, Lessee shall pay to the Lessor equitable percentage of the Tax Increase valued for square footage that the premises occupied bear (approximately 301.32 Sq. Ft.) and the common areas (approximately Sq. 301.32 Ft.). This shall be paid within 30 days of written notification from Lessor.

 

 
 

 

TWENTY-THIRD : The rent shall not be adjusted on the anniversary month of this lease.

 

TWENTY-FOURTH: Option to Renew. Lessee hereby has an option to renew this lease, provided Lessee is not in default under any of the provisions and conditions of this lease, for an additional -ONE- terms by given written Certified Return Receipt Mail notice of this intention to do so and not less than three (3) months before the end of the current term of the lease. Terms and conditions shall be the same as the original term with the exception of the rent for the additional two terms, which shall be established as stipulated in clause #25 of this contract.

 

TWENTY-FIFTH : Tenant shall not erect or install any exterior or interior window or door signs or advertising media or window or door lettering or placards or any exterior lighting or plumbing fixtures, shades or awnings, or any exterior decoration or painting, or build any fences or make any changes to The store or warehouse front and shall not use any advertising media that shall be deemed objectionable to Landlord or other tenants, such as loudspeakers, phonographs or radio broadcasts in manner to be heard premises, without the previous written consent of Landlord.

 

TWENTY-SIXTH : Rules and Regulations. The Tenant agrees as follows: (a) The delivery, shipping, loading and unloading of merchandise, supplies and fixtures to and from the leased premises shall be subject to such rules and regulations as in the judgment of the landlord are necessary for the proper operation of the leased premises.

 

(b) No aerial shall be erected on the roof or exterior walls of the premises, or on the grounds, without in each instance, the written consent of the Landlord. Any aerial so installed without such written consent shall be subject to removal without notice at any time.

 

(c) The outside areas immediately adjoining the premises shall be kept clean and free from dirt and rubbish by the tenants to the satisfaction of the landlord, and tenant shall not place or permit any obstructions, disable vehicles, equipment or merchandise in such areas. No car repair shall be performed on parking area or inside premises at any time.

 

(d) The plumbing facilities shall not be used for any other purposes than that for which they are constructed, and no foreign substance of any kind shall be thorough therein, and the expenses of any breakage, stoppage, or damage resulting from violation of this provision shall be borne by tenant, who shall, or whose employees agents or invitee shall have caused it.

 

(e) No roof or wall penetrations of any kind will permitted without the written consent of landlord.

 

(f) The only sign tenant is permitted to display, is a ten (10) inches by (3) three Inches sign, on recess part of front door parapet, stating the Company name and any other information tenant wishes to express, following the specific design the landlord chooses in order to maintain uniformity through out the building. A Company selected by the landlord and paid in full and in advance prior to installation by tenant shall install such sign.

 

(g) All premises are NON SMOKING areas.

 

 
 

 

Landlord reserves the right from time to time to amend or supplement the foregoing rules and regulations, and to adopt and promulgate additional rules and regulations applicable to the leased premises. Notice of such rules and regulations, and to adopt and promulgate additional rules and regulations applicable to the leased premises. Notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the tenant.

 

The following are not permitted use of the warehouse at any given time and will constitute a breach of contract:

 

Body Shop or any repair engine of any kind inside or outside the areas.

 

Storage of any chemicals or any other contaminants of pollutants.

 

 

Storage of any illegal drugs for intent to distribute or personal use.

 

IN WITNESS WHEREOF, The parties hereto have hereunto executed this instrument for the purpose herein expressed, the day and year above written.

 

Signed, sealed and delivered in the presence of:

 

_________________________________________________________

WITNESS JOHN KEELER & CO., INC.

Driver License #: _____________________________.

 

____________________________________________________________ __________

WITNESS JOHN KEELER REAL ESTATE HOLDINGS,INC.

PROPERTY MANAGER

Driver License #: _______________________________.

 

 
 

 

 

MASTER Software DEVELOPMENT AGREEMENT

 

This Master Development Agreement, is made as of this 6 th day of February, 2017 (the “Effective Date”), by and between, M/s Blue Star Foods (hereinafter referred as “Customer”), existing under the laws of United States of America, and having its registered office at 3000 NW 109 th Avenue Miami, FL. 33172 USA. and Claritus Management Consulting Pvt. Ltd. a Company incorporated under the Indian Companies Act, 1956, having its registered office at B-18, Lajpat Nagar-III, New Delhi-110024, with its principal place of business at A-27C, 2nd Floor, Sector 16, Noida, U.P., India (“Developer”).

 

1. DEFINITIONS

 

  1.1. “Deliverables” means the software, Programmer Documentation (as defined below), modifications, documentation, and/or other deliverables to be produced by the Developer and delivered to Customer as listed in the applicable Statement of Work and are not subject to a separate license agreement.
     
  1.2. “Statement of Work” (“SOW”) shall mean a written document specifying the Services, applicable fees and other terms, if any applicable to the Services.
     
  1.3. “Intellectual Property Rights” means any patent, copyright, trademark, trade secret, trade dress, mask work, moral right, right of attribution or integrity or other intellectual property or proprietary right arising under the laws of any jurisdiction (including, without limitation, all claims and causes of action for infringement, misappropriation or violation thereof and all rights in any registrations and renewals).
     
  1.4. “Services” means the consultation, software programming and/or other services to be performed by the Developer for the Customer pursuant to this Agreement and in accordance to the details set out in the SOW.
     
  1.5. “Licensed Materials” means a description of any pre-existing original software, or other works of authorship which are owned by the developer and are agreeing not to be included in the deliverables constituting works for hire of Customer and are required or contemplated to be used with the Deliverables.

 

2. SCOPE OF SERVICES

 

From time to time, the Parties shall enter into Statements of Work in the format set forth in Exhibit A (Form of Statement of Work) in respect of services to be provided by the Developer to the Customer pursuant to this Agreement (the “Services”). Each such Statement of Work shall incorporate, and be subject to, the terms and conditions of this Agreement. As of the applicable Service Commencement Date and during the remainder of the term of the applicable Statement of Work, Developer shall provide the Services described in such SOW Customer, subject to (i) the Dependencies as listed in Exhibit ___and (ii) to the performance by Customer of its obligations under this Agreement.

 

     
 

 

3. CHANGES, PAYMENT, AND TAXES

 

  3.1. Fees for Services - The parties agree that Deliverables and/or Services may be provided on either a fixed price (“Fixed Price”) or a time and materials (“T&M”) basis as specified in the applicable SOW.
     
  3.2. Incidental Expenses and Material - Customer shall reimburse Developer for actual and reasonable material(s) and out-of-pocket expenses incurred in conjunction with the provision of Deliverables and/or Services, provided such expenses are pre-approved by the Customer.
     
  3.3. Invoicing and Payment - Developer shall invoice Customer for all fees and charges accrued and all reimbursable expenses incurred upon acceptance of the applicable Deliverables and/or Services in accordance with this Agreement, and Customer shall promptly pay the invoiced amount within Seven (7) days from the date of receipt of such invoice(s).
     
  3.4. Changes to Scope - The scope of Services may only be modified if the Developer specifically consents to the change, scheduling, and additional charges, if any, in writing. All modifications to a specific SOW shall be in writing specifying the necessary changes to the SOW, the expected completion dates and the cost (“Change Order”).
     
  3.5. Taxes - The fee, charges and amounts do not include shipping charges, sales, use, value added, excise, withholding, property or any other taxes or duties assessed in connection with this Agreement. If the Developer is required to pay any state or local taxes based on the Services provided under this Agreement, the taxes will be billed to and paid by the Customer. A customer is not responsible for taxes based on the Developer’s income.
     
  3.6. Acceptance - Deliverables shall be deemed accepted by Customer upon completion of the following acceptance test: (a) Developer shall make the Deliverable available to Customer for testing and notify Customer in writing or via email that the Deliverable is ready for acceptance (a “Ready For Testing Notice”); (b) upon receipt of such notice, Customer shall promptly perform functional testing of the Deliverable; (c) Customer shall within fifteen (15) days either advise Developer that the Deliverable is accepted (an “Acceptance Notice”) or deliver to Developer a written statement of the specific respects in which the Deliverable does not conform to the specifications set forth in the Statement of Work or is otherwise not acceptable (a “Non-Compliance Notice”); (d) upon receipt of a Non-Compliance Notice, Developer shall, at no further cost to the Customer, promptly correct the Deliverable so that it meets such specifications and is otherwise acceptable to Customer, and upon such correction, Developer shall provide another Ready For Testing Notice to Customer; and (e) upon receipt of such notice, Customer shall again perform the acceptance testing. The foregoing procedure shall be repeated until Customer accepts the Deliverable or termination of this Agreement.

 

     
 

 

4. TERM AND TERMINATION

 

  4.1. Term - This Agreement shall commence on the Effective Date and continue until 30 days after the project goes live from the Effective Date and (ii) expiration or termination of the last remaining SOW in effect under such Agreement, unless the Agreement is terminated earlier pursuant to its terms (“Term”).
     
  4.2. Termination for Breach - If either party is in material breach, the other party shall so notify the breaching party in writing, specifying the nature of the breach. The breaching party shall have thirty (30) days from receipt of such notice to correct the breach. If the breach is not cured within that time period, the other party may terminate this Agreement by providing the breaching party with written notice of termination.
     
  4.3. Other Termination - Either party may terminate this Agreement immediately upon the occurrence of any of the following events with respect to the other party: (a) a receiver is appointed for such party or its material assets; (b) such party becomes insolvent, generally unable to pay its debts as they become due, makes an assignment for the benefit of its creditors or seeks relief under any bankruptcy, insolvency or debtor’s relief law; (c) if proceedings are commenced against the other party under any bankruptcy, insolvency or debtor’s relief law, and such proceedings have not been vacated or set aside within 60 days from the date of commencement thereof; or (d) if such party is liquidated or dissolved or otherwise ceases to do business.
     
  4.4. Return of Confidential Information - Upon any termination of this Agreement, each party shall immediately return, or if so requested, destroy all Confidential Information (as defined below) and other property belonging to the requesting party.
     
  4.5. Effect of Termination - Termination of this Agreement shall not limit either party from pursuing any other remedies available to it, including injunctive relief.

 

5. OWNERSHIP: GRANT OF LICENSE

 

  5.1. Customer Content - Any and all artwork, logos, graphics, audio, video, text, data, software, code, domain names and other materials supplied by Customer or its affiliates to Developer in connection with this Agreement, shall remain the sole and exclusive property of Customer or such affiliates, as the case may be (the “Customer Content”). No rights shall be transferred from Customer to Developer with respect to any of the Customer Content or any Intellectual Property Rights therein.
     
  5.2. Licensed Materials - Developer hereby grants to Customer a non-exclusive, non-transferable and perpetual to use, copy and distribute the Licensed Materials. The developer shall grant title to the Licensed Materials.

 

     
 

 

6. DISPUTE RESOLUTION

 

If a dispute cannot be resolved between the parties, either Party may submit the dispute to arbitration as described in this clause.

 

  (a) If either Party opts for resolution of the dispute through arbitration, it will indicate the same to the other Party (the “ Indication of Arbitration ”).
  (b) The Parties shall attempt to amicably settle any claims, dispute and or difference (including a dispute regarding the existence, validity or termination of this Agreement) arising out of, or relating to this Agreement, including interpretation of its terms (the “Dispute”). Either Party may give written notice of the Dispute to the other Party within Ten (10) days of the occurrence of the event which gives rise to such Dispute or such event came to the notice of either Party. Both Parties shall nominate one person to attempt amicable settlement of the Dispute within Five (5) days from the date of the notice under Section 18.2 and such attempt will be commenced immediately. If any Dispute arising between the Parties is not amicably settled within Ten Days (10) of commencement of attempts to settle the same, the Disputes will be referred for adjudication to the arbitration of a sole arbitrator to be appointed by mutual consent of the Parties in accordance with the provisions of the Arbitration and Conciliation Act 1996 and rules made thereunder including any modifications, amendments and future enactments thereto. The venue for the arbitration will be New Delhi. The decision of the arbitrator shall be final and binding on the parties.

 

7. MAINTENANCE AND SUPPORT

 

Developer guarantees that it will make available maintenance and support for the Deliverables for the 30 day period following the acceptance of each such Deliverable by Customer in accordance with the terms hereof. As part of such maintenance and support, Developer shall timely respond and provide a solution to inquiries made by Customer during its normal business hours to find an correct any fault in the Deliverable or the failure of such Deliverable to perform in accordance with the specifications contained in Exhibit A.

 

8. LIMITATION OF LIABILITY

 

  8.1. The aggregate cumulative liability of each Party to the other Party for all losses under this Agreement, whether based upon claim in contract, tort (including negligence), misrepresentation, equity or otherwise, shall not exceed an amount equal to the Fees paid or payable to Developer under the Agreement during the 6 month period immediately preceding the most recent event for which damages are claimed, less any losses previously paid to the other party under this Agreement.

 

     
 

 

  8.2. To the maximum extent permitted by law, neither party will be liable to the other party or any third party for any indirect, incidental, consequential, special, reliance or punitive damages or lost or imputed profits or royalties, lost data or cost of procurement of substitute goods or services, whether for breach of warranty or any obligation arising there from or otherwise, whether liability is asserted in contract or tort (including negligence and strict product liability) and irrespective of whether such party has been advised of the possibility of any such loss or damage.

 

9. CONFIDENTIALITY

 

  9.1 Generals

 

During the Term, each party hereto (the “Disclosing Party”) may disclose to the other party (the “Receiving Party”) information in connection with the performance of this Agreement, including without limitation technical data, trade secrets, plans for products or services, customer or supplier lists, marketing plans, software, source code for software, financial documents or data, and designs which it maintains, and which when provided hereunder, shall be designated in writing or otherwise reasonably identified (including orally) as confidential (“Confidential Information”). Developer and Customer shall use the Confidential Information of the other party solely to perform this Agreement, and all Confidential Information shall remain the sole property of the Disclosing Party. The Receiving Party shall hold the Confidential Information in strict confidence and shall not make any disclosure of the Confidential Information (including methods or concepts utilized in the Confidential Information) to anyone during the Term and for a period of two (2) years thereafter without the express written consent of the Disclosing Party, except to employees, consultants or agents to whom disclosure is necessary to the performance of this Agreement and who have executed a confidentiality agreement with the Receiving Party, or who have been advised of their obligation to maintain the confidentiality of the Confidential Information. Each of the parties shall use the same care as it uses to maintain the confidentiality of its most confidential information, which shall in no event be less than reasonable care. Developer and Customer acknowledge that the remedy at law for any breach or threatened breach of the provisions of this Section shall be inadequate, and that the non-breaching party, in addition to any other remedy available to it, shall be entitled to obtain injunctive relief without proof of irreparable injury and without posting bond.

 

  9.2 Exclusions

 

Notwithstanding the foregoing, the Receiving Party shall have no obligation under this Agreement with respect to any Confidential Information disclosed to it which: (a) the Receiving Party can demonstrate was already known to it at the time of its receipt hereunder; (b) is or becomes generally available to the public other than by means of the Receiving Party’s breach of its obligations under this Agreement; (c) is independently obtained from a third party whose disclosure violates no duty of confidentiality; (d) is independently developed by or on behalf of the Receiving Party without use of or reliance on any confidential Information furnished to it under this Agreement, and such independent development can be reasonably evidenced by the Receiving Party; or (e) is disclosed pursuant to applicable law or regulation or by operation of law, provided that the Receiving Party may disclose only such information as is legally required, and provided further that the Receiving Party shall provide reasonable notice to the Disclosing Party of such requirement and a reasonable opportunity to object to such disclosure.

 

     
 

 

10. INDEPENDENT CONTRACTOR

 

Developer, in performing its obligations under this Agreement, is acting as an independent contractor and shall have exclusive control of the manner and means of performing such obligations. Each party shall be solely responsible for the supervision, daily direction and control of its employees and payment of their salaries (including withholding of appropriate payroll taxes), worker’s compensation, disability, and other benefits. Nothing in this Agreement shall be construed as making either party the agent of the other party, as granting to the other party the right to enter into any contract on behalf of the other party, or as establishing a partnership, franchise or joint venture between the parties. Customer shall not be responsible for, and Developer shall indemnify and hold Customer harmless against, any cost, expense, liability, claim, damages, action or proceeding relating to any payroll related taxes for any person who performs any Services, produces any Deliverables, or provides maintenance, support or training to be performed, produced or provided by Developer hereunder or any claim arising out of or relating to the employment or application for employment of any such person.

 

11. ONSITE SECURITY

 

Each party agrees that its personnel shall comply with reasonable security measures when on the other’s premises.

 

12. COMPLIANCE WITH LAW

 

The developer shall comply with all applicable laws, codes, ordinances, rules and regulations of the federal, state and local governments, and of any and all political subdivisions and regulatory authorities thereof. The developer shall obtain all necessary permits and licenses required in connection with the performance of services hereunder by the developer at its expense.

 

13. MISCELLANEOUS

 

13.1. Force Majeure

 

Neither party shall be deemed in default or otherwise liable for any delay in or failure of its performance under this Agreement by reason of any Act of God, fire, natural disaster, accident, riot, act of government, strike against a third party, shortage of materials or supplies, failure of transportation or communication or of suppliers of goods or services, or any other cause beyond the reasonable control of such party; provided , that during any period in which Developer invokes this Section, Customer shall not be obligated to make any payments to Developer.

 

     
 

 

  13.2. Governing Law; Entire Agreement

 

This Agreement shall be governed by and construed in accordance with the Indian Law and subject to the High Courts of New Delhi will have exclusive jurisdiction.

 

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersede all previous or contemporaneous agreements, proposals, understandings and representations, written or oral, with respect to the terms and conditions hereof. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party.

 

  13.3. Notices

 

All notices, including notices of address changes, required or permitted to be given by either party under this Agreement shall be sent by registered or certified mail or by reputable overnight commercial delivery to the address specified herein by each party.

 

  13.4. Severability

 

In the event that any one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected, or if any one or more of the provisions contained herein shall be held to be excessively broad as to duration, activity or subject, such provision shall be construed by limiting and reducing such provisions so as to be enforceable to the maximum extent compatible with applicable law.

 

  13.5. Waiver

 

The waiver by either party of any default or breach of this Agreement shall not constitute a waiver of any other or subsequent default or breach.

 

  13.6. Assignment

 

Neither party may assign this Agreement or the rights and obligations accruing hereunder without the prior written consent of the other party, except that Customer may so assign (i) in connection with the sale of all or substantially all of its assets, (ii) to the surviving entity in any merger or consolidation, or (iii) to an affiliated company.

 

     
 

 

  13.7. Survival

 

The parties’ rights and obligations under Sections 4.5, 4.6, 5, 7, 8.2, 10, 11, 14 and 15 shall survive expiration or termination of this Agreement.

 

  13.8. Counterparts

 

This Agreement may be executed in separate counterparts, each of which shall be deemed an original (including faxed signatures), and all of which shall be deemed one and the same instrument.

 

  13.9. Headings

 

The headings in this Agreement are used for convenience of reference and shall not be deemed to modify or affect the interpretation of this Agreement.

 

IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed by their respective duly authorized officers or representatives as of the day and year first above written.

 

CLARITUS MANAGEMENT CONSULTING P LTD   BLUE STAR FOODS
     
/s/Maneesh Batra   /s/ John Keeler
Director   CEO
Authorised Signatory   Authorised Signatory

 

     
 

 

 

PROMISSORY NOTE

 

$500,000.00 Miami, Florida
Dated: January 4, 2006

 

FOR VALUE RECEIVED the undersigned, JOHN KEELER & CO, INC., a Florida corporation (hereinafter the “Maker”), promises to pay to the order of JOHN KEELER and MARIA KEELER , or their successors or assigns (hereinafter the “Lender”) at their offices at 3000 NW 109 th Ave, Miami, Florida 33172 , or such other place as the holder hereof may from time to time designate in writing, the principal sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) with interest thereon from the date hereof as hereafter provided under this Note, to be paid in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment; said principal and interest to be paid as follows:

 

The principal balance outstanding shall bear interest from the date hereof at a fixed rate of interest equal to the greater of: (i) Six Percent (6.0%) per annum or (ii) the lowest adequate stated interest rate as shall be required for Lender to report interest income evidenced by this Note, as more particularly provided in the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), and shall be payable upon demand. Interest shall be charged on the actual number of calendar days elapsed.

 

The principal balance outstanding, plus any unpaid, accrued interest, shall be due and payable upon demand.

 

All payments made hereunder shall be applied first to interest, and late charges, if any, and any balance remaining to principal.

 

Maker may make prepayments hereunder, provided however, that in the event of such prepayment, the amount of any such partial prepayment shall be applied first against any unpaid accrued interest, and then against principal in the inverse order of maturity, and any prepayment in whole shall be accompanied by an amount equal to the interest accrued thereon to the date of receipt of such prepayment by Lender in collected funds.

 

The occurrence of the following or any of the following shall constitute an “Event of Default” hereunder, and shall entitle Lender, at its option, to execute any or all of its remedies: (i) if any payment of the principal sum above mentioned, or any interest thereon, not be made as above provided or (ii) upon the insolvency, bankruptcy, death or dissolution of any Maker; then, in any or all such Events of Default, the entire amount of principal of this Note, with all interest then accrued, shall at the option of the holder of this Note and without notice (Maker hereby expressly waives notice of such default), become and be due and payable, time being of the essence of this Note. If this Note is not paid at maturity or according to the tenor hereof and strictly as above provided, it may be placed in the hands of an attorney at law for collection, and in that event, each party liable for the payment thereof, as Maker, endorser, guarantor, or otherwise, hereby agrees to pay the holder hereof, in addition to the sums above stated, all reasonable attorney’s fees incurred by Lender. After maturity or default, this Note shall bear interest at eighteen percent (18%) per annum.

 

 
     

 

In the event any required payment on this Note is not received by Lender within ten (10) days after said payment is due, Maker shall pay Lender a late charge of five percent (5%) of the payment not so received, the parties agreeing that said charge is a fair and reasonable charge for the late payment, and shall not be deemed a penalty. As to this Note, and any other instrument securing the indebtedness, the Maker, any endorser, any guarantor, and any person otherwise liable hereunder severally waive all applicable exemption rights, whether under the State Constitution, Homestead laws, or otherwise, and also severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor, and suit against any Maker, guarantor or other obligor, and expressly agree that the Maturity Date of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of the Maker, guarantor or any endorser. The remedies of Lender as provided herein, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at Lender’s sole discretion, and may be exercised as often as occasion therefor shall arise.

 

Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require Maker, or any person liable for the payment of the indebtedness evidenced by this Note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the Maker, or any party liable for the payment of the indebtedness evidenced by this Note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by the holder hereof, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by the holder hereof to Maker and to any party liable for the payment of the indebtedness evidenced by this Note, it being the intent of the parties hereto that under no circumstances shall the Maker, or any party liable for the payment of the loan made hereunder, be required to pay interest in excess of the highest rate permissible under applicable law, as amended from time to time.

 

Wherever provision is made herein for payment of reasonable attorney’s or counsel’s fees or expenses incurred by the Lender, said provision shall include, but not be limited to, reasonable attorneys’ or counsel’s fees or expenses incurred in any and all judicial, bankruptcy, reorganization, administrative, or other proceedings, including appellate proceedings, whether such proceedings arise before or after entry of a final judgment.

 

Maker acknowledges that the relationship between Lender and Maker is strictly limited to that of debtor and creditor. Lender has not accepted or assumed any duty or obligation, fiduciary or otherwise, to or on behalf of Maker which is not expressly contained herein. Maker has not solicited and Lender has not offered or given any advice to Maker in any manner whatsoever the underlying transaction(s).

 

MAKER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, WAIVE THE RIGHT WHICH EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING, LITIGATION OR COUNTER CLAIM BASED HEREON, OR ARISING OUT OF, UNDER, ON OR IN CONNECTION WITH THIS NOTE, THE LOAN SECURED HEREBY AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER EXTENDING CREDIT TO MAKER.

 

 
     

 

This Note is to be construed according to the applicable laws of the State of Florida and the United States of America. Time is of the essence in all matters herein.

 

Maker’s Address:   JOHN KEELER & CO, INC., a Florida corporation
       
Miami, Florida   By: /s/ John Keeler
      JOHN KEELER , President
       
      (Corporate Seal)

 

 
     

 

 

PROMISSORY NOTE

 

$300,000.00 Miami, Florida
  Dated: March 22, 2006

 

FOR VALUE RECEIVED the undersigned, JOHN KEELER & CO, INC., a Florida corporation (hereinafter the “Maker”), promises to pay to the order of JOHN KEELER and MARIA KEELER , or their successors or assigns (hereinafter the “Lender”) at their offices at 3000 NW 109 th Ave, Miami, Florida 33172 , or such other place as the holder hereof may from time to time designate in writing, the principal sum of THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($300,000.00) with interest thereon from the date hereof as hereafter provided under this Note, to be paid in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment; said principal and interest to be paid as follows:

 

The principal balance outstanding shall bear interest from the date hereof at a fixed rate of interest equal to the greater of: (i) Six Percent (6.0%) per annum or (ii) the lowest adequate stated interest rate as shall be required for Lender to report interest income evidenced by this Note, as more particularly provided in the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), and shall be payable upon demand. Interest shall be charged on the actual number of calendar days elapsed.

 

The principal balance outstanding, plus any unpaid, accrued interest, shall be due and payable upon demand.

 

All payments made hereunder shall be applied first to interest, and late charges, if any, and any balance remaining to principal.

 

Maker may make prepayments hereunder, provided however, that in the event of such prepayment, the amount of any such partial prepayment shall be applied first against any unpaid accrued interest, and then against principal in the inverse order of maturity, and any prepayment in whole shall be accompanied by an amount equal to the interest accrued thereon to the date of receipt of such prepayment by Lender in collected funds.

 

The occurrence of the following or any of the following shall constitute an “Event of Default” hereunder, and shall entitle Lender, at its option, to execute any or all of its remedies: (i) if any payment of the principal sum above mentioned, or any interest thereon, not be made as above provided or (ii) upon the insolvency, bankruptcy, death or dissolution of any Maker; then, in any or all such Events of Default, the entire amount of principal of this Note, with all interest then accrued, shall at the option of the holder of this Note and without notice (Maker hereby expressly waives notice of such default), become and be due and payable, time being of the essence of this Note. If this Note is not paid at maturity or according to the tenor hereof and strictly as above provided, it may be placed in the hands of an attorney at law for collection, and in that event, each party liable for the payment thereof, as Maker, endorser, guarantor, or otherwise, hereby agrees to pay the holder hereof, in addition to the sums above stated, all reasonable attorney’s fees incurred by Lender. After maturity or default, this Note shall bear interest at eighteen percent (18%) per annum.

 

 
     

 

In the event any required payment on this Note is not received by Lender within ten (10) days after said payment is due, Maker shall pay Lender a late charge of five percent (5%) of the payment not so received, the parties agreeing that said charge is a fair and reasonable charge for the late payment, and shall not be deemed a penalty. As to this Note, and any other instrument securing the indebtedness, the Maker, any endorser, any guarantor, and any person otherwise liable hereunder severally waive all applicable exemption rights, whether under the State Constitution, Homestead laws, or otherwise, and also severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor, and suit against any Maker, guarantor or other obligor, and expressly agree that the Maturity Date of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of the Maker, guarantor or any endorser. The remedies of Lender as provided herein, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at Lender’s sole discretion, and may be exercised as often as occasion therefor shall arise.

 

Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require Maker, or any person liable for the payment of the indebtedness evidenced by this Note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the Maker, or any party liable for the payment of the indebtedness evidenced by this Note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by the holder hereof, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by the holder hereof to Maker and to any party liable for the payment of the indebtedness evidenced by this Note, it being the intent of the parties hereto that under no circumstances shall the Maker, or any party liable for the payment of the loan made hereunder, be required to pay interest in excess of the highest rate permissible under applicable law, as amended from time to time.

 

Wherever provision is made herein for payment of reasonable attorney’s or counsel’s fees or expenses incurred by the Lender, said provision shall include, but not be limited to, reasonable attorneys’ or counsel’s fees or expenses incurred in any and all judicial, bankruptcy, reorganization, administrative, or other proceedings, including appellate proceedings, whether such proceedings arise before or after entry of a final judgment.

 

Maker acknowledges that the relationship between Lender and Maker is strictly limited to that of debtor and creditor. Lender has not accepted or assumed any duty or obligation, fiduciary or otherwise, to or on behalf of Maker which is not expressly contained herein. Maker has not solicited and Lender has not offered or given any advice to Maker in any manner whatsoever the underlying transaction(s).

 

MAKER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, WAIVE THE RIGHT WHICH EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING, LITIGATION OR COUNTERCLAIM BASED HEREON, OR ARISING OUT OF, UNDER, ON OR IN CONNECTION WITH THIS NOTE, THE LOAN SECURED HEREBY AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER EXTENDING CREDIT TO MAKER.

 

 
     

 

This Note is to be construed according to the applicable laws of the State of Florida and the United States of America. Time is of the essence in all matters herein.

 

Maker’s Address:   JOHN KEELER & CO, INC., a Florida corporation
       
Miami, Florida   By: /s/ John Keeler
      JOHN KEELER , President
       
      (Corporate Seal)

 

 
     

 

 

PROMISSORY NOTE

 

$200,000.00 Miami, Florida
  Dated: March 31, 2006

 

FOR VALUE RECEIVED the undersigned, JOHN KEELER & CO, INC., a Florida corporation (hereinafter the “Maker”), promises to pay to the order of JOHN KEELER and MARIA KEELER , or their successors or assigns (hereinafter the “Lender”) at their offices at 3000 NW 109 th Ave, Miami, Florida 33172 , or such other place as the holder hereof may from time to time designate in writing, the principal sum of TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($200,000.00) with interest thereon from the date hereof as hereafter provided under this Note, to be paid in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment; said principal and interest to be paid as follows:

 

The principal balance outstanding shall bear interest from the date hereof at a fixed rate of interest equal to the greater of: (i) Six Percent (6.0%) per annum or (ii) the lowest adequate stated interest rate as shall be required for Lender to report interest income evidenced by this Note, as more particularly provided in the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), and shall be payable upon demand. Interest shall be charged on the actual number of calendar days elapsed.

 

The principal balance outstanding, plus any unpaid, accrued interest, shall be due and payable upon demand.

 

All payments made hereunder shall be applied first to interest, and late charges, if any, and any balance remaining to principal.

 

Maker may make prepayments hereunder, provided however, that in the event of such prepayment, the amount of any such partial prepayment shall be applied first against any unpaid accrued interest, and then against principal in the inverse order of maturity, and any prepayment in whole shall be accompanied by an amount equal to the interest accrued thereon to the date of receipt of such prepayment by Lender in collected funds.

 

The occurrence of the following or any of the following shall constitute an “Event of Default” hereunder, and shall entitle Lender, at its option, to execute any or all of its remedies: (i) if any payment of the principal sum above mentioned, or any interest thereon, not be made as above provided or (ii) upon the insolvency, bankruptcy, death or dissolution of any Maker; then, in any or all such Events of Default, the entire amount of principal of this Note, with all interest then accrued, shall at the option of the holder of this Note and without notice (Maker hereby expressly waives notice of such default), become and be due and payable, time being of the essence of this Note. If this Note is not paid at maturity or according to the tenor hereof and strictly as above provided, it may be placed in the hands of an attorney at law for collection, and in that event, each party liable for the payment thereof, as Maker, endorser, guarantor, or otherwise, hereby agrees to pay the holder hereof, in addition to the sums above stated, all reasonable attorney’s fees incurred by Lender. After maturity or default, this Note shall bear interest at eighteen percent (18%) per annum.

 

 
     

 

In the event any required payment on this Note is not received by Lender within ten (10) days after said payment is due, Maker shall pay Lender a late charge of five percent (5%) of the payment not so received, the parties agreeing that said charge is a fair and reasonable charge for the late payment, and shall not be deemed a penalty. As to this Note, and any other instrument securing the indebtedness, the Maker, any endorser, any guarantor, and any person otherwise liable hereunder severally waive all applicable exemption rights, whether under the State Constitution, Homestead laws, or otherwise, and also severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor, and suit against any Maker, guarantor or other obligor, and expressly agree that the Maturity Date of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of the Maker, guarantor or any endorser. The remedies of Lender as provided herein, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at Lender’s sole discretion, and may be exercised as often as occasion therefor shall arise.

 

Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require Maker, or any person liable for the payment of the indebtedness evidenced by this Note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the Maker, or any party liable for the payment of the indebtedness evidenced by this Note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by the holder hereof, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by the holder hereof to Maker and to any party liable for the payment of the indebtedness evidenced by this Note, it being the intent of the parties hereto that under no circumstances shall the Maker, or any party liable for the payment of the loan made hereunder, be required to pay interest in excess of the highest rate permissible under applicable law, as amended from time to time.

 

Wherever provision is made herein for payment of reasonable attorney’s or counsel’s fees or expenses incurred by the Lender, said provision shall include, but not be limited to, reasonable attorneys’ or counsel’s fees or expenses incurred in any and all judicial, bankruptcy, reorganization, administrative, or other proceedings, including appellate proceedings, whether such proceedings arise before or after entry of a final judgment.

 

Maker acknowledges that the relationship between Lender and Maker is strictly limited to that of debtor and creditor. Lender has not accepted or assumed any duty or obligation, fiduciary or otherwise, to or on behalf of Maker which is not expressly contained herein. Maker has not solicited and Lender has not offered or given any advice to Maker in any manner whatsoever the underlying transaction(s).

 

MAKER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, WAIVE THE RIGHT WHICH EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING, LITIGATION OR COUNTERCLAIM BASED HEREON, OR ARISING OUT OF, UNDER, ON OR IN CONNECTION WITH THIS NOTE, THE LOAN SECURED HEREBY AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER EXTENDING CREDIT TO MAKER.

 

 
     

 

This Note is to be construed according to the applicable laws of the State of Florida and the United States of America. Time is of the essence in all matters herein.

 

Maker’s Address:   JOHN KEELER & CO, INC., a Florida corporation
       
Miami, Florida   By: /s/ John Keeler
      JOHN KEELER , President
       
      (Corporate Seal)

 

 
     

 

PROMISSORY NOTE

 

$100,000.00 Miami, Florida
  Dated: November 21, 2007

 

FOR VALUE RECEIVED the undersigned, JOHN KEELER & CO, INC., a Florida corporation (hereinafter the “Maker”), promises to pay to the order of JOHN KEELER, or his successors or assigns (hereinafter the “Lender”) at their offices at 3000 NW 109 th Ave, Miami, Florida 33172 , or such other place as the holder hereof may from time to time designate in writing, the principal sum of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) with interest thereon from the date hereof as hereafter provided under this Note, to be paid in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment; said principal and interest to be paid as follows:

 

The principal balance outstanding shall bear interest from the date hereof at a fixed rate of interest equal to the greater of: (i) Six Percent (6.0%) per annum or (ii) the lowest adequate stated interest rate as shall be required for Lender to report interest income evidenced by this Note, as more particularly provided in the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), and shall be payable upon demand. Interest shall be charged on the actual number of calendar days elapsed.

 

The principal balance outstanding, plus any unpaid, accrued interest, shall be due and payable upon demand.

 

All payments made hereunder shall be applied first to interest, and late charges, if any, and any balance remaining to principal.

 

Maker may make prepayments hereunder, provided however, that in the event of such prepayment, the amount of any such partial prepayment shall be applied first against any unpaid accrued interest, and then against principal in the inverse order of maturity, and any prepayment in whole shall be accompanied by an amount equal to the interest accrued thereon to the date of receipt of such prepayment by Lender in collected funds.

 

The occurrence of the following or any of the following shall constitute an “Event of Default” hereunder, and shall entitle Lender, at its option, to execute any or all of its remedies: (i) if any payment of the principal sum above mentioned, or any interest thereon, not be made as above provided or (ii) upon the insolvency, bankruptcy, death or dissolution of any Maker; then, in any or all such Events of Default, the entire amount of principal of this Note, with all interest then accrued, shall at the option of the holder of this Note and without notice (Maker hereby expressly waives notice of such default), become and be due and payable, time being of the essence of this Note. If this Note is not paid at maturity or according to the tenor hereof and strictly as above provided, it may be placed in the hands of an attorney at law for collection, and in that event, each party liable for the payment thereof, as Maker, endorser, guarantor, or otherwise, hereby agrees to pay the holder hereof, in addition to the sums above stated, all reasonable attorney’s fees incurred by Lender. After maturity or default, this Note shall bear interest at eighteen percent (18%) per annum.

 

     
     

 

In the event any required payment on this Note is not received by Lender within ten (10) days after said payment is due, Maker shall pay Lender a late charge of five percent (5%) of the payment not so received, the parties agreeing that said charge is a fair and reasonable charge for the late payment, and shall not be deemed a penalty. As to this Note, and any other instrument securing the indebtedness, the Maker, any endorser, any guarantor, and any person otherwise liable hereunder severally waive all applicable exemption rights, whether under the State Constitution, Homestead laws, or otherwise, and also severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor, and suit against any Maker, guarantor or other obligor, and expressly agree that the Maturity Date of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of the Maker, guarantor or any endorser. The remedies of Lender as provided herein, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at Lender’s sole discretion, and may be exercised as often as occasion therefor shall arise.

 

Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require Maker, or any person liable for the payment of the indebtedness evidenced by this Note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the Maker, or any party liable for the payment of the indebtedness evidenced by this Note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by the holder hereof, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by the holder hereof to Maker and to any party liable for the payment of the indebtedness evidenced by this Note, it being the intent of the parties hereto that under no circumstances shall the Maker, or any party liable for the payment of the loan made hereunder, be required to pay interest in excess of the highest rate permissible under applicable law, as amended from time to time.

 

Wherever provision is made herein for payment of reasonable attorney’s or counsel’s fees or expenses incurred by the Lender, said provision shall include, but not be limited to, reasonable attorneys’ or counsel’s fees or expenses incurred in any and all judicial, bankruptcy, reorganization, administrative, or other proceedings, including appellate proceedings, whether such proceedings arise before or after entry of a final judgment.

 

Maker acknowledges that the relationship between Lender and Maker is strictly limited to that of debtor and creditor. Lender has not accepted or assumed any duty or obligation, fiduciary or otherwise, to or on behalf of Maker which is not expressly contained herein. Maker has not solicited and Lender has not offered or given any advice to Maker in any manner whatsoever the underlying transaction(s).

 

MAKER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, WAIVE THE RIGHT WHICH EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING, LITIGATION OR COUNTERCLAIM BASED HEREON, OR ARISING OUT OF, UNDER, ON OR IN CONNECTION WITH THIS NOTE, THE LOAN SECURED HEREBY AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER EXTENDING CREDIT TO MAKER.

 

     
     

 

This Note is to be construed according to the applicable laws of the State of Florida and the United States of America. Time is of the essence in all matters herein.

 

Maker’s Address: JOHN KEELER & CO, INC., a Florida corporation
_____________________________________________  
Miami, Florida _________________________________ By: /s/ John Keeler
  JOHN KEELER , President
   
  (Corporate Seal)

 

     
     

 

PROMISSORY NOTE

 

$516,833.83 Miami, Florida
  Dated: July 31, 2013

 

FOR VALUE RECEIVED the undersigned, JOHN KEELER & CO, INC., a Florida corporation (hereinafter the “Maker”), promises to pay to the order of JOHN KEELER, or their successors or assigns (hereinafter the “Lender”) at their offices at 3000 NW 109 th Ave, Miami, Florida 33172 , or such other place as the holder hereof may from time to time designate in writing, the principal sum of FIVE HUNDRED SIXTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE AND 83/100 DOLLARS ($516,833.83) with interest thereon from the date hereof as hereafter provided under this Note, to be paid in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment; said principal and interest to be paid as follows:

 

The principal balance outstanding shall bear interest from the date hereof at a fixed rate of interest equal to the greater of: (i) Six Percent (6.0%) per annum or (ii) the lowest adequate stated interest rate as shall be required for Lender to report interest income evidenced by this Note, as more particularly provided in the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), and shall be payable upon demand. Interest shall be charged on the actual number of calendar days elapsed.

 

The principal balance outstanding, plus any unpaid, accrued interest, shall be due and payable upon demand.

 

All payments made hereunder shall be applied first to interest, and late charges, if any, and any balance remaining to principal.

 

Maker may make prepayments hereunder, provided however, that in the event of such prepayment, the amount of any such partial prepayment shall be applied first against any unpaid accrued interest, and then against principal in the inverse order of maturity, and any prepayment in whole shall be accompanied by an amount equal to the interest accrued thereon to the date of receipt of such prepayment by Lender in collected funds.

 

The occurrence of the following or any of the following shall constitute an “Event of Default” hereunder, and shall entitle Lender, at its option, to execute any or all of its remedies: (i) if any payment of the principal sum above mentioned, or any interest thereon, not be made as above provided or (ii) upon the insolvency, bankruptcy, death or dissolution of any Maker; then, in any or all such Events of Default, the entire amount of principal of this Note, with all interest then accrued, shall at the option of the holder of this Note and without notice (Maker hereby expressly waives notice of such default), become and be due and payable, time being of the essence of this Note. If this Note is not paid at maturity or according to the tenor hereof and strictly as above provided, it may be placed in the hands of an attorney at law for collection, and in that event, each party liable for the payment thereof, as Maker, endorser, guarantor, or otherwise, hereby agrees to pay the holder hereof, in addition to the sums above stated, all reasonable attorney’s fees incurred by Lender. After maturity or default, this Note shall bear interest at eighteen percent (18%) per annum.

 

 
 

 

In the event any required payment on this Note is not received by Lender within ten (10) days after said payment is due, Maker shall pay Lender a late charge of five percent (5%) of the payment not so received, the parties agreeing that said charge is a fair and reasonable charge for the late payment, and shall not be deemed a penalty. As to this Note, and any other instrument securing the indebtedness, the Maker, any endorser, any guarantor, and any person otherwise liable hereunder severally waive all applicable exemption rights, whether under the State Constitution, Homestead laws, or otherwise, and also severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor, and suit against any Maker, guarantor or other obligor, and expressly agree that the Maturity Date of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of the Maker, guarantor or any endorser. The remedies of Lender as provided herein, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at Lender’s sole discretion, and may be exercised as often as occasion therefor shall arise.

 

Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require Maker, or any person liable for the payment of the indebtedness evidenced by this Note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the Maker, or any party liable for the payment of the indebtedness evidenced by this Note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by the holder hereof, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by the holder hereof to Maker and to any party liable for the payment of the indebtedness evidenced by this Note, it being the intent of the parties hereto that under no circumstances shall the Maker, or any party liable for the payment of the loan made hereunder, be required to pay interest in excess of the highest rate permissible under applicable law, as amended from time to time.

 

Wherever provision is made herein for payment of reasonable attorney’s or counsel’s fees or expenses incurred by the Lender, said provision shall include, but not be limited to, reasonable attorneys’ or counsel’s fees or expenses incurred in any and all judicial, bankruptcy, reorganization, administrative, or other proceedings, including appellate proceedings, whether such proceedings arise before or after entry of a final judgment.

 

Maker acknowledges that the relationship between Lender and Maker is strictly limited to that of debtor and creditor. Lender has not accepted or assumed any duty or obligation, fiduciary or otherwise, to or on behalf of Maker which is not expressly contained herein. Maker has not solicited and Lender has not offered or given any advice to Maker in any manner whatsoever the underlying transaction(s).

 

 
 

 

MAKER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, WAIVE THE RIGHT WHICH EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING, LITIGATION OR COUNTERCLAIM BASED HEREON, OR ARISING OUT OF, UNDER, ON OR IN CONNECTION WITH THIS NOTE, THE LOAN SECURED HEREBY AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER EXTENDING CREDIT TO MAKER.

 

This Note is to be construed according to the applicable laws of the State of Florida and the United States of America. Time is of the essence in all matters herein.

 

Maker’s Address:   JOHN KEELER & CO, INC., a Florida corporation
____________________________    
Miami, Florida _______________   By:

/s/ John Keeler                                                 

      JOHN KEELER , President
     
    (Corporate Seal)

 

 
 

 

 

PROMISSORY NOTE

 

$500,000.00 Miami, Florida
  Dated:  May 30, 2017

 

FOR VALUE RECEIVED the undersigned, JOHN KEELER & CO, INC., a Florida corporation (hereinafter the “Maker”), promises to pay to the order of JOHN KEELER, or their successors or assigns (hereinafter the “Lender”) at their offices at 3000 NW 109 th Ave, Miami, Florida 33172 , or such other place as the holder hereof may from time to time designate in writing, the principal sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) with interest thereon from the date hereof as hereafter provided under this Note, to be paid in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment; said principal and interest to be paid as follows:

 

The principal balance outstanding shall bear interest from the date hereof at a fixed rate of interest equal to the greater of: (i) Six Percent (6.0%) per annum or (ii) the lowest adequate stated interest rate as shall be required for Lender to report interest income evidenced by this Note, as more particularly provided in the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), and shall be payable upon demand. Interest shall be charged on the actual number of calendar days elapsed.

 

The principal balance outstanding, plus any unpaid, accrued interest, shall be due and payable upon demand.

 

All payments made hereunder shall be applied first to interest, and late charges, if any, and any balance remaining to principal.

 

Maker may make prepayments hereunder, provided however, that in the event of such prepayment, the amount of any such partial prepayment shall be applied first against any unpaid accrued interest, and then against principal in the inverse order of maturity, and any prepayment in whole shall be accompanied by an amount equal to the interest accrued thereon to the date of receipt of such prepayment by Lender in collected funds.

 

The occurrence of the following or any of the following shall constitute an “Event of Default” hereunder, and shall entitle Lender, at its option, to execute any or all of its remedies: (i) if any payment of the principal sum above mentioned, or any interest thereon, not be made as above provided or (ii) upon the insolvency, bankruptcy, death or dissolution of any Maker; then, in any or all such Events of Default, the entire amount of principal of this Note, with all interest then accrued, shall at the option of the holder of this Note and without notice (Maker hereby expressly waives notice of such default), become and be due and payable, time being of the essence of this Note. If this Note is not paid at maturity or according to the tenor hereof and strictly as above provided, it may be placed in the hands of an attorney at law for collection, and in that event, each party liable for the payment thereof, as Maker, endorser, guarantor, or otherwise, hereby agrees to pay the holder hereof, in addition to the sums above stated, all reasonable attorney’s fees incurred by Lender. After maturity or default, this Note shall bear interest at eighteen percent (18%) per annum.

 

 
 

 

In the event any required payment on this Note is not received by Lender within ten (10) days after said payment is due, Maker shall pay Lender a late charge of five percent (5%) of the payment not so received, the parties agreeing that said charge is a fair and reasonable charge for the late payment, and shall not be deemed a penalty. As to this Note, and any other instrument securing the indebtedness, the Maker, any endorser, any guarantor, and any person otherwise liable hereunder severally waive all applicable exemption rights, whether under the State Constitution, Homestead laws, or otherwise, and also severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor, and suit against any Maker, guarantor or other obligor, and expressly agree that the Maturity Date of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of the Maker, guarantor or any endorser. The remedies of Lender as provided herein, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at Lender’s sole discretion, and may be exercised as often as occasion therefor shall arise.

 

Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require Maker, or any person liable for the payment of the indebtedness evidenced by this Note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the Maker, or any party liable for the payment of the indebtedness evidenced by this Note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by the holder hereof, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by the holder hereof to Maker and to any party liable for the payment of the indebtedness evidenced by this Note, it being the intent of the parties hereto that under no circumstances shall the Maker, or any party liable for the payment of the loan made hereunder, be required to pay interest in excess of the highest rate permissible under applicable law, as amended from time to time.

 

Wherever provision is made herein for payment of reasonable attorney’s or counsel’s fees or expenses incurred by the Lender, said provision shall include, but not be limited to, reasonable attorneys’ or counsel’s fees or expenses incurred in any and all judicial, bankruptcy, reorganization, administrative, or other proceedings, including appellate proceedings, whether such proceedings arise before or after entry of a final judgment.

 

Maker acknowledges that the relationship between Lender and Maker is strictly limited to that of debtor and creditor. Lender has not accepted or assumed any duty or obligation, fiduciary or otherwise, to or on behalf of Maker which is not expressly contained herein. Maker has not solicited and Lender has not offered or given any advice to Maker in any manner whatsoever the underlying transaction(s).

 

 
 

 

MAKER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, WAIVE THE RIGHT WHICH EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING, LITIGATION OR COUNTERCLAIM BASED HEREON, OR ARISING OUT OF, UNDER, ON OR IN CONNECTION WITH THIS NOTE, THE LOAN SECURED HEREBY AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER EXTENDING CREDIT TO MAKER.

 

This Note is to be construed according to the applicable laws of the State of Florida and the United States of America. Time is of the essence in all matters herein.

 

Maker’s Address:   JOHN KEELER & CO, INC., a Florida corporation
____________________________    
Miami, Florida _______________   By:

/s/ John Keeler                                              

      JOHN KEELER , President
     
    (Corporate Seal)

 

 
 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of

John Keeler & Co., Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of John Keeler & Co., Inc. and its subsidiary (collectively, the “Company”) as of December 31, 2017 and 2016 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company’s auditor since 2014.

Houston, Texas

November 14, 2018

 

  1  
 

 

John Keeler & Co., Inc. D/B/A Blue Star Foods

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,

 

    2017     2016  
ASSETS                
                 
CURRENT ASSETS                
Cash (including VIE $22,571 and $41,889, respectively)   $ 29,377     $ 54,981  
Restricted Cash     29,498       193,674  
Accounts receivable, net (including VIE $138,333 and $53,750, respectively)     4,675,588       4,417,654  
Inventory, net (including VIE $257,798 and $89,127, respectively)     12,952,850       9,434,629  
Advances to related party     -       981,972  
Other current assets (including VIE $3,656 and $2,247, respectively)     99,997       170,367  
Total current assets     17,787,310       15,253,277  
                 
FIXED ASSETS, net     146,496       175,405  
                 
OTHER ASSETS     311,053       343,930  
                 
TOTAL ASSETS   $ 18,244,859     $ 15,772,612  
                 
LIABILITIES AND STOCKHOLDER’S DEFICIT                
                 
CURRENT LIABILITIES                
Accounts payable and accruals (including VIE $318,073 and $40,329, respectively)   $ 4,409,232     $ 5,314,796  
Working capital line of credit     12,109,150       9,597,415  
Current maturities of long-term debt     35,011       33,090  
Stockholder notes payable - Subordinated     2,910,136       2,410,136  
Total current liabilities     19,463,529       17,355,437  
                 
LONG -TERM DEBT     33,878       68,889  
                 
TOTAL LIABILITIES     19,497,407       17,424,326  
                 
COMMITMENTS AND CONTINGENCIES                
                 
STOCKHOLDER’S DEFICIT                
John Keeler & Co. stockholder’s deficit:                
Common stock, $1.00 par value 500 shares authorized, issued and Outstanding     500       500  
Additional paid-in capital     559,257       559,257  
Accumulated deficit     (1,494,927 )     (1,888,799 )
Total John Keeler & Co. stockholder’s deficit     (935,170 )     (1,329,042 )
Non-controlling interest     (424,081 )     (373,365 )
Accumulated other comprehensive income (VIE)     106,703       50,693  
Total VIE’s deficit     (317,378 )     (322,672 )
                 
TOTAL STOCKHOLDER’S DEFICIT     (1,252,548 )     (1,651,714 )
                 
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT   $ 18,244,859     $ 15,772,612  

 

The accompanying notes are an integral part of these financial statements

 

  2  
 

 

John Keeler & Co., Inc. D/B/A Blue Star Foods

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

YEARS ENDED DECEMBER 31,

 

    2017     2016  
             
REVENUE, NET   $ 36,951,923     $ 37,523,380  
COST OF REVENUE (including approximately $17,230,000 and $5,850,000 respectively, purchased from related party)     31,254,430       32,689,580  
GROSS PROFIT     5,697,493       4,833,800  
COMMISSIONS     155,574       227,272  
SALARIES & WAGES     1,859,706       1,885,957  
OTHER OPERATING EXPENSES     2,340,163       2,311,132  
                 
INCOME (LOSS) FROM OPERATIONS     1,342,050       409,439  
                 
OTHER EXPENSE     (29,478 )     (368,989 )
INTEREST EXPENSE     (969,416 )     (914,355 )
                 
NET INCOME (LOSS)     343,156       (873,905 )
                 
LESS: NET INCOME ( LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST     (50,716 )     18,156  
                 
NET INCOME (LOSS) LOSS ATTRIBUTABLE TO JOHN KEELER & CO.   $ 393,872     $ (892,061 )
                 
COMPREHENSIVE INCOME (LOSS):                
                 
TRANSLATION ADJUSTMENT ATTRIBUTABLE TO NON-CONTROLLING INTEREST     56,010       (11,868 )
                 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST   $ 5,294     $ 6,288  
                 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JOHN KEELER & CO.   $ 393,872     $ (892,061 )
                 
PRO FORMA DATA:                
PRO FORMA INCOME TAX EXPENSE     270,635       (309,096 )
                 
PRO FORMA NET (LOSS) INCOME ATTRIBUTABLE TO JOHN KEELER & CO.   $ 123,237     $ (582,965 )
                 
PRO FORMA COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO JOHN KEELER & CO.   $ 123,237     $ (582,965 )

 

 

The accompanying notes are an integral part of these financial statements

 

  3  
 

 

John Keeler & Co., Inc. D/B/A Blue Star Foods

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2017 and 2016

 

    Common Stock $1.00 par value                                
    Shares     Amount     Additional Paid-in Capital     Retained Earnings (Accumulated
Deficit)
    Total John Keeler & Co. Stockholder’s Deficit     Non-Controlling Interest     Total Stockholder’s Equity (DEFICIT)  
                                           
December 31, 2015     500     $ 500     $ 559,257     $ (996,738 )   $ (436,981 )     (328,960 )   $ (765,941 )
                                                         
Net loss     -       -       -       (892,061 )     (892,061 )     18,156       (873,905 )
                                                         
Comprehensive income     -       -       -       -       -       (11,868 )     (11,868 )
                                                         
December 31, 2016     500     $ 500     $ 559,257       (1,888,799 )     (1,329,042 )     (322,672 )   $ (1,651,714 )
                                                         
Net Income     -       -       -       393,872       393,872       (50,716 )     343,156  
                                                         
Comprehensive loss     -       -       -       -       -       56,010       56,010  
                                                         
December 31, 2017     500     $ 500     $ 559,257       (1,494,927 )     (935,170 )     (317,378 )   $ (1,252,548 )

 

The accompanying notes are an integral part of these financial statements

 

  4  
 

 

John Keeler & Co., Inc. D/B/A Blue Star Foods

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

 

    2017     2016  
CASH FLOWS FROM OPERATING ACTIVITIES:                
                 
Net Income (Loss)   $ 343,156     $ (873,905 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation of fixed assets     62,400       62,353  
Amortization of intangible assets     6,491       6,492  
Amortization of loan costs     164,457       118,405  
Allowance for inventory obsolescence     (88,584 )     (103,657 )
Changes in operating assets and liabilities:                
Receivables     (257,934 )     527,719  
Inventories     (3,429,637 )     3,595,789  
Advances to affiliated supplier     981,972       (107,909 )
Other current assets     70,370       (42,767 )
Other assets     (23,071 )     (699 )
Accounts payable and accruals     (905,564 )     937,987  
Net cash provided by (used) in operating activities     (3,075,944 )     4,119,808  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of fixed assets     (33,491 )     (17,554 )
Net cash used in investing activities     (33,491 )     (17,554 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from working capital lines of credit     39,080,437       41,968,961  
Repayments of working capital lines of credit     (36,568,702 )     (45,499,318 )
Principal payments of long-term debt     (33,090 )     (31,272 )
Proceeds from stockholder notes payable - Subordinated     500,000       -  
Payments of Loan costs     (115,000 )     (308,943 )
Changes in restrictive cash     164,176       (193,674 )
Net cash provided by (used) in financing activities     3,027,821       (4,064,246 )
                 
Effect of exchange rate changes on cash     56,010       (11,868 )
                 
NET INCREASE (DECREASE) IN CASH     (25,604 )     26,140  
                 
CASH, BEGINNING OF PERIOD     54,981       28,841  
                 
CASH - END OF PERIOD   $ 29,377     $ 54,981  
                 
Supplemental Disclosure of Cash Flow Information                
Cash paid for interest   $ 969,483     $ 914,355  

 

The accompanying notes are an integral part of these financial statements

 

  5  
 

 

John Keeler & Co., Inc. DBA Blue Star Foods

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2017 and 2016

 

Note 1. Company Overview

 

Located in Miami, Florida, John Keeler & Co., Inc. (the “Company”) d/b/a Blue Star Foods has been in business for approximately twenty-one years. The Company was formed under the laws of the State of Florida. The primary focus of the Company and current source of revenue is importing blue and red swimming crab meat primarily from Indonesia, Philippines and China and distributing it in the United States of America, Canada and Europe under several brand names such as Blue Star, Seassentials, Oceanica, Pacifika and Harbor Banks.

 

Note 2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its variable interest entity for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

 

Variable Interest Entity

 

Under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, Consolidation , when a reporting entity is the primary beneficiary of an entity that is a variable interest entity (“VIE”), as defined in ASC 810, the VIE must be consolidated into the financial statements of the reporting entity. The determination of which owner is the primary beneficiary of a VIE requires management to make significant estimates and judgments about the rights, obligations, and economic interests of each interest holder in the VIE.

 

The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.

 

Effective April 1, 2014, the Company’s stockholder was transferred the controlling interest of Strike the Gold Foods, Ltd. (“Strike”), a related party entity which holds the Company’s inventory on consignment in United Kingdom (see Note 3). The Company evaluated its interest in Strike and determined that Strike is a VIE due to the Company’s implicit interest in Strike and the fact that Strike and the Company were under common control after the transfer of the controlling interest. Moreover, the Company determined that it is the primary beneficiary of Strike due to the fact that the Company had both the power to direct the activities that most significantly impact Strike and the obligation to absorb losses or the right to receive benefits from Strike. Therefore, the Company consolidated Strike in its financial statements.

 

  6  
 

 

Strike’s activities are reflected in the Company’s financial statements starting on April 1, 2014, the effective date of the controlling interest transfer. Strike’s equity is classified as non-controlling interest in the Company’s financial statements since the Company is not a shareholder of Strike. Strike was not a VIE of the Company and the Company was not the primary beneficiary of Strike prior to the controlling interest transfer.

 

The Company also evaluated its interest in three related party entities that are under common control with the Company, Bacolod Blue Star Export Corp. (“Bacolod”), Bicol Blue Star Export Co. (“Bicol”) and John Keeler Real Estate Holding (“JK Real Estate”), in light of ASC 810. The Company purchased inventory from Bacolod, an exporter of pasteurized crab meat out of the Philippines. The Company purchased inventory, via Bacolod, from Bicol. The Company leases its office and warehouse facility from JK Real Estate, a landlord that is a related party through common family beneficial ownership (see Note 7).

 

The Company determined that Bacolod and Bicol are not VIE’s as they do not meet the criteria to be considered a VIE per ASC 810. The Company does not directly or indirectly absorb any variability of Bacolod or Bicol. The relationship between the Company and Bacolod and Bicol is strictly a supplier/customer relationship (see Advances to Suppliers and Related Party accounting policy). Moreover, Bacolod and Bicol have other customers besides the Company. Even if the Company is no longer Bacolod or Bicol’s customer, they would be able to sustain their operations from selling their inventory to their other customers. As the Company concluded that Bacolod and Bicol are not VIE’s and the Company is not deemed their primary beneficiary, Bacolod or Bicol is not consolidated with the Company’s financial statements.

 

The Company determined that JK Real Estate is a VIE due the fact that the Company guarantees the mortgage on the facility rented from JK Real Estate. Therefore, JK Real Estate’s equity at risk is not deemed sufficient to permit JK Real Estate to finance its activities without subordinated financial support. Moreover, the activities of JK Real Estate are substantially conducted on behalf of the Company’s stockholder. The Company concluded that it not the primary beneficiary of JK Real Estate since the Company does not have the power to direct the activities that most significantly impact JK Real Estate. Therefore, JK Real Estate is not consolidated with the Company’s financial statements.

 

Cash, Restricted Cash and Cash Equivalents

 

The Company maintains cash balances with financial institutions in excess of Federal Deposit Insurance Company (“FDIC”) insured limits. The Company has not experienced any losses on such accounts and believes it does not have a significant exposure.

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

  7  
 

 

The Company considers any cash balance in the lender designated cash collateral account as restricted cash. All cash proceeds must be deposited into cash collateral account, and will be cleared and applied to the line of credit. The Company has no access to this account, and the purpose of the funds is restricted to repayment of the line of credit. As of December 31, 2017 and 2016 restricted cash was approximately $29,500 and $194,000.

 

Accounts Receivable

 

Accounts receivable consist of unsecured obligations due from customers under normal trade terms, usually net 30 days. The Company grants credit to its customers based on the Company’s evaluation of a particular customer’s credit worthiness.

 

Allowances for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of the Company’s periodic credit evaluations of its customers’ financial condition. Receivables are written off as uncollectible and deducted from the allowance for doubtful accounts after collection efforts have been deemed to be unsuccessful. Subsequent recoveries are netted against the provision for doubtful accounts expense. The Company generally does not charge interest on receivables.

 

Receivables are net of estimated allowances for doubtful accounts and sales return and allowances. They are stated at estimated net realizable value. As of December 31, 2017 and 2016, the Company recorded sales return and allowances of approximately $155,000 and $134,000, respectively. There was no allowance for bad debt recorded during the years ended December 31, 2017 and 2016.

 

Inventories

 

Substantially all of the Company’s inventory consists of packaged crab meat located at the Company’s warehouse facility as well as public cold storage facilities and merchandise in transit from suppliers. The cost of inventory is primarily determined using the specific identification method. Inventory is valued at the lower of cost or market, using the first-in, first-out method.

 

Merchandise is purchased cost and freight shipping point and becomes the Company’s asset and liability upon leaving the suppliers’ warehouse. The Company had in-transit inventory of approximately $6,148,000 and $5,363,000 as of December 31, 2017 and December 31, 2016, respectively.

 

The Company periodically reviews the value of items in inventory and records an allowance to reduce the carrying value of inventory to the lower of cost or market based

 

on its assessment of market conditions, inventory turnover and current stock levels. Inventory write-downs are charged to cost of goods sold. The Company recorded an inventory allowance of approximately $39,300 and $48,500 for the years ended December 31, 2017 and December 31, 2016, respectively.

 

  8  
 

 

Advances to Suppliers and Related Party

 

In the normal course of business, the Company may advance payments to its suppliers, inclusive of Bacolod, a related party. These advances are in the form of prepayments for products that will ship within a short window of time. In the event that it becomes necessary for the Company to return products or adjust for quality issues, the Company is issued a credit by the vendor in the normal course of business and these credits are also reflected against future shipments.

 

As of December 31, 2017 and 2016, the balance due from the related party for future shipments was approximately $0 and $982,000, respectively. The 2016 balances represent approximately two to three months of purchases from the supplier.

 

Fixed Assets

 

Fixed assets are stated at cost less accumulated depreciation and are being depreciated using the straight-line method over the estimated useful life of the asset as follows:

 

  Furniture and fixtures 7 to 10 years  
  Computer equipment 5 years  
  Warehouse and refrigeration equipment 10 years  
  Leasehold improvements 7 years  
  Automobile 5 years  
  Trade show booth 7 years  

 

Leasehold improvements are amortized using the straight-line method over the shorter of the expected life of the improvement or the remaining lease term.

 

The Company capitalizes expenditures for major improvements and additions and expenses those items which do not improve or extend the useful life of the fixed assets.

 

The Company reviews fixed assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At December 31, 2017 and 2016, the Company believes the carrying values of its long-lived assets are recoverable and as such, the Company did not record any impairment.

 

Other Comprehensive (loss) Income

 

The Company reports its comprehensive (loss) income in accordance with ASC 220, Comprehensive Income , which establishes standards for reporting and presenting comprehensive (loss) income and its components in a full set of financial statements. Other comprehensive (loss) income consists of net income (loss) and cumulative foreign currency translation adjustments.

 

  9  
 

 

Foreign Currency Translation

 

The Company’s functional and reporting currency is the U.S. Dollars. The assets and liabilities held by the Company’s VIE have a functional currency other than the U.S. Dollar. They are translated into U.S. Dollars at exchange rates in effect at the end of each reporting period. The VIE’s revenue and expenses are translated into U.S. Dollars at the average rates that prevailed during the period. The resulting net translation gains and losses are reported as foreign currency translation adjustments in stockholders’ equity as a component of comprehensive (loss) income. The Company recorded foreign currency translation adjustment of approximately $56,000 and $(12,000) for the years ended December 31, 2017 and December 31, 2016, respectively.

 

Revenue Recognition

 

The Company recognizes revenue when the products are shipped, the risks of ownership transfer to the customer and collectability is reasonably assured. Revenue is stated net of sales returns and allowances. Provision for sales return is estimated based on the Company’s historical return experience.

 

The Company offers sales discounts and promotions to its customers in various forms. These incentives are accounted for as a reduction of revenue when they are characterized as cash consideration, in accordance with ASC 605, Revenue Recognition . Otherwise, the incentives are expensed.

 

Revenue is inclusive of shipping and handling fees and all related costs of shipping and handling related to sales to customers are categorized as cost of revenue.

 

Advertising

 

The Company expenses the costs of advertising as incurred. Advertising expenses which are included in Other Operating Expenses were approximately $108,000 and $82,500, for the years ended December 31, 2017 and 2016, respectively.

 

Use of Estimates

 

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

 

Customer Concentration

 

The Company had three customers which accounted for approximately 63% and 60%, of revenue during the years ended December 31, 2017 and 2016, respectively. Outstanding receivables from these customers accounted for approximately 66% and 63% of the total accounts receivable as of December 31, 2017 and 2016, respectively. The loss of any major customer could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

  10  
 

 

Supplier Concentration

 

The Company had three suppliers which accounted for approximately 75% of the Company’s total purchases during the year ended December 31, 2017. These three suppliers are located in three countries, Indonesia, Philippines, China, which accounted for approximately 93% of the Company’s total purchases during the year ended December 31, 2017.

 

The Company had four suppliers which accounted for approximately 70% of the Company’s total purchases during the year ended December 31, 2016. These four suppliers are located in four countries, Indonesia, Philippines, China and USA, which accounted for approximately 82% of the Company’s total purchases during the year ended December 31, 2016.

 

These suppliers included Bacolod, a related party, which accounted for approximately 53% and 22% of the Company’s total purchases, during the years ended December 31, 2017 and 2016, respectively.

 

The loss of any major supplier could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Fair Value of Financial Instruments

 

Our financial instruments include cash, accounts receivable, accounts payable, accrued expenses, and debt obligations. We believe the carrying values of our financial instruments approximate their fair values because they are short term in nature or payable on demand.

 

Reclassifications

 

Certain amounts in prior year have been reclassified to conform to the current year presentation.

 

Income Taxes

 

The Company, with the consent of its stockholder, has elected to be taxed under the S Corporation provisions of the Internal Revenue Code. Under these provisions, taxable income or loss of the Company is reflected on the stockholder’s individual income tax return.

 

The Company assesses its tax positions in accordance with ASC 740, Income Taxes , which provides guidance for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return for open tax years (generally a period of three years from the later of each return’s due date or the date filed), that remain subject to examination by the Company’s major tax jurisdictions. The Company’s tax returns for 2014 through 2017 remain subject to examination by the Internal Revenue Service.

 

  11  
 

 

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to uncertain tax positions, if any, are classified as a component of income tax expense. The Company believes that it does not have any significant uncertain tax positions requiring recognition or measurement in the accompanying financial statements.

 

For the years ended December 31, 2016 and 2017, a pro forma income tax provision has been disclosed as if the Company was a C corporation and thus was subject to U.S. federal and state income taxes. The Company computed pro forma tax expense using an effective rate of 34.92% and 68.09% as of December 31, 2016 and 2017, respectively. The pro-forma provision for income taxes excludes information related to the Company’s VIE.

 

Recently Issued Accounting Pronouncements

 

ASU No. 2014-09 , Revenue from Contracts with Customers (“Topic 606”), became effective for us on January 1, 2018. Our disclosure within the below sections to this footnote reflects our updated accounting policies that are affected by this new standard. We applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily through distributors, and we have no significant post delivery obligations, this did not result in a material recognition of revenue on our accompanying CFS for the cumulative impact of applying this new standard. We made no adjustments to our previously-reported total revenues, as those periods continue to be presented in accordance with our historical accounting practices under Topic 605, Revenue Recognition .

 

Required Elements of Our Revenue Recognition : Revenue from our product sales is recognized under Topic 606 in a manner that reasonably reflects the delivery of our goods to customers in return for expected consideration and includes the following elements:

 

we ensure we have an executed purchase order with our customers that we believe is legally enforceable;
we identify the “performance obligation in the respective purchase order;
we determine the “transaction price” for each performance obligation in the respective purchase order;
we allocate the transaction price to each performance obligation; and
we recognize revenue only when we satisfy each performance obligation.

 

  12  
 

 

These five elements, as applied to each of our revenue category, is summarized below:

 

Revenue - we sell our products to wholesalers, distributors and retailers (i.e., our customers). Our wholesalers/distributors in turn sell our products directly to restaurants or end users as well as retail stores. Revenue from our product sales is recognized as when the product is taken from our warehouse via arranged freight or customer pick-up, in return for agreed-upon consideration. Additionally, the Company offers sales discounts and promotions to its customers in various forms. These incentives are accounted for as a reduction of revenue when they are characterized as cash consideration. Otherwise, the incentives are expensed. Revenue is inclusive of shipping and handling fees and all related costs of shipping and handling related to sales to customers are categorized as cost of revenue.
     
Product Returns Allowances - We estimate expected product returns for our allowance based on our historical return rates. Returned product is evaluated for resale, and may be resold.

 

ASC 842 Leases . In February, 2016, the FASB issued ASC 842 Leases which is to be effective for reporting periods beginning after December 15, 2018. The Company has reviewed the pronouncement and believes it will not have a material impact on the Company’s financial position, operations or cash flows.

 

Note 3. Consolidation of Variable Interest Entities

 

Effective April 1, 2014, the Company’s stockholder was transferred the controlling interest of Strike (see Note 2). The Company concluded that Strike is a VIE and the Company is the primary beneficiary of Strike, in accordance with ASC 810, Consolidation . Therefore, the Company consolidated Strike in its financial statements. Strike’s activities are reflected in the Company’s financial statements starting on April 1, 2014, the effective date of the controlling interest transfer. Strike was not a VIE of the

 

Company and the Company was not the primary beneficiary of Strike prior to the effective date of the controlling interest transfer of April 1, 2014. Strike’s equity is classified as non-controlling interest in the Company’s financial statements since the Company is not a shareholder of Strike.

 

The information below represents the assets, liabilities and non-controlling interest related to Strike as of December 31, 2017 and December 31, 2016.

 

    December 31, 2017  
       
Assets   $ 422,358  
Liabilities     318,073  
Non-controlling interest     (424,081 )

 

    December 31, 2016  
Assets   $ 187,013  
Liabilities     40,329  
Non-controlling interest     (373,365 )

 

  13  
 

 

Note 4. Fixed Assets

 

Fixed assets comprised the following at December 31:

 

    2017     2016  
Computer equipment   $ 22,924   $ 18,303  
Warehouse and refrigeration equipment     135,607       106,737  
Leasehold improvements     26,600       26,600  
Automobile     174,621       174,621  
Total     359,752       326,261  
Less: Accumulated depreciation and amortization     (213,256 )     (150,856 )
Fixed assets, net   $ 146,496     $ 175,405  

 

For the years ended December 31, 2017 and 2016, depreciation and amortization expense of fixed assets totaled approximately $62,400 each year.

 

Note 5. Stockholder Notes Payable

 

The Company had unsecured promissory notes outstanding to its stockholder of approximately $2,910,000 and $2,410,000 as of December 31, 2017 and 2016, respectively. These notes are payable on demand and bear an annual interest rate of 6%. These notes are subordinated to AFS Finco I LP (“Ares”) as a stipulation to the working capital line of credit. Principle payments are not allowed under this subordination agreement that was effective August 31, 2016. No Principal payments were made by the Company during 2017 or 2016. The Stockholder loaned an additional $500,000 in subordinated funds to the Company during the year ended December 31, 2017.

 

Interest expense for the stockholder notes totaled approximately $162,300 and $115,000 for the years ending December 31, 2017 and 2016, respectively. For the year ending December 31, 2016 there was approximately $30,000 in interest payments waived by the stockholder.

 

Note 6. Debt

 

Working Capital Line of Credit

 

The Company entered into a $10,000,000 revolving line of credit with AloStar in July 2013. This facility was amended in March 2014 to increase the line of credit to $13,500,000, and subsequently amended in January 2015 to increase the line of credit to $20,000,000. The January 2015 amendment also extended the term of the facility through December 31, 2017. This line of credit is subject to early termination by the lender upon defined event of default. The Company continues to be obligated to meet certain financial covenants. The Company analyzed the Line of Credit modification under ASC 470-50-40-21 and determined that the modification did not trigger any additional accounting due to the line increase.

 

  14  
 

 

The line of credit bears an interest rate equal to the Daily LIBOR rate plus 4.50% or a Base Rate (Prime) plus 1.75%, with a floor interest rate of 5.50%. During the year ended December 31, 2015, the Company failed to meet certain financial covenants. As a result of the covenant breach, the company entered into a forbearance agreement dated November 5, 2015 and expired January 31, 2016. This forbearance agreement reduced the amount of the line to $17,000,000 and required the company to adhere to additional reporting requirements, increased the minimum interest rate to 6.50%, and changed the lending formulas and requirements on several pieces of collateral. The Company analyzed the Line of Credit modification under ASC 470-50-40-21 and determined that the modification did not trigger any additional accounting due to the line reduction. Additionally, it required the shareholder pledge 65% of his stock in Bacolod Blue Star Export Co. as additional collateral to the facility. This line was paid in full, inclusive of approximately $120,000 in prepayment penalties and legal fees on August 31, 2016.

 

The Company entered into a $14,000,000 revolving line of credit with Ares on August 31, 2016, the proceeds of which were used to pay off the prior line of credit, pay new loan of approximately $309,000, and provide additional working capital to the company. This facility was amended on November 18, 2016, June 19, 2017 and October 16, 2017. In the second amendment the term of this facility was extended to a term of 4 years from the effective date and is subject to early termination by the lender upon defined events of default. The Company continues to be obligated to meet certain financial covenants.

 

The line of credit bears an interest rate equal to the greater of 3 Month LIBOR rate plus 6.25%, the Prime rate plus 3.0% or a fixed rate of 6.5%.

 

The Ares line of credit agreement is subject to the following terms:

 

Borrowing is based on up to 85% of eligible accounts receivable plus the net orderly liquidation value of eligible inventory at the same rate, subject to certain defined limitations.
The line is collateralized by substantially all the assets and property of the Company and is personally guaranteed by the stockholder of the Company.
The Company is restricted to specified distribution payments, use of funds, and is required to comply with certain other covenants including certain financial ratios.
All cash received by the Company is applied against the outstanding loan balance.
A subjective acceleration clause allows Ares to call the note upon a material adverse change.

 

During the year ended December 31, 2016, the Company failed to meet certain financial covenants. As a result of the covenant breach, the company is being charged the default rate of interest of an additional 3.0%. The company cured the default effective May 31, 2017 and the bank issued the second amendment to the loan and security agreement dated June 19, 2017 waiving the defaults of the financial covenants. The Company is in compliance with all bank covenants as of December 31, 2017.

 

As of December 31, 2017, the line of credit bears interest rate of 6.7%.

 

As of December 31, 2017 and 2016, the line of credit had an outstanding balance of approximately $12,100,000 and $9,600,000, respectively.

 

  15  
 

 

The Company amortizes loan costs on a straight-line basis, which approximates the interest method, over the term of the credit facility. The Company had loan costs associated with the working capital lines of credit of approximately $195,000 and $244,000, net of approximately $229,000 and $64,500 of accumulated amortization as of December 31, 2017 and 2016, respectively. The Company recorded amortization expense of approximately $164,000 and $118,000 during the years ended December 31, 2017 and 2016, respectively.

 

Long-Term Debt

 

As of December 31, 2017 and 2016, long-term debt consisted of a note payable outstanding with Mercedes-Benz Financial Services (“MB Financial”). The Company entered into a loan agreement with MB Financial on November 30, 2014 to finance the purchase of an automobile. The loan bears interest at 5.56% per annum and requires monthly installment of approximately $3,000, inclusive of interest. The loan matures on November 30, 2019.

 

As of December 31, 2017 and 2016, this loan had an outstanding balance of approximately $69,000 and $102,000, respectively.

 

At December 31, 2017, scheduled principal payments related to long-term debt are as follows:

 

2018     35,000  
2019     34,000  
         
 Total   $ 69,000  

 

Interest expense for third party debt totaled approximately $807,000 and $800,000 for the years ended December 31, 2017 and 2016, respectively.

 

Note 7. Commitment

 

The Company leases its office and warehouse facility from JK Real Estate, a related party through common family beneficial ownership (see Note 2). The lease has a 20 year term, expiring in July 2021. The Company is a guarantor of the mortgage on the facility which had a balance of approximately $1,346,000 at December 31, 2017; the Company’s maximum exposure. The Company deems that rental income on this lease is sufficient to cover the loan payments under this mortgage. Therefore, the Company did not record any liability related to the mortgage in the consolidated financial statements as the Company does not believe it will be called upon to perform under this guarantee, in accordance with ASC 460, Guarantees .

 

  16  
 

 

At December 31, 2017, future minimum lease payments under operating lease agreements are as follows:

 

2018     203,000  
2019     203,000  
2020     203,000  
2021     102,000  
    $ 711,000  

 

Rental and equipment lease expenses amounted to approximately $211,000 and $227,400 for the years ended December 31, 2017 and 2016, respectively.

 

Note 8.

Employee Benefit Plan

 

The Company provides and sponsors a 401(k) plan for its employees. For the years ended December 31, 2017 and 2016, no contributions were made to the plan by the Company.

 

Note 9. Subsequent Events

 

On March 31, 2018 the company granted options to Carlos Faria. The option grant consisted of an option to purchase 104 shares of stock, and is for a 10 year term. These options were accounted for as fully vested and will become fully vested as of the close of the merger between John Keeler & Co., Inc. and Blue Star Foods Corp (formerly A.G. Acquisition Group II, Inc.)

 

The probability for vesting of this option was analyzed as of June 30, 2018 and September 30, 2018 based upon certain milestones that are necessary for the vesting. It was determined that as of June 30, 2018 and September 30, 2018 that the probability that these options will vest was 40% and 47.5% respectively, therefore, no option expense was recognized for either period. However, On November 8, 2018 the sole shareholder of the company executed an Agreement and Plan of Merger and Reorganization with Blue Star Foods Corp. Upon the execution of this agreement, the options to Mr. Faria were fully vested.

 

On September 19, 2018, the company signed a fourth amendment to the loan and security agreement with Ares Financial. This Amendment waived the current default, and increased the term of the agreement to August 30, 2020.

 

On September 20, 2018, the company entered into a settlement and mutual release agreement with a supplier that the company was engaged in a commercial dispute. The settlement resulted in a reduction of the outstanding accounts payable to that supplier of $388,199.34 to a balance due of $1,465,000.

 

As of October 31, 2018 the company changed its tax status from an S corporation to a C Corporation under the provisions of the Internal Revenue Code.

 

  17  
 

 

On November 8, 2018 the sole shareholder of the company executed an Agreement and Plan of Merger and Reorganization with Blue Star Foods Corp. (Formerly A.G. Acquisition Group II, Inc.) and Blue Star Acquisition Corp. John R. Keeler will exchange his 500 shares with a par value of $1.00 in John Keeler & Co., Inc. for the 15,000,000 shares with a par value of $.0001 of the then outstanding 16,015,000 outstanding shares. The balance of the outstanding shares will be held by the prior owners of Blue Star Foods Corp. and various service providers. Additionally, there were 725 Series A Preferred shares and 181,250 warrants issued to private placement investors, 688 Series A Preferred shares and 172,000 warrants issued for settlement with prior investors, and 3,120,000 options to purchase preferred stock issued to Christopher Constable upon the close of the merger.

 

The Merger will be accounted for as a “reverse merger” and recapitalization since, immediately following the completion of the transaction, the holders of John Keeler & Co., Inc.’s stock will have effective control of Blue Star Foods Corp. In addition, John Keeler & Co., Inc. will have control of the combined entity through control of the Board by designating all four of the board seats. Additionally, all of John Keeler & Co., Inc.’s officers and senior executive positions will continue on as management of the combined entity after consummation of the Merger. For accounting purposes, John Keeler & Co., Inc. will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Blue Star Foods Corp. Accordingly, John Keeler & Co., Inc.’s assets, liabilities and results of operations will become the historical financial statements of the registrant, and the Company’s assets, liabilities and results of operations will be consolidated with Blue Star Foods Corp effective as of the date of the closing of the Merger. No step-up in basis or intangible assets or goodwill will be recorded in this transaction.

 

On November 8, 2018, Inc. the company entered into the fifth amendment to the loan and security agreement with Ares Financial. This amendment memorialized the change in ownership of John Keeler & Co., Inc as a wholly owned subsidiary of Blue Star Foods Corp. as well as the change of John Keeler from CEO to Executive Chairman, and the appointment of Carlos Faria as the CEO of John Keeler & Co., Inc.

 

  18  
 

 

 

John Keeler & Co., Inc. D/B/A Blue Star Foods

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

    June 30,     December 31,  
    2018     2017  
ASSETS                
                 
CURRENT ASSETS                
Cash (including VIE $10,448 and $22,571, respectively)   $ 17,938     $ 29,377  
Restricted Cash     15,926       29,498  
Accounts receivable, net (including VIE $86,932 and $138,333, respectively)     4,313,662       4,675,588  
Inventory, net (including VIE $138,569 and $257,798, respectively)     7,858,523       12,952,850  
Advances to related party     1,082,925       -  
Other current assets (including VIE $0 and $3,656, respectively)     200,168       99,997  
Total current assets     13,489,142       17,787,310  
                 
FIXED ASSETS, net     121,764       146,496  
                 
OTHER ASSETS     244,226       311,053  
                 
TOTAL ASSETS   $ 13,855,132     $ 18,244,859  
                 
LIABILITIES AND STOCKHOLDER’S DEFICIT                
                 
CURRENT LIABILITIES                
Accounts payable and accruals (including VIE $80,688 and $318,073, respectively)   $ 3,525,429     $ 4,409,232  
Working capital line of credit     8,972,011       12,109,150  
Current maturities of long-term debt     36,000       35,011  
Stockholder notes payable - Subordinated     2,910,136       2,910,136  
Total current liabilities     15,443,576       19,463,529  
                 
LONG -TERM DEBT     15,644       33,878  
                 
TOTAL LIABILITIES     15,459,220       19,497,407  
                 
COMMITMENTS AND CONTINGENCIES                
                 
STOCKHOLDER’S DEFICIT                
John Keeler & Co. stockholder’s deficit:                
Common stock, $1.00 par value 500 shares authorized, issued and Outstanding     500       500  
Additional paid-in capital     559,257       559,257  
Accumulated deficit     (1,812,762 )     (1,494,927 )
Total John Keeler & Co. stockholder’s deficit     (1,253,005 )     (935,170 )
                 
Non-controlling interest     (458,708 )     (424,081 )
Accumulated other comprehensive income (VIE)     107,625       106,703  
Total VIE’s deficit     (351,083 )     (317,378 )
                 
TOTAL STOCKHOLDER’S DEFICIT     (1,604,088 )     (1,252,548 )
                 
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT   $ 13,855,132     $ 18,244,859  

 

The accompanying notes are an integral part of these unaudited financial statements

 

  1  
 

 

John Keeler & Co., Inc. D/B/A Blue Star Foods

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

SIX MONTHS ENDED JUNE 30,

 

    2018     2017  
             
REVENUE, NET   $ 16,877,503     $ 19,374,358  
                 
COST OF REVENUE (including approximately $6,167,500 and $5,553,400 respectively, purchased from related party)     14,527,461       16,203,074  
                 
GROSS PROFIT     2,350,042       3,171,284  
                 
COMMISSIONS     66,215       78,959  
SALARIES & WAGES     932,970       924,914  
OTHER OPERATING EXPENSES     1,146,415       1,128,197  
                 
INCOME (LOSS) FROM OPERATIONS     204,442       1,039,214  
                 
OTHER EXPENSE     (679 )     (9,065 )
INTEREST EXPENSE     (556,224 )     (511,600 )
                 
NET INCOME (LOSS)     (352,461 )     518,549  
                 
LESS: NET INCOME ( LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST     (34,626 )     43,352  
                 
NET INCOME (LOSS) LOSS ATTRIBUTABLE TO JOHN KEELER & CO.   $ (317,835 )   $ 475,197  
                 
COMPREHENSIVE INCOME (LOSS):                
                 
TRANSLATION ADJUSTMENT ATTRIBUTABLE TO NON-CONTROLLING INTEREST     922       7,825  
                 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST   $ (33,704 )   $ 51,177  
                 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JOHN KEELER & CO.   $ (317,835 )   $ 475,197  
                 
PRO FORMA DATA:                
PRO FORMA INCOME TAX EXPENSE     (71,589 )     190,961  
                 
PRO FORMA NET (LOSS) INCOME ATTRIBUTABLE TO JOHN KEELER & CO.   $ (246,246 )   $ 284,236  
                 
PRO FORMA COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO JOHN KEELER & CO.   $ (246,246 )   $ 284,236  

 

The accompanying notes are an integral part of these unaudited financial statements

 

  2  
 

 

John Keeler & Co., Inc. D/B/A Blue Star Foods

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30,

 

    2018     2017  
CASH FLOWS FROM OPERATING ACTIVITIES:                
                 
Net Income (Loss)   $ (352,461 )   $ 518,549  
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation of fixed assets     31,103       31,289  
Amortization of intangible assets     6,491       6,491  
Amortization of loan costs     66,826       164,457  
Allowance for inventory obsolescence     -       50,434  
Changes in operating assets and liabilities:                
Receivables     361,926       (862,557 )
Inventories     5,094,327       3,549,519  
Advances to affiliated supplier     (1,082,925 )     981,972  
Other current assets     (100,171 )     (70,253 )
Other assets     (6,490 )     5,924  
Accounts payable and accruals     (883,803 )     (3,522,684 )
Net cash provided by (used) in operating activities     3,134,823       853,141  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of fixed assets     (6,371 )     (3,391 )
Net cash used in investing activities     (6,371 )     (3,391 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Repayments of working capital lines of credit, net     (3,137,138 )     (1,332,070 )
Principal payments of long-term debt     (17,247 )     (16,311 )
Proceeds from stockholder notes payable - Subordinated     -       500,000  
Repayments of stockholder notes payable - Subordinated     -       -  
Payments of Loan costs     -       (115,000 )
Changes in restrictive cash     13,572       67,812  
Net cash provided by (used) in financing activities     (3,140,813 )     (895,569 )
                 
Effect of exchange rate changes on cash     922       7,825  
                 
NET INCREASE (DECREASE) IN CASH     (11,439 )     (37,994 )
                 
CASH, BEGINNING OF PERIOD     29,377       54,981  
                 
CASH - END OF PERIOD   $ 17,938     $ 16,987  
                 
Supplemental Disclosure of Cash Flow Information                
Cash paid for interest   $ 555,824     $ 511,767  

 

The accompanying notes are an integral part of these unaudited financial statements

 

  3  
 

 

John Keeler & Co., Inc. DBA Blue Star Foods

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.   Basis of Presentation

 

The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2017 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. The consolidated financial statements included in this report on Form 8-K should be read in conjunction with the consolidated financial statements and the for the fiscal year ended December 31, 2017, also included in this report.

 

Note 2.   Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its variable interest entity for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

 

Advances to Suppliers and Related Party

 

In the normal course of business, the Company may advance payments to its suppliers, inclusive of Bacolod, a related party. These advances are in the form of prepayments for products that will ship within a short window of time. In the event that it becomes necessary for the Company to return products or adjust for quality issues, the Company is issued a credit by the vendor in the normal course of business and these credits are also reflected against future shipments.

 

As of June 30, 2018 and December 31, 2017, the balance due from the related party for future shipments was approximately $1,082,925 and $0, respectively. The 2018 balances represent approximately two months of purchases from the supplier.

 

  4  
 

 

Revenue Recognition

 

ASU No. 2014-09 , Revenue from Contracts with Customers (“Topic 606”), became effective for us on January 1, 2018. Our disclosure within the below sections to this footnote reflects our updated accounting policies that are affected by this new standard. We applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily through distributors, and we have no significant post delivery obligations, this did not result in a material recognition of revenue on our accompanying CFS for the cumulative impact of applying this new standard. We made no adjustments to our previously-reported total revenues, as those periods continue to be presented in accordance with our historical accounting practices under Topic 605, Revenue Recognition .

 

Required Elements of Our Revenue Recognition : Revenue from our product sales is recognized under Topic 606 in a manner that reasonably reflects the delivery of our goods to customers in return for expected consideration and includes the following elements:

 

  we ensure we have an executed purchase order with our customers that we believe is legally enforceable;
  we identify the “performance obligation in the respective purchase order;
  we determine the “transaction price” for each performance obligation in the respective purchase order;
  we allocate the transaction price to each performance obligation; and
  we recognize revenue only when we satisfy each performance obligation.

 

These five elements, as applied to each of our revenue category, is summarized below:

 

  Revenue - we sell our products to wholesalers, distributors and retailers (i.e., our customers). Our wholesalers/distributors in turn sell our products directly to restaurants or end users as well as retail stores. Revenue from our product sales is recognized as when the product is taken from our warehouse via arranged freight or customer pick-up, in return for agreed-upon consideration. Additionally, the Company offers sales discounts and promotions to its customers in various forms. These incentives are accounted for as a reduction of revenue when they are characterized as cash consideration. Otherwise, the incentives are expensed. Revenue is inclusive of shipping and handling fees and all related costs of shipping and handling related to sales to customers are categorized as cost of revenue.
     
  Product Returns Allowances - We estimate expected product returns for our allowance based on our historical return rates. Returned product is evaluated for resale, and may be resold.

 

ASC 842 Leases . In February, 2016, the FASB issued ASC 842 Leases which is to be effective for reporting periods beginning after December 15, 2018. The Company has reviewed the pronouncement and believes it will not have a material impact on the Company’s financial position, operations or cash flows.

 

  5  
 

 

Income Taxes

 

The Company, with the consent of its stockholder, has elected to be taxed under the S Corporation provisions of the Internal Revenue Code. Under these provisions, taxable income or loss of the Company is reflected on the stockholder’s individual income tax return.

 

For the six months ended June 30, 2018 and 2017, a pro forma income tax provision has been disclosed as if the Company was a C corporation and thus was subject to U.S. federal and state income taxes. The Company computed pro forma tax expense using an effective rate of 34.92% and 68.09% as of June 30, 2018 and 2017, respectively. The pro-forma provision for income taxes excludes information related to the Company’s VIE.

 

 

Note 3. Consolidation of Variable Interest Entities

 

Effective April 1, 2014, the Company’s stockholder was transferred the controlling interest of Strike (see Note 2). The Company concluded that Strike is a VIE and the Company is the primary beneficiary of Strike, in accordance with ASC 810, Consolidation . Therefore, the Company consolidated Strike in its financial statements. Strike’s activities are reflected in the Company’s financial statements starting on April 1, 2014, the effective date of the controlling interest transfer. Strike was not a VIE of the Company and the Company was not the primary beneficiary of Strike prior to the effective date of the controlling interest transfer of April 1, 2014. Strike’s equity is classified as non-controlling interest in the Company’s financial statements since the Company is not a shareholder of Strike.

 

The information below represents the assets, liabilities and non-controlling interest related to Strike as of June 30, 2018 and December 31, 2017.

 

    June 30, 2018  
       
Assets   $ 235,949  
Liabilities     80,688  
Non-controlling interest     (458,708 )

 

    December 31, 2017  
       
Assets   $ 422,358  
Liabilities     318,073  
Non-controlling interest     (424,081 )

 

Note 4. Debt

 

Working Capital Line of Credit

 

The Company entered into a $14,000,000 revolving line of credit with Ares on August 31, 2016, the proceeds of which were used to pay off the prior line of credit, pay new loan costs of approximately $309,000, and provide additional working capital to the company. This facility was amended on November 18, 2016, June 19, 2017, October 16, 2017 and September 19, 2018. In the fourth amendment the term of this facility was extended to a term of 5 years from the effective date and is subject to early termination by the lender upon defined events of default. The Company continues to be obligated to meet certain financial covenants.

 

  6  
 

 

The line of credit bears an interest rate equal to the greater of 3 Month LIBOR rate plus 6.25%, the Prime rate plus 3.0% or a fixed rate of 6.5%.

 

The Ares line of credit agreement is subject to the following terms:

 

  Borrowing is based on up to 85% of eligible accounts receivable plus the net orderly liquidation value of eligible inventory at the same rate, subject to certain defined limitations.
  The line is collateralized by substantially all the assets and property of the Company and is personally guaranteed by the stockholder of the Company.
  The Company is restricted to specified distribution payments, use of funds, and is required to comply with certain other covenants including certain financial ratios.
  All cash received by the Company is applied against the outstanding loan balance.
  A subjective acceleration clause allows Ares to call the note upon a material adverse change.

 

During the first six months ended June 30, 2018, the Company failed to meet certain financial covenants. The bank elected not to charge the default rate of interest related to this covenant breach.

 

As of June 30, 2018, the line of credit bears interest rate of 8.6%.

 

As of June 30, 2018 and December 31, 2017, the line of credit had an outstanding balance of approximately $8,972,011 and $12,100,000, respectively.

 

Interest expense for third party debt totaled approximately $468,518 and $807,000 for the six months ending June 30, 2018 and the year ended December 31, 2017, respectively.

 

Note 5. Stock-Based Compensation

 

On March 31, 2018 the company issued options totaling 104 shares to an employee of the company. This Option grant was approved by the shareholder at the time of the grant.

 

We accounted for the Stock options using a Black-Sholes valuation model utilizing an expected term of 5 years, a volatility factor of 51.76% and a compounded risk free interest rate of 2.84%. The Exercise price of the option was equal to the fair market value of the company’s common stock at the date of the grant and have a 10 year term. These options were accounted for as fully vested and will become fully vested as of the close of the merger between John Keeler & Co., Inc. and Blue Star Foods Corp (formerly A.G. Acquisition Group II, Inc.)

 

The probability for vesting of this option was analyzed as of June 30, 2018 based upon certain milestones that are necessary for the vesting. It was determined that as of June 30, 2018 that the probability that these options will vest was 40%, therefore, no option expense was recognized for the period.

 

  7  
 

 

Stock Options                        
                         
    Options     Average Price     Average Life
(in Years)
    Aggregate
Intrinsic Value
 
Outstanding as of December 31, 2017     -     $ -                  
Granted     104       10,000.00                  
Exercised     -                          
Forfeited/Expired     -                          
Outstanding as of June 30, 2018     104     $ 10,000.00       9.75     $      -  
                                 
Exercisable at June 30, 2018     -       -             $ -  

 

Stock Based Compensation for the grant of these options is approximately $496,293. This expense will be recognized when the probability of the vesting condition is certain.

 

The vesting condition was met on November 8, 2018 via the execution of an Agreement and Plan of Merger and Reorganization with Blue Star Foods Corp. (Formerly A.G. Acquisition Group II, Inc. and Blue Star Acquisition Corp.

 

Note 6. Subsequent Events

 

On September 19, 2018, the company signed a fourth amendment to the loan and security agreement with Ares Financial. This Amendment waived the current default, and increased the term of the agreement to August 30, 2020.

 

On September 20, 2018, the company entered into a settlement and mutual release agreement with a supplier that the company was engaged in a commercial dispute. The settlement resulted in a reduction of the outstanding accounts payable to that supplier of $388,199.34 to a balance due of $1,465,000.

 

As of October 31, 2018 the company changed its tax status from an S corporation to a C Corporation under the provisions of the Internal Revenue Code.

 

  8  
 

 

On November 8, 2018 the sole shareholder of the company executed an Agreement and Plan of Merger and Reorganization with Blue Star Foods Corp. (Formerly A.G. Acquisition Group II, Inc. and Blue Star Acquisition Corp. John R. Keeler will exchange his 500 shares with a par value of $1.00 in John Keeler & Co., Inc. for the 15,000,000 shares with a par value of $.0001 of the then outstanding 16,015,000 outstanding shares. The balance of the outstanding shares will be held by the prior owners of Blue Star Foods Corp. and various service providers. Additionally, there were 725 Series A Preferred shares and 181,250 warrants issued to private placement investors, 688 Series A Preferred shares and 172,000 warrants issued for settlement with prior investors, and 3,120,000 options to purchase preferred stock issued to Christopher Constable upon the close of the merger.

 

The Merger will be accounted for as a “reverse merger” and recapitalization since, immediately following the completion of the transaction, the holders of John Keeler & Co., Inc.’s stock will have effective control of Blue Star Foods Corp. In addition, John Keeler & Co., Inc. will have control of the combined entity through control of the Board by designating all four of the board seats. Additionally, all of John Keeler & Co., Inc.’s officers and senior executive positions will continue on as management of the combined entity after consummation of the Merger. For accounting purposes, John Keeler & Co., Inc. will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Blue Star Foods Corp. Accordingly, John Keeler & Co., Inc.’s assets, liabilities and results of operations will become the historical financial statements of the registrant, and the Company’s assets, liabilities and results of operations will be consolidated with Blue Star Foods Corp effective as of the date of the closing of the Merger. No step-up in basis or intangible assets or goodwill will be recorded in this transaction.

 

On November 8, 2018, Inc. the company entered into the fifth amendment to the loan and security agreement with Ares Financial. This amendment memorialized the change in ownership of John Keeler & Co., Inc as a wholly owned subsidiary of Blue Star Foods Corp. as well as the change of John Keeler from CEO to Executive Chairman, and the appointment of Carlos Faria as the CEO of John Keeler & Co., Inc.

 

  9  
 

 

 

 

 

 

 

The following unaudited pro forma combined financial statements give effect to the Merger Agreement between Blue Star Foods Corp. (formerly A.G. Acquisition Group II, Inc.) (“BSFC”), BSFC Subsidiary, Blue Star Acquisition, Inc. and John Keeler & Co., Inc D/B/A Blue Star Foods. Of the then outstanding shares (16,015,000), 15,000,000 will be owned by Blue Star Acquisition, Inc, having exchanged his 500 shares in John Keeler & Co., Inc D/B/A Blue Star Foods (constituting 100% of John Keeler & Co., Inc D/B/A Blue Star Foods outstanding stock) and the remaining 1,015,000 shares will be held by the existing BSFC shareholders and service providers.

 

BSFC had 100,000,000 common shares authorized with a par value of $0.0001 with 10,000,000 shares outstanding. Additionally, BSFC had 10,000 shares of Series A 8% cumulative convertible preferred stock authorized with a par value of $.0001 with no shares outstanding. Upon closing of the Merger, 9,250,000 shares of the then outstanding 10,000,000 shares will be cancelled leaving 750,000 shares. Blue Star Acquisition, Inc. will exchange all of it shares in John Keeler & Co., Inc D/B/A Blue Star Foods (500 shares at $1.00 par value common shares) for 15,000,000 shares of BSFC. Additionally, BSFC will issue 265,000 shares to service providers, for their services in closing the transaction. After the merger, Blue Star Acquisition, Inc. will own 96.4% the then outstanding shares of BSFC.

 

The Merger will be accounted for as a “reverse merger” and recapitalization since, immediately following the completion of the transaction, the holders of John Keeler & Co. Inc. stock will have effective control of BSFC. In addition, John Keeler & Co., Inc. will have control of the combined entity through control of the Board by designating all four of the board seats to be held by the existing board of John Keeler & Co., Inc. Additionally, all of John Keeler and Co., Inc.’s officers and senior executive positions will continue on as management of the combined entity after consummation of the Merger. For accounting purposes, John Keeler & Co., Inc. will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of BSFC. Accordingly, John Keeler & Co., Inc.’s assets, liabilities and results of operations will become the historical financial statements of the registrant, and the Company’s assets, liabilities and results of operations will be consolidated with BSFC effective as of the date of the closing of the Merger. No step-up in basis or intangible assets or goodwill will be recorded in this transaction.

 

BSFC entered into a private placement offering whereby BSFC offered units to include 1 share of series A convertible Preferred stock, par value $.0001, initially convertible into shares of the Company’s common stock, par value $0.0001 per share (the “ Common Stock ”), at a conversion price equal to $2.00 per share (500 Shares) (the “ Conversion Price ”), and (ii) a warrant, substantially in the form of Exhibit A hereto (the “ Warrant ”), representing the right to purchase one-half (½) of one share of the Company’s Common Stock for every share of Common Stock that would be received upon conversion of a share of 8% Series A Stock (250 Shares), exercisable from issuance until three (3) years after the applicable Closing Date (as defined below), at an exercise price equal to 120% of the Conversion Price ($2.40 per each whole share).

 

Upon Closing, BSFC will issue 725 shares of the Series A 8% Cumulative Preferred Convertible stock to the private placement investors and 181,250 warrants. Additionally, BSFC will issue 688 shares of Series A 8% Cumulative Preferred Convertible stock and 172,000 warrants to former investors in a prior transaction.

 

Upon closing, BSFC will issue an option for 3,120,000 shares to Carlos Faria as a transfer from an option grant in John Keeler & Co., Inc. This option vested as of the close of the merger and an expense of $496,293 will be recognized as a pro-forma adjustment.

 

As of the closing of the transaction, BSFC issued an option for 3,120,000 common shares to Christopher Constable. This option will vest 1 year following the closing of the merger. BSFC recognized an expense of $2,977,783 as a pro-forma adjustment

 

The unaudited pro forma combined balance sheet as of July 31, 2018 as well as the unaudited combined statements of operations for the year ended October 31, 2017 for BSFC and December 31, 2017 for John Keeler and Co., Inc. and for the nine months ended July 31, 2018 for BSFC and June 30, 2018 for John Keeler & Co., Inc., presented herein, gives effect to the Merger as if the transaction had occurred at the beginning of such period and includes certain adjustments within the Stockholder’s Equity section that are directly attributable to the transaction.

 

The unaudited pro forma combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had John Keeler & Co., Inc. and BSFC been a combined company during the specified periods. The unaudited pro forma combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical combined financial statements of John Keeler & Co., Inc. included herein, and the historical financial statements of BSFC included in its Annual Report on Form 10-K for the year ended October 31, 2017 and its Quarterly Report on Form 10-Q for the nine months ended July 31, 2018.

 

  1  
 

 

BLUE STAR FOODS CORP AND JOHN KEELER & CO., INC.

PROFORMA CONDENSED COMBINED BALANCE SHEETS

(UNAUDITED)

 

    John Keeler & Co., Inc.
July 31, 2018
    Blue Star Foods Corp
July 31, 2018
    Adjustments     Adjustments Reference   Pro Forma Combined and Consolidated  
ASSETS                                    
                                     
CURRENT ASSETS                                    
Cash   $ 10,093     $ 1,024     $ 725,000     A   $ 736,117  
Restricted Cash     106,660                           106,660  
Accounts receivable, net     4,478,674                           4,478,674  
Inventory, net     6,492,754                           6,492,754  
Advances to related party     1,118,453                           1,118,453  
Other current assets     177,744                           177,744  
Total current assets     12,384,378       1,024       725,000           13,110,402  
                                     
FIXED ASSETS, net     116,580                           116,580  
                                     
OTHER ASSETS     233,038                           233,038  
                                     
TOTAL ASSETS   $ 12,733,996     $ 1,024     $ 725,000         $ 13,460,020  
                                     
LIABILITIES AND STOCKHOLDER’S DEFICIT                                    
                                     
CURRENT LIABILITIES                                    
Accounts payable and accruals   $ 3,399,226     $ 9,000     $ 60,000     H   $ 3,468,226  
Working capital line of credit     7,857,828                           7,857,828  
Current maturities of long-term debt     38,008                           38,008  
Stockholder notes payable - Subordinated     2,910,136                           2,910,136  
Total current liabilities     14,205,198       9,000       60,000           14,274,198  
                                     
LONG -TERM DEBT     10,712       -                   10,712  
                                     
TOTAL LIABILITIES     14,215,910       9,000       60,000           14,284,910  
                                     
COMMITMENTS AND CONTINGENCIES                                    
                                     
STOCKHOLDER’S DEFICIT                                    
Series A 8% cumulative convertible preferred stock, $0.0001 par value; 10,000 shares authorized, 1,413 shares issued and outstanding                     -     A,B     -  
Common stock, $0.0001 par value, 100,000,000 shares authorized; 16,015,000 shares issued and outstanding     500       1,000       102     C,D,E,F     1,602  
Additional paid-in capital     559,257       3,000       2,508,568     A,B,C,D,E,F,G,I,K,L     3,070,825  
Accumulated deficit     (1,704,056 )     (11,976 )     (1,843,670 )   B,C,G,H,I,,L     (3,559,702 )
Total Stockholders Deficit     (1,144,299 )     (7,976 )     665,000           (487,275 )
                                     
Non-controlling interest     (463,853 )     -                   (463,853 )
Accumulated other comprehensive income (VIE)     126,238       -                   126,238  
Total VIE’s deficit     (337,615 )     -       -           (337,615 )
                                  -  
TOTAL STOCKHOLDER’S DEFICIT     (1,481,914 )     (7,976 )     665,000           (824,890 )
                                  -  
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT   $ 12,733,996     $ 1,024     $ 725,000         $ 13,460,020  

 

See Notes to Unaudited Pro Forma Combined Financial Statements.

 

  2  
 

 

 

BLUE STAR FOODS CORP AND JOHN KEELER & CO., INC.        

PROFORMA CONDENSED COMBINED INCOME STATEMENT  

TWELVE MONTHS ENDED                  

(UNAUDITED)                  

 

    John Keeler & Co., Inc. December 31, 2017     Blue Star Foods Corp.
October 31, 2017
    Adjustments     Adjustments Reference   Pro Forma Combined and Consolidated  
                             
REVENUE, NET   $ 36,951,923     $ -                 $ 36,951,923  
                                     
COST OF REVENUE     31,254,430       -                 $ 31,254,430  
                                     
GROSS PROFIT     5,697,493       -       -           5,697,493  
                                     
COMMISSIONS     155,574                           155,574  
SALARIES & WAGES     1,859,706                           1,859,706  
OTHER OPERATING EXPENSES     2,340,163       387       4,833,429     B,C,H,I,J,L     7,173,979  
                                     
INCOME (LOSS) FROM OPERATIONS     1,342,050       (387 )     (4,833,429 )         (3,491,766 )
                                     
OTHER EXPENSE     (29,478 )     -                   (29,478 )
INTEREST EXPENSE     (969,416 )     -                   (969,416 )
                                     
NET INCOME (LOSS)     343,156       (387 )     (4,833,429 )         (4,490,660 )
                                     
Deemed dividend on convertible preferred shares and warrants     -       -       (153,193 )   K     (153,193 )
                                     
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS     343,156       (387 )   $ (4,986,622 )       $ (4,643,853 )
                                     
Net Income (Loss) Per Share - Basic and Diluted     686       (0.00 )                 (0.29 )
                                     
Weighted Average Shares Outstanding - Basic and
Diluted
    500       10,000                   16,015,000  

 

See Notes to Unaudited Pro Forma Combined Financial Statements.

 

 

  3  
 

 

BLUE STAR FOODS CORP AND JOHN KEELER & CO., INC.  

PROFORMA CONDENSED COMBINED INCOME STATEMENT  

NINE MONTHS ENDED

(UNAUDITED)

 

    John Keeler & Co., Inc.
June 30, 2018
   

Blue Star Foods Corp.

July 31, 2018

    Adjustments     Adjustments Reference   Pro Forma Combined and Consolidated  
                             
REVENUE, NET   $ 25,493,757     $ -                 $ 25,493,757  
                                     
COST OF REVENUE     22,125,126       -                   22,125,126  
                                     
GROSS PROFIT     3,368,631       -       -           3,368,631  
                                     
COMMISSIONS     103,504                           103,504  
SALARIES & WAGES     1,338,006                           1,338,006  
OTHER OPERATING EXPENSES     1,751,225       11,589       4,833,429     B,C,H,I,J,L     6,596,243  
                                     
INCOME (LOSS) FROM OPERATIONS     175,896       (11,589 )     (4,833,429 )         (4,669,122 )
                                     
OTHER EXPENSE     (679 )     -                   (679 )
INTEREST EXPENSE     (801,523 )     -                   (801,523 )
                                     
NET INCOME (LOSS)     (626,306 )     (11,589 )     (4,833,429 )         (5,471,324 )
                                     
DEEMED DIVIDEND ON CONVERTIBLE PREFERRED SHARES AND WARRANTS     -       -       (153,193 )   K     (153,193 )
                                     
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS   $ (626,306 )   $ (11,589 )   $ (4,986,622 )       $ (5,624,517 )
Net Loss Per Share - Basic and Diluted     (1,253 )     (0.00 )                 (0.35 )
                                     
Weighted Average Shares Outstanding - Basic and
Diluted
    500       10,000,000                   16,015,000  

 

See Notes to Unaudited Pro Forma Combined Financial Statements.

 

  4  
 

 

NOTES AND ASSUMPTIONS TO PROFORMA COMBINED FINANCIAL STATEMENTS

(Unaudited)

 

(A) To Book the private placement of Preferred Shares

(B) To Book the issuance of Preferred shares to prior investors

(C) To Book Common Shares for service providers

(D) To Adjust Blue Star Foods Corp.’s shareholders ownership to 750,000 shares from 10,000,000 shares

(E) To Convert John Keeler & Co.’s common stock to additional paid-in-capital

(F) To Record John Keeler & Co’s acquisition of 15,000,000 shares of Blue Star Foods Corp. common stock in exchange for all shares of common stock of John Keeler & Co., Inc.

(G) To Convert Blue Star Foods Corp’s retained earnings to Additional paid in Capital

(H) To Book Cash Expense for Service provider due at closing

(I) To Book Issuance of Options to Carlos Faria transferring from John Keeler & Co., Inc.

(J) To Book Issuance of Options to Christopher Constable  

(K) To book Warrants granted to investors per the Subscription Agreement

(L) To book Warrants granted as part of the release agreements

 

The unaudited pro forma combined financial statements do not include any adjustment for non-recurring costs incurred or to be incurred after July 31 2018 by both Blue Star Foods Corp. and John Keeler & Co., Inc. to consummate the Reverse Merger, except as noted above. Merger costs include fees payable for legal fees and accounting fees and are estimated to be approximately $50,000. Such costs will be expensed as incurred.

 

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