UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2020

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ________ to ___________.

 

Commission file number: 0-9483

 

SPARTA COMMERCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   30-0298178

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

555 Fifth Avenue, 14th Floor, New York, NY 10017

(Address of principal executive offices) (Zip Code)

 

(212) 239-2666

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common stock, $.001 par value   SRCO   Pink Open Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 504 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to file such files). [X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

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

 

As of July 8, 2020, we had 627,092,904 shares of common stock issued and outstanding.

 

 

 

 

 

 

SPARTA COMMERCIAL SERVICES, INC.

 

FORM 10-Q

 

FOR THE QUARTER ENDED January 31, 2020

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 3
     
  Condensed Consolidated Balance Sheets as of January 31, 2020 (unaudited) and April 30, 2019 3
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2020 and 2019 (unaudited) 4
  Condensed Consolidated Statement of Changes in Deficit for the Nine Months ended January 31, 2020 (unaudited) 5
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2020 and 2019 (unaudited) 6
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
     
Item 4. Controls and Procedures 21
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 22
     
Item 1A. Risk Factors 23
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
     
Item 3. Defaults Upon Senior Securities 23
     
Item 4. Other Information 23
     
Item 5. Exhibits 23
     
Signatures 24

 

2

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    January 31, 2020     April 30, 2019  
    (Unaudited)        
ASSETS                
Current Assets                
Cash and cash equivalents   $ 160     $ 13  
Accounts receivable     21,584       3,048  
Inventory     32,361       9,761  
Other current assets     470       1,827  
Total Current Assets     54,575       14,649  
Property and equipment, net of accumulated depreciation and amortization of $213,262 and $212,905, respectively     -       357  
Other assets     9,628       9,628  
Deposits     9,000       9,000  
                 
Total assets   $ 73,203     $ 33,634  
                 
LIABILITIES AND DEFICIT                
                 
Liabilities:                
Current Liabilities                
Bank overdraft   $ 10,452     $ 11,496  
Accounts payable and accrued expenses     3,555,606       3,971,179  
Current portion notes payable net of discount of $0 and $8,633, respectively     4,862,244       4,106,169  
Deferred revenue     15,057       17,635  
Derivative liabilities     3,234,173       3,496,696  
Total Current Liabilities     11,677,532       11,603,175  
Loans payable-related parties     432,403       432,403  
Total Long Term Liabilities     432,403       432,403  
Total liabilities from continuing operations     12,109,935       12,035,578  
LIABILITIES FROM DISCONTINUED OPERATIONS     12,080       12,080  
Total liabilities   $ 12,122,015     $ 12,047,658  
                 
Deficit:                
Preferred stock, $0.001 par value; 10,000,000 shares authorized of which 35,850 shares have been designated as Series A convertible preferred stock, with a stated value of $100 per share, 125 and 125 shares issued and outstanding, respectively     12,500       12,500  
Preferred stock B, 1,000 shares have been designated as Series B redeemable preferred stock, $0.001 par value, with a liquidation and redemption value of $10,000 per share, 0 and 0 shares issued and outstanding, respectively     -       -  
Preferred stock C, 200,000 shares have been designated as Series C redeemable, convertible preferred, $0.001 par value, with a liquidation and redemption value of $10 per share, 3,650 and 2,960 shares issued and outstanding, respectively     3,900       2,960  
Preferred stock D, 2,000,000 shares have been designated as Series D redeemable, convertible preferred, $0.001 par value, with a liquidation and redemption value of $1.00 per share, 750 and 580 shares issued and outstanding, respectively     750       580  
Common stock, $0.001 par value; 750,000,000 shares authorized, 627,092,904 and 627,092,904 shares issued and outstanding, respectively     627,093       627,093  
Common stock to be issued 81,786,511 and 80,786,511, respectively     81,787       80,787  
Additional paid-in-capital     49,129,531       48,215,855  
Accumulated deficit     (62,876,296 )     (61,915,119 )
Total deficiency in stockholders’ equity     (13,020,735 )     (12,975,344 )
Non-controlling interest     971,923       961,320  
Total Deficit     (12,048,812 )     (12,014,024 )
Total Liabilities and Deficit   $ 73,203     $ 33,634  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2020 AND 2019

(UNAUDITED)

 

 

    Three Months Ended     Nine Months Ended  
    January 31,     January 31,  
    2020     2019     2020     2019  
Revenue                                
Information technology   $ 63,879     $ 91,151     $ 214,520     $ 301,143  
New World Health Brands     8,402       -       37,778       -  
Total Revenue     72,281       91,151       252,298       301,143  
Less Cost of goods sold     19,591       6,178       51,262       23,877  
Gross profit     52,690       84,973       201,036       277,266  
                                 
Operating expenses:                                
General and administrative     300,368       331,364       804,083       950,645  
Depreciation and amortization     -       357       357       1,594  
Total operating expenses     300,368       331,721       804,440       952,239  
                                 
Loss from operations     (247,678 )     (246,748 )     (603,404 )     (674,973 )
                                 
Other (income) expense:                                
Other income     (5,671 )     (1,625 )     (7,964 )     (9,242 )
Forgiveness of debt     -       -       (311,127 )     -  
Financing cost     508,601       447,888       1,032,859       1,781,170  
Amortization of debt discount     833       13,462       8,633       64,147  
Loss (gain) in changes in fair value of derivative liability     (668,314 )     (452,682 )     (375,617 )     (1,167,732 )
Total other (income) expense     (164,551 )     7,043       346,784       668,343  
                                 
Income (loss) from continuing operations   $ (83,127 )   $ (253,791 )   $ (950,188 )   $ (1,343,316 )
                                 
Loss from discontinued operations     -       -       -       -  
                                 
Net income (loss)     (83,127 )     (253,791 )     (950,188 )     (1,343,316 )
                                 
Net income attributed to non-controlling interest     (2,909 )     (2,651 )     (10,773 )     (14,492 )
                                 
Preferred dividend     (191 )     (191 )     (573 )     (573 )
                                 
Net income (loss) attributed to common stockholders   $ (86,227 )   $ (256,633 )   $ (961,534 )   $ (1,358,381 )
                                 
Basic and diluted loss per share:                                
Loss from continuing operations attributable to Sparta Commercial Services, Inc. common stockholders   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
Loss from discontinued operations attributable to Sparta Commercial Services, Inc. common stockholders     -       -       -       -  
Net loss attributable to Sparta Commercial Services, Inc. common stockholders   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
Weighted average shares outstanding     627,092,904       627,092,904       627,092,904       625,349,006  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT

FOR THE NINE MONTHS ENDED JANUARY 31, 2020

(UNAUDITED)

 

    Series A     Series B     Series C     Series D                 Common Stock     Additional           Non-        
    Preferred Stock     Preferred Stock     Preferred Stock     Preferred Stock     Common Stock     to be issued     Paid in     Accumulated     controlling        
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Interest     Total  
Balance April 30, 2019     125     $ 12,500       -     $ -       2,960     $ 2,960       580     $ 580       627,092,904     $ 627,093       80,786,511     $ 80,787     $ 48,215,855       (61,915,119 )   $ 961,320       (12,014,024 )
Sale of preferred stock                                     848       848                                                       423,152                       424,000  
Shares issued                                                                                                                             -  
Shares issued for financing cost                                                                                                                             -  
Shares issued for conversion of notes and interest                                     92       92                                                       45,737                       45,829  
Shares issued for settlement of accounts payable                                                                                     1,000,000       1,000       99,000                       100,000  
Shares issued for conversion of subsidiary preferred                                                     170       170                                                       (170 )     -  
Reclassification of derivative liability                                                                                                     345,787                       345,787  
Net loss                                                                                                             (961,177 )     10,773       (950,404 )
Balance January 31, 2020     125     $ 12,500       -     $ -       3,900     $ 3,900       750     $ 750       627,092,904     $ 627,093       81,786,511     $ 81,787     $ 49,129,531       (62,876,296 )   $ 971,923       (12,048,812 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JANUARY 31, 2020 AND 2019

(UNAUDITED)

 

    Nine Months Ended  
    January 31,  
    2020     2019  
             
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (950,188 )   $ (1,343,316 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     357       1,594  
Gain from change in fair value of derivative liabilities     (375,617 )     (1,167,732 )
Amortization of debt discount     8,633       64,147  
Non-cash financing cost     458,881       1,320,909  
Forgiveness of debt     (311,127 )     -  
Changes in operating assets and liabilities                
Accounts receivable     (18,536 )     (2,311 )
Inventory     (22,600 )     -  
Other assets     1,357       (29,620 )
Accounts payable and accrued expenses     709,609       542,004  
Deferred revenue     (2,578 )     (2,203 )
Net cash used in operating activities     (501,809 )     (616,528 )
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of equipment     -       -  
Net cash (used in) investing activities     -       -  
CASH FLOWS FROM FINANCING ACTIVITIES                
Bank overdraft     (1,044 )     126  
Proceeds from sale of stock     424,000       599,050  
Proceeds from notes payable     85,000       20,800  
Payments on notes payable     (6,000 )     (6,450 )
Proceeds from related party notes     -       12,000  
Payments on related party notes     -       (7,951 )
Net cash provided by financing activities     501,956       617,575  
                 
Cash flows from discontinued operations:                
Cash used in operating activities of discontinued operations     -       -  
Net cash flow from discontinued operation     -       -  
                 
Net (decrease) increase in cash   $ 147     $ 1,047  
                 
Cash and cash equivalents, beginning of period     13       998  
Cash and cash equivalents, end of period   $ 160     $ 2,045  
                 
Cash paid for:                
Interest   $ -     $ 199  
Income taxes   $ -     $ 700  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

NOTE A - SUMMARY OF ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the preparation of the accompanying unaudited, condensed, consolidated financial statements follows.

 

Business

 

Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation serving three markets. Sparta is a technology company that develops, markets and manages business mobile application (mobile apps) for smartphones and tablets. The Company also owns and manages websites which sell on-demand motorcycle, recreational vehicle, power-sport vehicle and truck title history reports for consumers, retail dealers, auction houses, insurance companies and banks/finance companies. Notwithstanding our discontinuance of consumer financing, we continue to offer, on a pass through basis, an equipment-leasing product for local and state agencies throughout the country seeking an alternative and economical way to finance their essential equipment needs, including police motorcycles and cruisers, buses and EMS equipment. The Company also introduced a new business line in the rapidly expanding Hemp-CBD (cannabidiol) market.

 

Our roots are in the Powersports industry and our original focus was providing consumer and municipal financing to the powersports, recreational vehicle, and automobile industries (see Discontinued Operations). Presently, through our subsidiary, iMobile Solutions, Inc. (“IMS”), we offer mobile application development, sales, marketing and support, and Vehicle Title History Reports.

 

Our mobile application (mobile app) offerings have broadened our base beyond vehicle dealers to a wide range of businesses including, but not limited to, racetracks, private clubs, country clubs, restaurants and grocery stores. We also offer a private label version of our mobile app framework to enable other businesses to offer custom apps to their customers.

 

The Company also designs, launches, maintains, and hosts websites for businesses. We provide specific, tailored action plans for our clients’ websites that include services such as eCommerce, CRM (Customer Relationship Management) development and integration, ordering system creation and integration, SEO (search engine optimization), social media marketing, and online reviews to improve their presence online. In addition, we offer text messaging services which are vital for businesses’ marketing, retention and loyalty strategies. Our text messaging platform allows our clients to easily manage, schedule, and analyze text message performance.

 

Our vehicle history reports include Cyclechex (Motorcycle History Reports at www.cyclechex.com); RVchecks (Recreational Vehicle History Reports at www.rvchecks.com); CarVINreport (Automobile at www.carvinreport.com) and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Our Vehicle History Reports are designed for consumers, retail dealers, auction houses, insurance companies and banks/finance companies.

 

New World Health Brands, Inc. (NWHB) was formed in April 2019 as a subsidiary and new business line of Sparta Commercial Services, Inc. While anticipating, and with the passing of the 2018 Farm Bill, which resulted in the removal of hemp (CBD) from Schedule 1 of the Controlled Substances Act. Sparta’s management recognized a substantial potential business opportunity in the rapidly expanding Hemp-CBD (Cannabinol) market in the United States. During 2018-2019, management sourced, developed and tested 5 CBD product categories totaling 31 products, procured product packaging, labeling, implemented fulfillment and launched an on-line B to C website, www.newworldhealthcbd.com.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements as of January 31, 2020 and for the three and nine month periods ended January 31, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and explanatory notes for the year ended April 30, 2019 as disclosed in the Company’s Form 10-K for that year as filed with the Securities and Exchange Commission. The results of operations for the nine months ended January 31, 2020 are not necessarily indicative of the results to be expected for any other interim period or the full year ending April 30, 2020.

 

The condensed consolidated balance sheet as of April 30, 2019 contained herein has been derived from the audited consolidated financial statements as of April 30, 2019, but do not include all disclosures required by the U.S. GAAP.

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, iMobile Solutions, Inc. All significant inter-company transactions and balances have been eliminated in consolidation.

 

7

 

 

SPARTA COMMERCIAL SERVICES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its majority owned subsidiary. All material intercompany transactions and balances have been eliminated in consolidation. The third party ownership of the Company’s subsidiary is accounted for as noncontrolling interest in the consolidated financial statements. Changes in the noncontrolling interest are reported in the statement of changes in deficit.

 

Estimates

 

These financial statements have been prepared in accordance with accounting principles generally accepted in United States of America which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of revenues and expenses for the reported period. Accordingly, actual results could differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of property and equipment, beneficial conversion feature of convertible notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilities.

 

Discontinued Operations

 

As discussed in Note C, in the second quarter of fiscal 2013, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of all of the Company’s portfolio of performing RISCs, and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of operations for all periods presented.

 

Revenue Recognition

 

During the first quarter of 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the cumulative-effect method. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption did not have an impact in our consolidated financial statements, other than the enhancement of our disclosures related to our revenue-generating activities. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.

 

Revenues from mobile app products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery.

 

Cash Equivalents

 

For the purpose of the accompanying unaudited, condensed, consolidated financial statements, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

 

Fair Value Measurements

 

The Company adopted ASC 820, “Fair Value Measurements (“ASC 820”).” ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets the lowest priority to unobservable inputs to fair value measurements of certain assets and Liabilities. The three levels of the fair value hierarchy under ASC 820 are described below:

 

Level 1 — Quoted prices for identical instruments in active markets. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain securities that are highly liquid and are actively traded in over-the-counter markets.
   
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in active markets.
   
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurements. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques based on significant unobservable inputs, as well as management judgments or estimates that are significant to valuation.

 

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not always be available.

 

8

 

 

SPARTA COMMERCIAL SERVICES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

Income Taxes

 

We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

 

The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

 

Stock Based Compensation

 

We account for our stock based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

 

We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

Inventories


The Company’s inventories represent finished goods, consist of products available for sale and are accounted for using the first-in, first-out (FIFO) method and valued at the lower of cost or net realizable value. Inventory consists of finished goods for the Company’s New World Health business.

 

Concentrations of Credit Risk

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.

 

Net Loss per Share

 

The Company uses ASC 260-10, “Earnings Per Share,” for calculating the basic and diluted loss per share. The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.

 

At January 31, 2020 and 2019, approximately 3.752 billion and 2.248 billion potential shares, respectively, were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.

 

9

 

 

SPARTA COMMERCIAL SERVICES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of January 31, 2020 and April 30, 2019, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

 

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

 

Reclassifications

 

Certain reclassifications have been made to conform to prior periods’ data to the current presentation. These reclassifications had no effect on reported losses.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, “Leases.” Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. The Company will adopt Topic 842 effective May 1, 2019 using a modified retrospective method and will not restate comparative periods. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our unaudited condensed consolidated financial statements.

 

NOTE B - GOING CONCERN MATTERS

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred recurring losses and generated negative cash flows from operating activities since inception. As of January 31, 2020, the Company had an accumulated deficit of $62,876,296 and a working capital deficit (total current liabilities exceeded total current assets) of $11,622,957. The Company’s cash balance and revenues generated are not currently sufficient and cannot be projected to cover its operating expenses for the next twelve months from the filing date of this report. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

 

10

 

 

SPARTA COMMERCIAL SERVICES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

The Company’s existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that the Company’s efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the resolution of its liquidity problems. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

In order to improve the Company’s liquidity, the Company’s management is actively pursuing additional equity financing through discussions with investment bankers and private investors. There can be no assurance that the Company will be successful in its effort to secure additional equity financing.

 

NOTE C - DISCONTINUED OPERATIONS

 

In the second quarter of fiscal 2013, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of all of the Company’s portfolio of performing RISCs and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented.

 

The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of loss for all periods presented. The following table presents summarized operating results for the discontinued operations.

 

    Three Months Ended January 31,     Nine Months Ended January 31,  
    2020     2019     2020     2019  
                                 
Revenues   $ -     $ -     $ -     $ 463  
Net loss   $ -     $ -     $ -     $ -  

 

LIABILITIES INCLUDED IN DISCONTINUED OPERATIONS

 

Included in liabilities from discontinued operations are the following:

 

SECURED NOTE PAYABLE

 

    January 31,     April 30,  
    2020     2019  
             
Secured, subordinated individual lender     12,080       12,080  
Total   $ 12,080     $ 12,080  

 

At January 31, 2020, the note has a maturity due within one year.

 

NOTE D - NOTES PAYABLE AND DERIVATIVES

 

The Company has outstanding numerous notes payable to various parties. The notes bear interest at rates of 5% - 20% per year and are summarized as follows:

 

Notes Payable  

January 31,

2020

   

April 30,

2019

 
Notes convertible at holder’s option   $ 2,004,150     $ 1,901,866  
Notes convertible at Company’s option     75,700       75,700  
Non-convertible notes payable     2,782,394       2,137,236  
Subtotal     4,862,244       4,114,802  
Less, Debt discount     -       (8,633 )
Total   $ 4,862,244     $ 4,106,169  

 

11

 

 

SPARTA COMMERCIAL SERVICES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

Certain of the notes payable contain variable conversion rates and the conversion features are classified as derivative liabilities. The conversion prices are based on the market price of the Company’s common stock, at discounts of 30% - 48% to market value.

 

Amortization of debt discount for the nine months ended January 31, 2020 and 2019 was $0 and $64,147, respectively. At January 31, 2020, the Company has reserved 238,630,500 shares of its common stock for issuance upon the conversion of debentures.

 

The Company’s derivative financial instruments consist of embedded derivatives related to the outstanding short term Convertible Notes Payable. These embedded derivatives include certain conversion features indexed to the Company’s common stock. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related items at their fair values as of the inception date of the Convertible Notes Payable and at fair value as of each subsequent balance sheet date. In addition, under the provisions of Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”), as a result of entering into the Convertible Notes Payable, the Company is required to classify all other non-employee stock options and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.

 

The change in fair value of the derivative liabilities at January 31, 2020 was calculated with the following average assumptions, using a Black-Scholes option pricing model are as follows:

 

Significant Assumptions:            
             
Risk free interest rate   Ranging from     1.45% to 1.59 %
Expected stock price volatility   Ranging from     172% to 183 %
Expected dividend payout         0  
Expected life in years   Ranging from     0.01 year to 1 year  

 

During the nine months ended January 31, 2020 and 2019, the Company recorded a gain of $432,261 and $248,046respectively, related to the change in value of the derivative liabilities.

 

Changes in derivative liability during the nine months ended January 31, 2020 and 2019 were:

 

    January 31,  
    2020     2019  
Balance, beginning of year   $ 3,496,698     $ 3,502,666  
Derivative liability extinguished     (345,787 )     (128,329 )
Derivative financial liability arising on the issuance of convertible notes and warrants     515,523       379,455  
Fair value adjustments     (432,261 )     (248,046 )
Balance, end of period   $ 3,234,173     $ 3,505,746  

 

NOTE E - LOANS PAYABLE TO RELATED PARTIES

 

As of January 31, 2020 and April 30, 2019, aggregated loans payable, without demand and with no interest, to officers and directors were $432,403 and $432,403, respectively.

 

NOTE F - EQUITY TRANSACTIONS

 

The Company is authorized to issue 10,000,000 shares of preferred stock with $0.001 par value per share, of which 35,850 shares have been designated as Series A convertible preferred stock with a $100 stated value per share, 1,000 shares have been designated as Series B Preferred Stock with a $10,000 per share liquidation value, and 200,000 shares have been designated as Series C Preferred Stock with a $10 per share liquidation value, and 750,000,000 shares of common stock with $0.001 par value per share. The Company had 125 shares of Series A preferred stock issued and outstanding as of January 31, 2020 and April 30, 2019. The Company had no shares of Series B preferred stock issued and outstanding as of January 31, 2020 and April 30, 2019. The Company had 3,900 and 2,960 shares of Series C preferred stock issued and outstanding as of January 31, 2020 and April 30, 2019. The Company had 750 and 580 shares of Series D preferred stock issued and outstanding as of January 31, 2020 and April 30, 2019. The Company had 627,092,904 and 627.092.904 shares of common stock issued and outstanding as of January 31, 2020 and April 30, 2019, respectively.

 

12

 

 

SPARTA COMMERCIAL SERVICES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

Preferred Stock, Series A

 

Accrued dividends payable on the Series A Preferred were $11,001 and $10,619 at January 31, 2020 and April 30, 2019, respectively. At the Company’s option, these dividends may be paid in shares of the Company’s Common Stock.

 

Preferred Stock

 

During the nine months ended January 31, 2020. The Company:

 

  sold 848 Units C Convertible Preferred stock for $424,000. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share,
  issued 92 Units of the Company’s Series C Convertible Preferred stock upon conversion of $45,829 of notes payable and accrued interest thereon. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share,
  issued 170 Units of the Company’s Series D Convertible Preferred stock in exchange for $170,000 worth of the Company’s subsidiary’s preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share.

 

During the nine months ended January 31, 2019, the Company:

 

  sold 1,200 Units of Series C Convertible Preferred stock to accredited investors for $599,050. Each unit consists of one share of Series C Convertible Preferred stock, convertible at any time into 300 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.005 per share,
  issued 220 Units of Series C Convertible Preferred stock upon the conversion of $143,144 of notes payable and accrued interest thereon. Each unit consists of one share of Series C Convertible Preferred stock, convertible at any time into 300 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.005 per share,
  issued 261 Units of Series D Convertible Preferred stock upon the conversion of $260,650 of notes payable and accrued interest thereon. Each unit consists of one share of Series D Convertible Preferred stock, convertible at any time into 400 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.01 per share,
  issued 124 Units of Series D Convertible Preferred stock upon the settlement of $123,750 of accounts payable. Each unit consists of one share of Series D Convertible Preferred stock, convertible at any time into 400 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.01 per share,
  Issued 30 Units of the Company’s Series D Convertible Preferred stock in exchange for of $15,000 of the Company’s subsidiary’s Series D Convertible preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share.

 

13

 

 

SPARTA COMMERCIAL SERVICES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(Unaudited)

 

Common Stock

 

During the nine months ended January 31, 2020, the Company:

 

  Accrued as to be issued 1,000,000 shares of the Company’s common stock valued at $100,000 upon the forgiveness of accounts payable

During the nine months ended January 31, 2019, the Company:

 

  pursuant to terms of agreements, issued 6,230,217 shares of restricted stock valued at $30,000,
  pursuant to terms of agreements, accrued to be issued 3,000,000 shares of restricted common stock valued at $12,000.

 

NOTE G - FAIR VALUE MEASUREMENTS

 

The Company follows the guidance established pursuant to ASC 820 which established a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

 

Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

The table below summarizes the fair values of financial liabilities as of January 31, 2020:

 

      Fair Value at       Fair Value Measurement Using
     

January 31, 2020

     

Level 1

     

Level 2

     

Level 3

 
Derivative liabilities   $ 3,234,173       -       -     $ 3,234,173  

 

The following is a description of the valuation methodologies used for these items:

 

Derivative liability — these instruments consist of certain variable conversion features related to notes payable obligations and certain outstanding warrants. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.

 

The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with ASC Topic 825 “The Fair Value Option for Financial Issuances”.

 

NOTE H - NON-CASH FINANCIAL INFORMATION

 

During the nine months ended January 31, 2020, the Company:

 

  issued 92 Units of the Company’s Series C Convertible Preferred stock upon conversion of $45,829 of notes payable and accrued interest thereon. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share,
  issued 170 Units of the Company’s Series D Convertible Preferred stock in exchange for $170,000 worth of the Company’s subsidiary’s preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share,
  accrued as to be issued 1,000,000 shares of the Company’s common stock valued at $100,000 upon the forgiveness of accounts.

 

.During the nine months ended January 31, 2019, the Company:

 

14

 

 

  issued 363 Units of Series C Convertible preferred stock upon the conversion of $329,257 of notes payable and accrued interest thereon. Each unit consists of one share of Series C Convertible Preferred stock, convertible at any time into 300 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.005 per share,
  issued 40 Units of Series C Convertible preferred stock upon the settlement of $40,000 of accounts payable. Each unit consists of one share of Series C Convertible Preferred stock, convertible at any time into 300 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.005 per share,
  issued 30 Units of Series C Convertible preferred stock upon the exchange of 30 shares our subsidiary’s Series C convertible preferred stock. Each unit consists of one share of Series C Convertible Preferred stock, convertible at any time into 300 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.005 per share,
  issued 117 Units of Series D Convertible preferred stock upon the conversion of $161,894 of notes payable and accrued interest thereon. Each unit consists of one share of Series D Convertible Preferred stock, convertible at any time into 400 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.01 per share,
  issued 84 Units of Series D Convertible preferred stock upon the settlement of $83,750 of accounts payable. Each unit consists of one share of Series D Convertible Preferred stock, convertible at any time into 400 shares of the Company’s common stock, and 150 two year warrants to purchase one share each of the Company’s common stock $0.01 per share,
  pursuant to terms of agreements, issued 6,230,217 shares of restricted common stock, valued at $30,000. Pursuant to terms of agreements, accrued to be issued 3,000,000 shares of restricted common stock, valued at $12,000.

 

NOTE I - COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

Our executive offices are located in New York, NY. We have an agreement for use of office space at this location under a sub-lease which expired on July 31, 2018, and continues on a month-to-month basis thereafter. The monthly base rent is $5,100.

 

Rent expense was $14,250 and $13,500 for the three month periods ended January 31, 2020 and 2019, respectively. Rent expense was $41,450 and $35,750 for the nine month periods ended January 31, 2020 and 2019, respectively.

 

Litigation

 

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Sparta can make no representations about the potential outcome of such proceedings.

 

As of January 31, 2020, we were not a party to any material pending legal proceeding except as stated below. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.

 

The Company has received notices dated April 1, 2016, May 13, 2016 and July 22, 2016 from two lenders claiming defaults relating to conversion requests of $8,365 principal and $643 interest and $5,000 principal, with regard to notes in the total amounts of $55,125 and $27,500, respectively, which the Company has refused to process and believes it has defenses in that regard. The company believes these claims are contingent, unliquidated and disputed. There can be no assurance that the Company would prevail should litigation with regard to any of these requests occur. These liabilities have been recorded in the unaudited condensed consolidated financial statements. Maybe should say audited?

 

On September 22, 2016, a motion for summary judgment in lieu of complaint was filed in the Supreme Court of The State of New York County of Kings, against the Company by a lender for the amount of $102,170.82 in principal and interest; accrued and unpaid interest thereupon in the amount from the date of filing to entry of judgment herein; lender’s reasonable attorney’s fees, costs, and expenses; and any such other relief as the Court deems just and proper. Plaintiff’s motion for summary judgment in lieu of complaint was denied on May 5, 2017. On August 22, 2018, Plaintiff brought a second motion seeking summary judgment on the issue of liability which was denied on March 14, 2019. The Court found that there existed issues of fact warranting a trial. The Company believes the claim is contingent, unliquidated and disputed. There is no assurance that the Company will prevail in this litigation. These liabilities have been recorded in the unaudited condensed consolidated financial statements. Maybe should say audited?

 

On October 26, 2018, a lender commenced an action in the Supreme Court of the State of New York in New York County alleging damages from unpaid principal and interest, attorney’s fees, costs, and expenses arising from a promissory note dated February 26, 2015 in the amount of $50,000.00. The case is presently in the discovery phase of the litigation. The Company believes the claim is contingent, unliquidated and disputed.

 

NOTE J - SUBSEQUENT EVENTS

 

Subsequent to January 31, 2020 the Company:

 

Sold 105 Units of Series C Convertible Preferred stock for $52,500. Each Unit consists of 1 share of Series C Preferred stock convertible at any time into 300 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share.

 

Issued 145 Units of the Company’s Series D Convertible Preferred stock in exchange for $145,000 of the Company’s subsidiary’s Convertible Preferred stock. Each Unit consists of 1 share of Series D Preferred stock convertible at any time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share.

 

Issued 222.22 Units of the Company’s Series D Convertible Preferred stock upon conversion of $222,250 of accounts payable. Each Unit consists of 1 share of Series D Preferred stock convertible at any time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share.

 

Subsequent to April 30, 2020 the Company:

 

Granted to each of its two independent Directors five year options to purchase 48,214,285 shares of the Company’s common stock at $0.00308 per share. The options are fully vested.

 

Entered into five year employment agreements with its CEO, Anthony L Havens and Vice President of Operations, Sandra L Ahman. As part of their employment agreements, Mr. Havens received five year options to purchase 37,625,574 shares of the Company’s common stock at $0.00308 per share. 12,541,858 vest immediately and the remainder vests over two years. Ms. Ahman received five year options to purchase 12,541,858 shares of the Company’s common stock at $0.00308 per share. 4,180,620 vest immediately and the remainder vests over two years.

 

15

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

The following discussion of our financial condition and results of operations should be read in conjunction with (1) our interim unaudited financial statements and their explanatory notes included as part of this quarterly report, and (2) our annual audited financial statements and explanatory notes for the year ended April 30, 2019 as disclosed in our annual report on Form 10-K for that year as filed with the SEC.

 

“Forward-Looking” Information

 

This report on Form 10-Q contains various statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder which represent our expectations and beliefs, including, but not limited to statements concerning the Company’s business and financial plans and prospects and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” and other similar expressions can, but not always, identify forward-looking statements, which speak only as of the date such statement was made. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), including Item 1A of the Company’s Annual Report of Form 10-K for the year ended April 30, 2016. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward-looking statements in light of this explanation, and we caution you about relying on forward-looking statements.

 

General Overview

 

Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation serving three markets. Sparta is a technology company that develops, markets and manages business mobile applications (mobile apps) for smartphones and tablets. The Company also owns and manages websites which sell on-demand motorcycle, recreational vehicle, power-sport vehicle and truck title history reports for consumers, retail dealers, auction houses, insurance companies and banks/finance companies. Lastly, since 2007, Sparta has administered leasing programs for local and/or state agencies seeking to finance municipal vehicles and essential equipment. The Company also introduced a new business line in the rapidly expanding Hemp-CBD (cannabidiol) market.

 

In 2019, the Company changed the name of its majority-owned subsidiary Specialty Reports, Inc., to iMobile Solutions, Inc. The new name reflects the Company’s strategic evolution and focus on the fast-growing mobile application market.

 

Sparta’s mobile application (mobile app) offerings have broadened our base beyond our original base of vehicle dealers to include a wide range of businesses including, but not limited to, racetracks, private clubs, country clubs, restaurants and grocery stores. We also offer a private label version of our mobile app framework to enable other businesses to offer custom apps to their customers.

 

The Company also designs, launches, maintains, and hosts websites for businesses. We provide specific, tailored action plans for our clients’ websites that include services such as eCommerce, CRM development and integration, ordering system creation and integration, SEO (search engine optimization), social media marketing, and online reviews to improve their presence online. In addition, we offer text messaging services which are vital for businesses’ marketing, retention and loyalty strategies. Our text messaging platform allows our clients to easily manage, schedule, and analyze text message performance.

 

The Company’s vehicle history reports include Cyclechex (Motorcycle History Reports at www.cyclechex.com); RVchex (Recreational Vehicle History Reports at www.rvchecks.com); CarVINreport (Automobile Reports at www.carvinreport.com) and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Our Vehicle History Reports are designed for consumers, retail dealers, auction houses, insurance companies and banks/finance companies.

 

Sparta also administers a Municipal Leasing Program for local and/or state agencies throughout the country who are seeking a better and more economical way to finance their essential equipment needs, including police motorcycles, cruisers, buses, and EMS equipment. We are continuing to expand our roster of equipment manufacturers and the types of equipment we lease.

 

16

 

 

New World Health Brands, Inc. (NWHB) was formed in April 2019 as a subsidiary and new business line of Sparta Commercial Services, Inc. While anticipating, and with the passing of the 2018 Farm Bill, which resulted in the removal of hemp (CBD) from Schedule 1 of the Controlled Substances Act. Sparta’s management recognized a substantial potential business opportunity in the rapidly expanding Hemp-CBD (Cannabinol) market in the United States. During 2018-2019, management sourced, developed and tested 5 CBD product categories totaling 31 products, procured product packaging, labeling, implemented fulfillment and launched an on-line B to C website, www.newworldhealthcbd.com.

 

RESULTS OF OPERATIONS

 

Comparison of the Three Months Ended January 31, 2020 to the Three Months Ended January 31, 2019

 

For the three months ended January 31, 2020 and 2019, we have generated limited sales revenues, have incurred significant expenses, and have sustained significant losses.

 

Revenues

 

Revenues totaled $72,281 during the three months ended January 31, 2020 as compared to $91,151 during the three months ended January 31, 2019. This $18,870 or 20.7% decrease was due to the reduction of marketing expenditures and decline in the motorcycle industry effecting utilization of our motorcycle apps. Of the $72,281 of this year’s revenues, $8,402 was from New World Health Brand products. There were no New World Health Brand products revenues during the three months ended January 31, 2019.

 

Cost of Revenue

 

Cost of revenue consists of costs and fees incurred to third parties to construct and maintain mobile apps, as well as fees for subscription services related to vehicle history reports. Cost of revenue was $19,591 during the three months ended January 31, 2020 as compared to $6,178 during the three months ended January 31, 2019. This $13,413 or 217.1% increase was due to an increase in third party costs incurred primarily for New World Health Brands products.

 

Operating Expenses

 

General and administrative expenses were $300,368 during the three months ended January 31, 2020, compared to $331,364 during the three months ended January 31, 2019, a decrease of $30,996 or 9.4%. Expenses incurred during the current three month period consisted primarily of the following expenses: Compensation and related costs, $129,689; Accounting, audit and professional fees, $14,277; Consulting fees, $33,000; Rent, utilities and telecommunication expenses $21,773. Expenses incurred during the three month period ended January 31, 2019 consisted primarily of the following expenses: Compensation and related costs, $167,239; Accounting, audit and professional fees, $7,820; Consulting fees, $57,300; Rent, utilities and telecommunication expenses $23,105.

 

Total Other (income) expense

 

Other (income) expense is comprised primarily of fees from our Municipal Leasing business. Net other income was $164,551 for the three months ended January 31, 2020, compared to an expense of $7,043 for the three months ended January 31, 2019, a decrease of $171,594 or 2,436%. The decrease results from our borrowing activities and the related costs. The $215,632 or 47.63% change in the fair value of our derivative liabilities resulted primarily from the addition of warrant liabilities, the changes in our stock price and the volatility of our common stock during the reported periods.

 

Discontinued Operations

 

As discussed in Note C to the consolidated financial statements, in August 2012, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of the Company’s entire portfolio of performing RISCs, and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented.

 

The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of loss for all periods presented. The following table presents summarized operating results for those discontinued operations.

 

    Quarter Ended  
    January 31,     January 31,  
    2020     2019  
             
Revenues   $     -     $ 463  
Net loss   $ -     $ -  

 

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Net Loss

 

We incurred a loss from continuing operations, before preferred dividends and non-controlling interest of $83,127 for the three months ended January 31, 2020 as compared to $253,791 for the corresponding interim period in 2019, a $170,664 or 67.25% decrease. This decrease was attributable primarily to a $215,632, or 47.6% change in the change in the fair value of our derivative liabilities. Our net loss attributable to common stockholders decreased to $86,227 for the three month period ended January 31, 2020 as compared to a net loss of $256,633 for the corresponding period in 2019. The $170,406 or 66.4% decrease in net loss attributable to common stockholders for the three month period ended January 31, 2020 was due primarily to the factors described above.

 

Comparison of the Nine Months Ended January 31, 2020 to the Nine Months Ended January 31, 2019

 

For the nine months ended January 31, 2020 and 2019, we have generated limited sales revenues, have incurred significant expenses, and have sustained significant losses.

 

RESULTS OF CONTINUING OPERATIONS

 

Revenues

 

Revenues totaled $252,298 during the nine months ended January 31, 2020 as compared to $301,143 during the nine months ended January 31, 2019. This $48,845 or 16.22% decrease was due to decreased revenue from mobile apps. Of the $252,298 in revenue, $37,778 was from New World Health Brands products. There were no New World Health Brands revenues during the nine months ended January 31, 2019.

 

Costs and Expenses

 

General and administrative expenses were $804,083 during the nine months ended January 31, 2020, compared to $950,6456 during the nine months ended January 31, 2019, a decrease of $146,562, or 15.4% primarily due to overall reductions in expense due to management’s efforts to reduce overhead. Expenses incurred during the current nine month period consisted primarily of the following expenses: Compensation and related costs, $427,632; Accounting, audit and professional fees, $38,335; Consulting fees, $73,034; Rent, utilities and telecommunication expenses $63,941. Expenses incurred during the comparative nine month period in 2019 consisted primarily of the following expenses: Compensation and related costs, $501,110; Accounting, audit and professional fees, $49,500; Consulting fees, $160,420; Rent, utilities and telecommunication expenses $66,118.

 

Total Other (income) expense

 

Other (income) expense is comprised primarily of fees from our Municipal Leasing business. Net other expense was $346,784 for the nine months ended January 31, 2020, compared to $668,343 for the nine months ended January 31, 2019, a decrease of $321,559 or 48.1%. The decrease results from our borrowing activities and the related costs. The change in the fair value of our derivative liabilities resulted primarily from the addition of warrant liabilities, the changes in our stock price, the volatility of our common stock during the reported periods and $311,127 forgiveness of debt.

 

Discontinued Operations

 

As discussed in Note C to the consolidated financial statements, in August 2013, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of the Company’s entire portfolio of performing RISCs, and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented.

 

The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of loss for all periods presented. The following table presents summarized operating results for those discontinued operations.

 

    Nine Months Ended  
    January 31,     January 31,  
    2020     2019  
             
Revenues   $      -     $ 463  
Net loss   $ -     $ -  

 

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Net Loss

 

We incurred a loss from continuing operations before preferred dividends and non-controlling interest of $950,188 for our nine months ended January 31, 2020 as compared to $1,343,316 for the corresponding interim period in 2019, a decrease of $393,128 or 29.3%. This decrease was attributable primarily to a decrease in the change of fair value of derivative liability of $792,115 or 67.8%, a decrease in financing cost of $748,311 or 420.1% and the decrease in amortization of debt discount of $55,514 or 86.5%.

 

Our net loss attributable to common stockholders decreased to $961,534 for the nine month period ended January 31, 2020 as compared to $1,358,381 for the corresponding period in 2019. The $396,847 or 29.2% decrease in net loss attributable to common stockholders for the nine month period ended January 31, 2020 was due primarily to the factors described above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of January 31, 2020, we had a deficit of $12,048,812. We generated a deficit in cash flow from operations of $501,809 for the nine months ended January 31, 2020. This deficit results primarily from our net loss of $950,188, partially offset by net non- cash charges of $92,254, an increase of accounts payable of $709,609. We met our cash requirements during the nine month period as follows: through revenues generated: net proceeds of notes and convertible notes payable of $85,000; proceeds from the $424,000 sale of preferred stock. We made net payments on notes payable in the amount of $6,000.

 

We do not anticipate incurring significant research and development expenditures, and we do not anticipate the sale or acquisition of any significant property, plant or equipment, during the next twelve months. At January 31, 2020, we had 7 full time employees. If we fully implement our business plan, we anticipate our employment base may increase by approximately 100% during the next twelve months. As we continue to expand, we will incur additional cost for personnel. This projected increase in personnel is dependent upon our generating revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees.

 

While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development.

 

We continue seeking additional financing, which may be in the form of senior debt, subordinated debt or equity. We currently have no commitments for financing that aren’t at the investor’s election. There is no guarantee that we will be successful in raising the funds required to support our operations.

 

We estimate that we will need approximately $1,000,000 in addition to our normal operating cash flow to conduct operations during the next twelve months. However, there can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common or preferred stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. However, if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition, and we will have to adjust our planned operations and development on a more limited scale.

 

The effect of inflation on our revenue and operating results was not significant. Our operations are located in North America and there are no seasonal aspects that would have a material effect on our financial condition or results of operations.

 

GOING CONCERN ISSUES

 

The independent auditors report on our April 30, 2019 and 2018 financial statements included in the Company’s Annual Report states that the Company’s historical losses and the lack of revenues raise substantial doubts about the Company’s ability to continue as a going concern, due to the losses incurred and its lack of significant operations. If we are unable to develop our business, we have to discontinue operations or cease to exist, which would be detrimental to the value of the Company’s common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.

 

In order to improve the Company’s liquidity, the Company’s management is actively pursuing additional financing through discussions with investment bankers, financial institutions and private investors. There can be no assurance the Company will be successful in its effort to secure additional financing.

 

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We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to develop profitable operations. We are devoting substantially all of our efforts to developing our business and raising capital. Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

 

The primary issues management will focus on in the immediate future to address this matter include: seeking additional credit facilities from institutional lenders; seeking institutional investors for debt or equity investments in our Company; short term interim debt financing: and private placements of debt and equity securities with accredited investors.

 

To address these issues, we have engaged a financial advisory firm to advise and assist us in negotiating and raising capital.

 

INFLATION

 

The impact of inflation on the costs of the Company, and the ability to pass on cost increases to its customers over time is dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact on the Company’s operations over the past quarter, and the Company does not anticipate that inflationary factors will have a significant impact on future operations.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company does not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our financial statements, we believe the following critical accounting policies involves the most complex, difficult and subjective estimates and judgments.

 

Revenue Recognition

 

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured, and the fees are fixed or determinable. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.

 

Information Technology:

 

Revenues from mobile app products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery. The deferred revenues at January 31, 2020 and April 30, 2019 were $18,343 and $20,546, respectively.

 

New World Health Brands:

 

Revenues from New World Health Brand products are generally recognized upon delivery.

 

Stock-Based Compensation

 

The Company adopted ASC 718-10, “Stock Compensation Overall” (“ASC 718-10”), which records compensation expense on a straight-line basis, generally over the explicit service period of three to five years.

 

ASC 718-10 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. The Company is using the Black-Scholes option-pricing model as its method of valuation for share-based awards. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815-40”).

 

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The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of January 31, 2020 and April 30, 2019, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

See Note A to the Unaudited Condensed Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our consolidated financial statements, which is incorporated herein by reference.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 31, 2020. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls, the Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. In our assessment of the effectiveness of internal control over financial reporting as of January 31, 2020, we determined that control deficiencies existed that constituted material weaknesses, as described below:

 

lack of documented policies and procedures;
we have no audit committee;
there is a risk of management override given that our officers have a high degree of involvement in our day-to-day operations.

 

21

 

 

there is no effective separation of duties, which includes monitoring controls, between the members of management.

 

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. As a result, we have not been able to take steps to improve our internal controls over financial. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. Management is currently evaluating what steps can be taken in order to address these material weaknesses.

 

Accordingly, we concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.

 

As a result of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of January 31, 2020 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

In light of these significant deficiencies, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the nine months ended January 31, 2020 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the nine months ended January 31, 2020 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

As at January 31, 2020, we were not a party to any material pending legal proceeding except as stated below. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.

 

The Company has received notices dated April 1, 2016, May 13, 2016 and July 22, 2016 from two lenders claiming defaults relating to conversion requests of $8,365 principal and $643 interest and $5,000 principal, with regard to notes in the total amounts of $55,125 and $27,500, respectively, which the Company has refused to process and believes it has defenses in that regard. The company believes these claims are contingent, unliquidated and disputed. There can be no assurance that the Company would prevail should litigation with regard to any of these requests occur. These liabilities have been recorded in the unaudited condensed consolidated financial statements. Maybe should say audited?

 

On September 22, 2016, a motion for summary judgment in lieu of complaint was filed in the Supreme Court of The State of New York County of Kings, against the Company by a lender for the amount of $102,170.82 in principal and interest; accrued and unpaid interest thereupon in the amount from the date of filing to entry of judgment herein; lender’s reasonable attorney’s fees, costs, and expenses; and any such other relief as the Court deems just and proper. Plaintiff’s motion for summary judgment in lieu of complaint was denied on May 5, 2017. On August 22, 2018, Plaintiff brought a second motion seeking summary judgment on the issue of liability which was denied on March 14, 2019. The Court found that there existed issues of fact warranting a trial. The Company believes the claim is contingent, unliquidated and disputed. There is no assurance that the Company will prevail in this litigation. These liabilities have been recorded in the unaudited condensed consolidated financial statements. Maybe should say audited?

 

On October 26, 2018, a lender commenced an action in the Supreme Court of the State of New York in New York County alleging damages from unpaid principal and interest, attorney’s fees, costs, and expenses arising from a promissory note dated February 26, 2015 in the amount of $50,000.00. The case is presently in the discovery phase of the litigation. The Company believes the claim is contingent, unliquidated and disputed.

 

22

 

 

ITEM 1A. RISK FACTORS

 

We are subject to certain risks and uncertainties in our business operations including those which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not presently known or which are currently deemed immaterial may also impair our business operations. A description of factors that could materially affect our business, financial condition or operating results were included in Item 1A “Risk Factors” of our Form 10-K for the year ended April 30, 2019, and is incorporated herein by reference.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Sales of Convertible Notes

 

Each of the issuance and sale of securities described below was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving a public offering. No advertising or general solicitation was employed in offering the securities. Each purchaser is a sophisticated investor (as described in Rule 506(b) (2) (ii) of Regulation D) or an accredited investor (as defined in Rule 501 of Regulation D), and each received adequate information about the Company or had access to such information, through employment or other relationships, to such information. The Company applied proceeds from financing activities described below to working capital.

 

Issuance of common shares upon conversion of notes payable:

 

During the three months ended January 31, 2020 the Company:

 

  Issued 92 Units of the Company’s Series C Convertible preferred stock upon conversion of $45,828 of notes payable and accrued interest thereon. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share.
  Issued 170 units of the Company’s Series D Convertible preferred stock upon in exchange for $170,000 of the Company’s subsidiary’s preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. OTHER INFORMATION

 

Not applicable.

 

ITEM 5. EXHIBITS

 

The following exhibits are filed with this report:

 

Exhibit No.   Description
     
4.1*   Form of Stock Option Agreement with Jeffrey Bean
4.2*   Form of Stock Option Agreement with Kristian Srb
4.3*   Form of Stock Option Agreement with Anthony L. Havens
4.4*   Form of Stock Option Agreement with Sandra L. Ahman
10.1*   Form of Employment Agreement with Anthony L. Havens
10.2*   Form of Employment Agreement with Sandra L. Ahman
11   Statement re: computation of per share earnings is hereby incorporated by reference to “Financial Statements” of Part I - Financial Information, Item 1 - Financial Statements, contained in this Form 10-Q.
31.1*   Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
31.2*   Certification of Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase
101.DEF*   XBRL Taxonomy Extension Definition Linkbase
101.LAB*   XBRL Taxonomy Extension Label Linkbase
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase
     
* Filed herewith

 

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SIGNATURES

 

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

 

  SPARTA COMMERCIAL SERVICES, INC.
     
Date: July 9, 2020 By: /s/ Anthony L. Havens
    Anthony L. Havens, Chief Executive Officer,
    Principal financial and accounting

 

24

 

 

Exhibit 4.1

 

SPARTA COMMERCIAL SERVICES, INC.

STOCK OPTION AGREEMENT

FOR

 

Jeffrey Bean

 

Agreement

 

1. Grant of Option. Sparta Commercial Services, Inc., a Nevada corporation (the “Company”), hereby grants, as of the effective date of this Agreement specified on Schedule I hereof beside the caption “Date of Grant” (“Date of Grant”), to Jeffrey Bean (the “Optionee”) an option (the “Option”) to purchase an aggregate number of shares set forth on Schedule I hereof beside the caption “Number of Optioned Shares” (such number being subject to adjustment as provided below) of the Company’s common stock, $0.001 par value per share (the “Shares”), at an exercise price per share set forth on Schedule I hereof beside the caption “Exercise Price” (such exercise price being subject to adjustment as provided below) (the “Exercise Price”). The Option shall be subject to the terms and conditions set forth herein. This Option is designated on Schedule I as either an Incentive Stock Option or a Non-Qualified Stock Option.

 

2. Definitions.

 

(a) Affiliate” means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, the Company.

 

(b) Applicable Laws” means the requirements related to or implicated by the applicable state corporate law, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under.

 

(c) Award” means any right granted under this Agreement, including an Incentive Stock Option or a Non-qualified Stock Option.

 

(d) Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

 

(e) Board” means the Board of Directors of the Company, as constituted at any time.

 

(f) Cause” means:

 

(i) With respect to any particular Service Provider, who is not a Director:

 

  a. if such Service Provider is a party to an employment or service agreement with the Company, or its affiliates, and such agreement provides for a definition of Cause, the definition contained therein; or

 

     

 

 

  b. if not such agreement exists, or if such agreement does not define Cause: (1) a Service Provider’s repeated failure to perform substantially his or her duties as an employee or other associate of the Company or any of the Subsidiaries (other than any such failure resulting from his or her Disability) which failure, whether committed willfully or negligently, has continued unremedied for more than thirty (30) days after the Company has provided written notice thereof; provided, that, a failure to meet financial performance expectations shall not, by itself, constitute a failure by the Service Provider to substantially perform his or her duties; (2) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (3) a Service Provider’s material dishonesty or breach of fiduciary duty of loyalty against the Company or any Affiliate; (4) conduct that brings or is reasonably likely to bring the Company or an Affiliate negative publicity or into public disgrace, embarrassment, or disrepute; (4) gross negligence or willful misconduct with respect to the Company or an Affiliate; (5) material violation of state or federal securities laws; or (6) material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct.

 

  (ii) With respect to any Service Provider who is a Director, a determination by a majority of the disinterested Board members that the Director has engaged in any of the following:

 

  a. malfeasance in office;
     
  b. discrimination, harassment and other behaviors that would reasonably likely bring the company negative publicity or embarrassment;
     
  c. gross misconduct or neglect;
     
  d. false or fraudulent misrepresentation inducing the director’s appointment;
     
  e. willful conversion of corporate funds; or
     
  f. repeated failure to participate in Board meetings on a regular basis despite having received proper notice of the meetings in advance.

 

(g) Change in Control” means:

 

(i) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its subsidiaries, taken as a whole, to any Person that is not a subsidiary of the Company;

 

  2  

 

 

(ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election;

 

(iii) the date which is 10 business days prior to the consummation of a complete liquidation or dissolution of the Company;

 

(iv) the acquisition by any Person of Beneficial Ownership of 50% or more (on a fully diluted basis) of either (a) the then outstanding shares of Common Stock of the Company, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Agreement, the following acquisitions shall not constitute a Change in Control: (1) any acquisition by the Company or any Affiliate, (2) any acquisition by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (3) any acquisition which complies with clauses, (a), (b) and (c) of subsection (v) of this definition or (4) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant); or

 

(v) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the approval of the Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (a) more than 50% of the total voting power of (A) the entity resulting from such Business Combination (the “Surviving Company”), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company (the “Parent Company”), is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Outstanding Company Voting Securities among the holders thereof immediately prior to the Business Combination; (b) no Person (other than any employee benefit plan sponsored or maintained by the Surviving Company or the Parent Company) is or becomes the Beneficial Owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect members of the board of directors of the Parent Company (or the analogous governing body) (or, if there is no Parent Company, the Surviving Company); and (c) at least a majority of the members of the board of directors (or the analogous governing body) of the Parent Company (or, if there is no Parent Company, the Surviving Company) following the consummation of the Business Combination were Board members at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination.

 

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(h) Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.

 

(i) Common Stock” means common stock, $0.001 par value per share, of the Company, or such other securities of the Company as may be designated by the Company from time to time in substitution thereof.

 

(j) Consultant” means any individual or entity which performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act.

 

(k) Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, consultant or Director, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Company or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. The Company or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes of affected Awards, and such decision shall be final, conclusive and binding.

 

(l) Director” means a member of the Board.

 

(m) Effective Date” shall mean the date as of which this Agreement is adopted by the Board.

 

(n) Employee” means any person, including an Officer or Director, employed by the Company or an Affiliate; provided that for purposes of determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or a parent or subsidiary corporation within the meaning of Section 424 of the Code. Mere service as a Director or payment of a Director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

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

 

(p) Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment; provided, however, for purposes of determining the term of an Incentive Stock Option, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Company. Except in situations where the Company is determining Disability for purposes of the term of an Incentive Stock Option within the meaning of Section 22(e)(3) of the Code, the Company may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.

 

  4  

 

 

(q) Fair Market Value” means, as of any date, the value of the Common Stock as determined below. If the Common Stock is listed on any established stock exchange or a national market, including without limitation, the New York Stock Exchange or the Nasdaq Stock Market, the Fair Market Value shall be the closing price of a share of Common Stock (or if no sales were reported the closing price on the date immediately preceding such date) as quoted on such exchange or system on the day of determination. In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Company and such determination shall be conclusive and binding on all persons.

 

(r) Incentive Stock Option” means an Option that is designated by the Company as an incentive stock option within the meaning of Section 422 of the Code and that meets the requirements set out in this Agreement, if applicable.

 

(s) Incumbent Directors” means individuals who, on the Effective Date, constitute the Board; provided that any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) shall be an Incumbent Director. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.

 

(t) Non-employee Director” means a Director who is a “non-employee director” within meaning of Rule 16b-3.

 

(u) Non-qualified Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

 

(v) Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(w) Participant” means an eligible person to whom an Award is granted pursuant to this Agreement or, if applicable, such other person who holds an outstanding Award.

 

(x) Person” means a person defined in Section 13(d)(3) of the Exchange Act.

 

(y) Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

(z) Securities Act” means the Securities Act of 1933, as amended.

 

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3. Exercise Schedule. Except as otherwise provided in Sections 6 or 10 of this Agreement, the Option is exercisable in installments as specified on Schedule I hereof beside the caption “Vesting”, which shall be cumulative. To the extent that the Option has become exercisable with respect to a percentage of Shares as provided on Schedule I hereof beside the caption “Vesting” on each date (each date being, a “Vesting Date”) upon which the Optionee shall be entitled to exercise the Option with respect to the percentage of Shares granted as indicated for each Vesting Date (provided that the Continuous Service of the Optionee continues through and on the applicable Vesting Date), the Option may thereafter be exercised by the Optionee, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein. Except as otherwise specifically provided herein, there shall be no proportionate or partial vesting in the periods prior to each Vesting Date, and all vesting shall occur only on the appropriate Vesting Date. Upon the termination of the Optionee’ s Continuous Service, any unvested portion of the Option shall terminate and be null and void.

 

4. Method of Exercise. The vested portion of this Option shall be exercisable in whole or in part, in accordance with the Vesting of such Options provided in Schedule I and as set forth in Section 3 hereof, by written notice which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares as may be required by the Company pursuant to the provisions of this Agreement. Such written notice shall be signed by the Optionee or if someone other than the Optionee exercises the Option, by such other person who provides documentation acceptable to the Company, or Committee, verifying that such person has the legal right to exercise such Option, and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised after both (a) receipt by the Company of such written notice accompanied by the Exercise Price and (b) arrangements that are satisfactory to the Committee, in its sole discretion, have been made for Optionee’ s payment to the Company of the amount, if any, that is necessary to be withheld in accordance with applicable Federal or state withholding requirements. No Shares shall be issued pursuant to the Option unless and until such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares then may be traded.

 

5. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

 

(a) in cash or by certified or bank check at the time the Option is exercised;

 

(b) to the extent permitted by the Committee, or as provided on Schedule I hereof beside the caption “Permission to Pay with Shares”, and if there is a public market available for the Shares at the time of such exercise: (i) with Shares owned by the Optionee, duly endorsed for transfer to the Company, with a fair market value on the date of delivery equal to the Exercise Price (or portion thereof) due for the number of shares being acquired; (ii) by withholding or reducing the number of Shares otherwise deliverable to the Optionee upon exercise of such Option by a number of Shares with an aggregate fair market value equal to the aggregate Exercise Price at the time of exercise; or (iii) pursuant to a “cashless exercise” procedure established with a broker; provided that such payment by this method requires delivery of a properly executed exercise notice together with such other documentation, and subject to such guidelines, as the Committee or Company shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the Company of proceeds from the sale of Shares sufficient to pay the Exercise Price and any applicable income or employment taxes; provided further that the Optionee shall provide irrevocable written instructions (x) to such designated brokerage firm to effect the immediate sale of a portion of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, an amount sufficient to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable state and federal income and employment taxes required to be withheld by the Company by reason of such purchase and/or sale and (y) to the Company to deliver the certificates for the purchase Shares directly to such brokerage firm to effect the sale transaction; or

 

  6  

 

 

(c) in any other consideration or in such other manner as may be determined by the Committee, in its absolute discretion.

 

Notwithstanding anything contained herein to the contrary, no exercise shall become effective until the Company determines that the issuance and delivery of the Shares pursuant to such exercise is in compliance with all applicable laws, regulations and requirements of any securities exchange on which the Shares may be traded.

 

6. Termination of Option

 

(a) General. Any unexercised portion of the Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:

 

(i) unless the Committee otherwise determines in writing in its sole discretion, three months after the date on which the Optionee’ s Continuous Service is terminated by the Company or Related Entity for (a) Cause, (b) a Disability of the Optionee as determined by a medical doctor satisfactory to the Committee, or (c) the death of the Optionee;

 

(ii) immediately upon the termination of the Optionee’ s Continuous Service by the Company or a Related Entity for Cause;

 

(iii) twelve months after the date on which the Optionee’ s Continuous Service is terminated by reason of a Disability as determined by a medical doctor satisfactory to the Committee;

 

(iv) twelve months after the date of termination of the Optionee’ s Continuous Service by reason of the death of the Optionee; or

 

(v) the fifth anniversary of the date as of which the Option is granted (or, if a different date is shown on Schedule I hereof beside the caption “Termination Date”, such date).

 

(b) Cancellation. To the extent not previously exercised:

 

(i) the Option shall terminate immediately in the event of (a) the liquidation or dissolution of the Company, or (b) any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive or the Shares are exchanged for or converted into securities issued by another entity, or an affiliate of such successor or acquiring entity, unless the successor or acquiring entity, or an Affiliate thereof, assumes the Option or substitutes an equivalent option or right; and

 

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(ii) the Committee in its sole discretion may by written notice cancel (“cancellation notice”), effective upon the consummation of any transaction that constitutes a Change in Control, the Option (or portion thereof) that remains unexercised on such date.

 

The Committee shall give written notice of any proposed transaction referred to in this Section 6(b) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that the Optionee may have a reasonable period of time prior to the closing date of such transaction within which to exercise the Option if and to the extent that it then is exercisable (including any portion of the Option that may become exercisable upon the closing date of such transaction). The Optionee may condition their exercise of the Option upon the consummation of a transaction referred to in this Section 6(b).

 

7. Transferability. Unless (i) transfers are expressly permitted in the language appearing beside the caption “Expanded Rights to Transfer Option” on Schedule I hereof or (ii) otherwise determined by the Company or Committee, the Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution, and during the lifetime of the Optionee the Option shall be exercisable only by the Optionee, or the Optionee’ s guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of any execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

 

8. No Rights of Stockholders. Neither the Optionee nor any personal representative (or beneficiary) shall be, or shall have any of the rights and privileges of, a stockholder of the Company with respect to any Shares purchasable or issuable upon the exercise of the Option, in whole or in part, prior to the date on which the Shares are issued.

 

9. Acceleration of Exercisability of Option.

 

(a) Acceleration Upon Certain Terminations or Cancellations of Option. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, (i) the Option is terminated pursuant to Section 6(b)(i) hereof, or (ii) the Company exercises its discretion to provide a cancellation notice with respect to the Option pursuant to Section 6(b)(ii) hereof.

 

(b) Acceleration Upon Change in Control. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, and during the Optionee’ s Continuous Service, there is a Change in Control.

 

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10. No Right to Continuous Service. Neither the Option nor this Agreement shall confer upon the Optionee any right to Continuous Service with the Company or any Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause or (b) the service of a Director pursuant to the By-laws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

11. Information Confidential. As partial consideration for the granting of the Option, the Optionee agrees with the Company to keep confidential all information and knowledge that the Optionee has relating to the manner and amount of the Optionee’ s participation; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Optionee’ s spouse, the Optionee’ s tax and financial advisors, or financial institutions to the extent that such information is necessary to secure a loan.

 

12. Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid to the address specified by the person who is to receive the same. Each such notice, request, demand, or other communication hereunder shall be deemed to have been given (whether actually received or not) on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone or facsimile-machine-generated confirmation), or on the third day following the date of mailing, if mailed in accordance with this Section, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this Section shall be deemed to have been given on the date actually received. Each such notice, request, demand, or other communication hereunder shall be addressed, in the case of the Company, to the Company’s Secretary at Sparta Commercial Services, Inc. 555 Fifth Avenue, 14th Floor, New York, NY 10017, or if the Company should move its principal office, to such principal office, and, in the case of the Optionee, to the Optionee’ s last permanent address as shown on the Company’s records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section. Any person entitled to any notice, request, demand, or other communication hereunder may waive the notice, request, demand, or other communication.

 

13. Section 409A.

 

(a) It is intended that the Option awarded pursuant to this Agreement be exempt from Section 409A of the Code (“Section 409A”) because it is believed that (i) the Exercise Price may never be less than the Fair Market Value of a Share on the Date of Grant and the number of Shares subject to the Option is fixed on the original Date of Grant, (ii) the transfer or exercise of the Option is subject to taxation under Section 83 of the Code and Treas. Reg. 1.83-7, and (iii) the Option does not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the Option. The provisions of this Agreement shall be interpreted in a manner consistent with this intention, and the provisions of this Agreement may not be amended, adjusted, assumed or substituted for, converted or otherwise modified without the Optionee’ s prior written consent if and to the extent that the Company believes or reasonably should believe that such amendment, adjustment, assumption or substitution, conversion or modification would cause the Award to violate the requirements of Section 409A. In the event that either the Company or the Optionee believes, at any time, that any benefit or right under this Agreement is subject to Section 409A, then the Committee may (acting alone and without any required consent of the Optionee) amend this Agreement in such manner as the Committee deems necessary or appropriate to be exempt from or otherwise comply with the requirements of Section 409A (including without limitation, amending the Agreement to increase the Exercise Price to such amount as may be required in order for the Option to be exempt from Section 409A).

 

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(b) Notwithstanding the foregoing, the Company does not make any representation to the Optionee that the Option awarded pursuant to this Agreement is exempt from, or satisfies, the requirements of Section 409A, and the Company shall have no liability or other obligation to indemnify or hold harmless the Optionee or any Beneficiary for any tax, additional tax, interest or penalties that the Optionee or any Beneficiary may incur in the event that any provision of this Agreement, or any amendment or modification thereof or any other action taken with respect thereto, that either is consented to by the Optionee or that the Company reasonably believes should not result in a violation of Section 409A, is deemed to violate any of the requirements of Section 409A.

 

14. Incentive Stock Option Treatment. If designated on Schedule I hereof as an Incentive Stock Option: (a) the terms of this Option shall be interpreted in a manner consistent with the intent of the Company and the Optionee that the Option qualify as an Incentive Stock Option under Section 422 of the Code; (b) if any provision of the this Agreement shall be impermissible in order for the Option to qualify as an Incentive Stock Option, then the Option shall be construed and enforced as if such provision had never been included in the Option; and (c) if and to the extent that the number of Options granted pursuant to this Agreement exceeds the limitations contained in Section 422 of the Code on the value of Shares with respect to which this Option may qualify as an Incentive Stock Option, this Option shall be a Non-Qualified Stock Option. If designated on Schedule I hereof as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code, and this Agreement shall be interpreted accordingly. Notwithstanding the foregoing, the Company shall have no liability to the Optionee, any Option Holder or any other person if the Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code.

 

15. Optionee Representations.

 

(a) Entirely for Own Account. This Agreement is made with the Optionee in reliance upon the Optionee’ s representation to the Company, which by the Optionee’ s execution of this Agreement, the Optionee hereby confirms, that the Common Stock to be acquired by the Optionee will be acquired for investment for the Optionee’ s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Optionee has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Optionee further represents that the Optionee does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Shares. The Optionee has not been formed for the specific purpose of acquiring the Shares.

 

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(b) Disclosure of Information. The Optionee has had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the issuance of the shares with the Company’s management and has had an opportunity to review the Company’s facilities.

 

(d) Legends. The Optionee understands that the Shares and any securities issued in respect of or exchange for the Shares, may be notated with any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the certificate, instrument, or book entry so legended.

 

(e) Accredited Investors. The Optionee is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

(f) Foreign Investors. If the Optionee is not a United States person (as defined by Section 7701(a)(30) of the Code), the Optionee hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Optionee’ s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Optionee’ s jurisdiction.

 

16. Section Headings. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

17. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon exercise thereof, shall constitute general funds of the Company.

 

18. Adjustments Upon Changes in Stock. In the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the Grant Date of any Award, Awards granted under the any Award Agreements, the exercise price of Options, the maximum number of shares of Common Stock subject to all Awards will be equitably adjusted or substituted, as to the number, price or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award. In the case of adjustments made pursuant to this Section 19, unless the Company or Committee, as applicable, specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Company or Committee, as applicable, shall, in the case of Incentive Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification, extension or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Non-qualified Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification of such Non-qualified Stock Options within the meaning of Section 409A of the Code. Any adjustments made under this Section 19 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.

 

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19. No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to this Agreement. The Company or Committee, as applicable, shall determine whether cash, additional Awards or other securities or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional shares should be rounded, forfeited or otherwise eliminated.

 

20. Governing Law and Venue. THIS AGREEMENT SHALL AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEVADA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS LOCATED IN THE STATE OF NEW YORK AND AGREES THAT ANY LITIGATION BETWEEN THE PARTIES WILL BE FILED IN COURTS LOCATED IN NEW YORK, NEW YORK.

 

21. Arbitration. By execution hereof, the parties hereto expressly agree that upon the request of any party, whether made before or after the institution of any legal proceeding, any action, dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, arising between the parties in any way arising out of any of the provisions contained in this Agreement shall be resolved by binding arbitration administered by the American Arbitration Association (the “AAA”) and in New York, NY. Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the AAA and, to the maximum extent applicable, the Federal Arbitration Act (Title 9 of the United States Code) except as otherwise specified herein. Judgment upon the award rendered by the arbitrator may be entered in any court having competent jurisdiction. The arbitrator shall resolve all disputes in accordance with the applicable substantive law. A single arbitrator shall be chosen and shall decide the dispute, unless the amount sought in the dispute exceeds $100,000, in which case a panel of three arbitrators shall decide the dispute. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the arbitrator(s) shall make specific, written findings of fact and conclusions of law. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the parties shall have, in addition to the limited statutory right to seek a vacation or modification of an award pursuant to applicable law, the right to vacation or modification of any award that is based, in whole or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for a vacation or modification of such an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the dispute within 15 days from the date the award is rendered. The findings of fact of the arbitrator(s) shall be binding on all parties and shall not be subject to further review except as otherwise allowed by applicable law. No provision of this Agreement nor the exercise of any rights hereunder shall limit the right of any party, and any party shall have the right during any dispute, to seek, use, and employ ancillary or preliminary remedies, such as injunctive relief (including, without limitation, specific performance), from a court having jurisdiction before, during, or after the pendency of any arbitration. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of any party to submit any dispute to arbitration nor render inapplicable the compulsory arbitration provisions hereof.

 

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22. Attorney’s Fees. If any action is brought to enforce or interpret the terms of this Agreement (including through arbitration), the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

23. Counterparts. This Agreement may be executed in any number of counterparts and shall be effective when each party hereto has executed at least one counterpart, with the same effect as if all signing parties had signed the same document. All counterparts will be construed together and evidence only one agreement, which, notwithstanding the actual date of execution of any counterpart, shall be deemed to be dated the day and year first written above. In making proof of this Agreement, it shall not be necessary to account for a counterpart executed by any party other than the party against whom enforcement is sought or to account for more than one counterpart executed by the party against whom enforcement is sought.

 

24. Execution by Facsimile. The manual signature of any party hereto that is transmitted to any other party by facsimile or in portable document format (PDF) shall be deemed for all purposes to be an original signature.

 

Remainder of page intentionally left blank; signature page follows.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the 9th day of July, 2020.

 

 

COMPANY:

   
 
     
  By:                                                                                   
  Name:
  Title:

 

 

The Optionee acknowledges receipt of a copy of the Agreement and represents that he or she has reviewed the provisions of this Agreement in their entirety, is familiar with and understands their terms and provisions, and hereby accepts this Option subject to all of the terms and provisions of this Agreement. The Optionee further represents that he or she has had an opportunity to obtain the advice of counsel prior to executing this Agreement.

 

Dated: _________________________

OPTIONEE:

     
     
     
  Name: Jeffrey Bean
  Address:
   

 

[Signature Page to Option Agreement]

 

   

 

 

SCHEDULE I

 

NAME OF OPTIONEE: Jeffrey Bean
   
DATE OF GRANT: July 9, 2020
     
TYPE OF OPTION: Incentive Stock Option No
     
  Non-Qualified Stock Option Yes
   
NUMBER OF OPTIONED SHARES: 48,214,285
   
OPTION PRICE: $0.0028 per Share
   
EXERCISE PRICE: $0.00308 per Share
   
TERMINATION DATE: Fifth year anniversary of Date of Grant, subject to the other terms of the Option.
   
VESTING: Options vest automatically as of the Date of Grant.
   
PERMISSION TO PAY WITH SHARES: _X _Granted ____ Denied
   
EXPANDED RIGHTS TO TRANSFER OPTION: None

 

[Schedule I to Option Agreement]

 

   

 

 

 

Exhibit 4.2

 

SPARTA COMMERCIAL SERVICES, INC.

STOCK OPTION AGREEMENT

FOR

 

Kristian Srb

 

Agreement

 

1. Grant of Option. Sparta Commercial Services, Inc., a Nevada corporation (the “Company”), hereby grants, as of the effective date of this Agreement specified on Schedule I hereof beside the caption “Date of Grant” (“Date of Grant”), to Kristian Srb (the “Optionee”) an option (the “Option”) to purchase an aggregate number of shares set forth on Schedule I hereof beside the caption “Number of Optioned Shares” (such number being subject to adjustment as provided below) of the Company’s common stock, $0.001 par value per share (the “Shares”), at an exercise price per share set forth on Schedule I hereof beside the caption “Exercise Price” (such exercise price being subject to adjustment as provided below) (the “Exercise Price”). The Option shall be subject to the terms and conditions set forth herein. This Option is designated on Schedule I as either an Incentive Stock Option or a Non-Qualified Stock Option.

 

2. Definitions.

 

(a) Affiliate” means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, the Company.

 

(b) Applicable Laws” means the requirements related to or implicated by the applicable state corporate law, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under.

 

(c) Award” means any right granted under this Agreement, including an Incentive Stock Option or a Non-qualified Stock Option.

 

(d) Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

 

(e) Board” means the Board of Directors of the Company, as constituted at any time.

 

(f) Cause” means:

 

  (i) With respect to any particular Service Provider, who is not a Director:

 

  a. if such Service Provider is a party to an employment or service agreement with the Company, or its affiliates, and such agreement provides for a definition of Cause, the definition contained therein; or

 

 

 

 

 

  b. if not such agreement exists, or if such agreement does not define Cause: (1) a Service Provider’s repeated failure to perform substantially his or her duties as an employee or other associate of the Company or any of the Subsidiaries (other than any such failure resulting from his or her Disability) which failure, whether committed willfully or negligently, has continued unremedied for more than thirty (30) days after the Company has provided written notice thereof; provided, that, a failure to meet financial performance expectations shall not, by itself, constitute a failure by the Service Provider to substantially perform his or her duties; (2) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (3) a Service Provider’s material dishonesty or breach of fiduciary duty of loyalty against the Company or any Affiliate; (4) conduct that brings or is reasonably likely to bring the Company or an Affiliate negative publicity or into public disgrace, embarrassment, or disrepute; (4) gross negligence or willful misconduct with respect to the Company or an Affiliate; (5) material violation of state or federal securities laws; or (6) material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct.

 

  (ii) With respect to any Service Provider who is a Director, a determination by a majority of the disinterested Board members that the Director has engaged in any of the following:

 

  a. malfeasance in office;
     
  b. discrimination, harassment and other behaviors that would reasonably likely bring the company negative publicity or embarrassment;
     
  c. gross misconduct or neglect;
     
  d. false or fraudulent misrepresentation inducing the director’s appointment;
     
  e. willful conversion of corporate funds; or
     
  f. repeated failure to participate in Board meetings on a regular basis despite having received proper notice of the meetings in advance.

 

(g) Change in Control” means:

 

(i) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its subsidiaries, taken as a whole, to any Person that is not a subsidiary of the Company;

 

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(ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election;

 

(iii) the date which is 10 business days prior to the consummation of a complete liquidation or dissolution of the Company;

 

(iv) the acquisition by any Person of Beneficial Ownership of 50% or more (on a fully diluted basis) of either (a) the then outstanding shares of Common Stock of the Company, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Agreement, the following acquisitions shall not constitute a Change in Control: (1) any acquisition by the Company or any Affiliate, (2) any acquisition by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (3) any acquisition which complies with clauses, (a), (b) and (c) of subsection (v) of this definition or (4) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant); or

 

(v) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the approval of the Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (a) more than 50% of the total voting power of (A) the entity resulting from such Business Combination (the “Surviving Company”), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company (the “Parent Company”), is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Outstanding Company Voting Securities among the holders thereof immediately prior to the Business Combination; (b) no Person (other than any employee benefit plan sponsored or maintained by the Surviving Company or the Parent Company) is or becomes the Beneficial Owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect members of the board of directors of the Parent Company (or the analogous governing body) (or, if there is no Parent Company, the Surviving Company); and (c) at least a majority of the members of the board of directors (or the analogous governing body) of the Parent Company (or, if there is no Parent Company, the Surviving Company) following the consummation of the Business Combination were Board members at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination.

 

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(h) Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.

 

(i) Common Stock” means common stock, $0.001 par value per share, of the Company, or such other securities of the Company as may be designated by the Company from time to time in substitution thereof.

 

(j) Consultant” means any individual or entity which performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act.

 

(k) Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, consultant or Director, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Company or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. The Company or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes of affected Awards, and such decision shall be final, conclusive and binding.

 

(l) Director” means a member of the Board.

 

(m) Effective Date” shall mean the date as of which this Agreement is adopted by the Board.

 

(n) Employee” means any person, including an Officer or Director, employed by the Company or an Affiliate; provided that for purposes of determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or a parent or subsidiary corporation within the meaning of Section 424 of the Code. Mere service as a Director or payment of a Director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

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

 

(p) Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment; provided, however, for purposes of determining the term of an Incentive Stock Option, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Company. Except in situations where the Company is determining Disability for purposes of the term of an Incentive Stock Option within the meaning of Section 22(e)(3) of the Code, the Company may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.

 

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(q) Fair Market Value” means, as of any date, the value of the Common Stock as determined below. If the Common Stock is listed on any established stock exchange or a national market, including without limitation, the New York Stock Exchange or the Nasdaq Stock Market, the Fair Market Value shall be the closing price of a share of Common Stock (or if no sales were reported the closing price on the date immediately preceding such date) as quoted on such exchange or system on the day of determination. In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Company and such determination shall be conclusive and binding on all persons.

 

(r) Incentive Stock Option” means an Option that is designated by the Company as an incentive stock option within the meaning of Section 422 of the Code and that meets the requirements set out in this Agreement, if applicable.

 

(s) Incumbent Directors” means individuals who, on the Effective Date, constitute the Board; provided that any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) shall be an Incumbent Director. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.

 

(t) Non-employee Director” means a Director who is a “non-employee director” within meaning of Rule 16b-3.

 

(u) Non-qualified Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

 

(v) Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(w) Participant” means an eligible person to whom an Award is granted pursuant to this Agreement or, if applicable, such other person who holds an outstanding Award.

 

(x) Person” means a person defined in Section 13(d)(3) of the Exchange Act.

 

(y) Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

(z) Securities Act” means the Securities Act of 1933, as amended.

 

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3. Exercise Schedule. Except as otherwise provided in Sections 6 or 10 of this Agreement, the Option is exercisable in installments as specified on Schedule I hereof beside the caption “Vesting”, which shall be cumulative. To the extent that the Option has become exercisable with respect to a percentage of Shares as provided on Schedule I hereof beside the caption “Vesting” on each date (each date being, a “Vesting Date”) upon which the Optionee shall be entitled to exercise the Option with respect to the percentage of Shares granted as indicated for each Vesting Date (provided that the Continuous Service of the Optionee continues through and on the applicable Vesting Date), the Option may thereafter be exercised by the Optionee, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein. Except as otherwise specifically provided herein, there shall be no proportionate or partial vesting in the periods prior to each Vesting Date, and all vesting shall occur only on the appropriate Vesting Date. Upon the termination of the Optionee’ s Continuous Service, any unvested portion of the Option shall terminate and be null and void.

 

4. Method of Exercise. The vested portion of this Option shall be exercisable in whole or in part, in accordance with the Vesting of such Options provided in Schedule I and as set forth in Section 3 hereof, by written notice which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares as may be required by the Company pursuant to the provisions of this Agreement. Such written notice shall be signed by the Optionee or if someone other than the Optionee exercises the Option, by such other person who provides documentation acceptable to the Company, or Committee, verifying that such person has the legal right to exercise such Option, and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised after both (a) receipt by the Company of such written notice accompanied by the Exercise Price and (b) arrangements that are satisfactory to the Committee, in its sole discretion, have been made for Optionee’ s payment to the Company of the amount, if any, that is necessary to be withheld in accordance with applicable Federal or state withholding requirements. No Shares shall be issued pursuant to the Option unless and until such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares then may be traded.

 

5. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

 

(a) in cash or by certified or bank check at the time the Option is exercised;

 

(b) to the extent permitted by the Committee, or as provided on Schedule I hereof beside the caption “Permission to Pay with Shares”, and if there is a public market available for the Shares at the time of such exercise: (i) with Shares owned by the Optionee, duly endorsed for transfer to the Company, with a fair market value on the date of delivery equal to the Exercise Price (or portion thereof) due for the number of shares being acquired; (ii) by withholding or reducing the number of Shares otherwise deliverable to the Optionee upon exercise of such Option by a number of Shares with an aggregate fair market value equal to the aggregate Exercise Price at the time of exercise; or (iii) pursuant to a “cashless exercise” procedure established with a broker; provided that such payment by this method requires delivery of a properly executed exercise notice together with such other documentation, and subject to such guidelines, as the Committee or Company shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the Company of proceeds from the sale of Shares sufficient to pay the Exercise Price and any applicable income or employment taxes; provided further that the Optionee shall provide irrevocable written instructions (x) to such designated brokerage firm to effect the immediate sale of a portion of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, an amount sufficient to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable state and federal income and employment taxes required to be withheld by the Company by reason of such purchase and/or sale and (y) to the Company to deliver the certificates for the purchase Shares directly to such brokerage firm to effect the sale transaction; or

 

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(c) in any other consideration or in such other manner as may be determined by the Committee, in its absolute discretion.

 

Notwithstanding anything contained herein to the contrary, no exercise shall become effective until the Company determines that the issuance and delivery of the Shares pursuant to such exercise is in compliance with all applicable laws, regulations and requirements of any securities exchange on which the Shares may be traded.

 

6. Termination of Option

 

(a) General. Any unexercised portion of the Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:

 

(i) unless the Committee otherwise determines in writing in its sole discretion, three months after the date on which the Optionee’ s Continuous Service is terminated by the Company or Related Entity for (a) Cause, (b) a Disability of the Optionee as determined by a medical doctor satisfactory to the Committee, or (c) the death of the Optionee;

 

(ii) immediately upon the termination of the Optionee’ s Continuous Service by the Company or a Related Entity for Cause;

 

(iii) twelve months after the date on which the Optionee’ s Continuous Service is terminated by reason of a Disability as determined by a medical doctor satisfactory to the Committee;

 

(iv) twelve months after the date of termination of the Optionee’ s Continuous Service by reason of the death of the Optionee; or

 

(v) the fifth anniversary of the date as of which the Option is granted (or, if a different date is shown on Schedule I hereof beside the caption “Termination Date”, such date).

 

(b) Cancellation. To the extent not previously exercised:

 

(i) the Option shall terminate immediately in the event of (a) the liquidation or dissolution of the Company, or (b) any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive or the Shares are exchanged for or converted into securities issued by another entity, or an affiliate of such successor or acquiring entity, unless the successor or acquiring entity, or an Affiliate thereof, assumes the Option or substitutes an equivalent option or right; and

 

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(ii) the Committee in its sole discretion may by written notice cancel (“cancellation notice”), effective upon the consummation of any transaction that constitutes a Change in Control, the Option (or portion thereof) that remains unexercised on such date.

 

The Committee shall give written notice of any proposed transaction referred to in this Section 6(b) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that the Optionee may have a reasonable period of time prior to the closing date of such transaction within which to exercise the Option if and to the extent that it then is exercisable (including any portion of the Option that may become exercisable upon the closing date of such transaction). The Optionee may condition their exercise of the Option upon the consummation of a transaction referred to in this Section 6(b).

 

7. Transferability. Unless (i) transfers are expressly permitted in the language appearing beside the caption “Expanded Rights to Transfer Option” on Schedule I hereof or (ii) otherwise determined by the Company or Committee, the Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution, and during the lifetime of the Optionee the Option shall be exercisable only by the Optionee, or the Optionee’ s guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of any execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

 

8. No Rights of Stockholders. Neither the Optionee nor any personal representative (or beneficiary) shall be, or shall have any of the rights and privileges of, a stockholder of the Company with respect to any Shares purchasable or issuable upon the exercise of the Option, in whole or in part, prior to the date on which the Shares are issued.

 

9. Acceleration of Exercisability of Option.

 

(a) Acceleration Upon Certain Terminations or Cancellations of Option. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, (i) the Option is terminated pursuant to Section 6(b)(i) hereof, or (ii) the Company exercises its discretion to provide a cancellation notice with respect to the Option pursuant to Section 6(b)(ii) hereof.

 

(b) Acceleration Upon Change in Control. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, and during the Optionee’ s Continuous Service, there is a Change in Control.

 

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10. No Right to Continuous Service. Neither the Option nor this Agreement shall confer upon the Optionee any right to Continuous Service with the Company or any Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause or (b) the service of a Director pursuant to the By-laws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

11. Information Confidential. As partial consideration for the granting of the Option, the Optionee agrees with the Company to keep confidential all information and knowledge that the Optionee has relating to the manner and amount of the Optionee’ s participation; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Optionee’ s spouse, the Optionee’ s tax and financial advisors, or financial institutions to the extent that such information is necessary to secure a loan.

 

12. Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid to the address specified by the person who is to receive the same. Each such notice, request, demand, or other communication hereunder shall be deemed to have been given (whether actually received or not) on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone or facsimile-machine-generated confirmation), or on the third day following the date of mailing, if mailed in accordance with this Section, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this Section shall be deemed to have been given on the date actually received. Each such notice, request, demand, or other communication hereunder shall be addressed, in the case of the Company, to the Company’s Secretary at Sparta Commercial Services, Inc. 555 Fifth Avenue, 14th Floor New York, NY 10017, or if the Company should move its principal office, to such principal office, and, in the case of the Optionee, to the Optionee’ s last permanent address as shown on the Company’s records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section. Any person entitled to any notice, request, demand, or other communication hereunder may waive the notice, request, demand, or other communication.

 

13. Section 409A.

 

(a) It is intended that the Option awarded pursuant to this Agreement be exempt from Section 409A of the Code (“Section 409A”) because it is believed that (i) the Exercise Price may never be less than the Fair Market Value of a Share on the Date of Grant and the number of Shares subject to the Option is fixed on the original Date of Grant, (ii) the transfer or exercise of the Option is subject to taxation under Section 83 of the Code and Treas. Reg. 1.83-7, and (iii) the Option does not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the Option. The provisions of this Agreement shall be interpreted in a manner consistent with this intention, and the provisions of this Agreement may not be amended, adjusted, assumed or substituted for, converted or otherwise modified without the Optionee’ s prior written consent if and to the extent that the Company believes or reasonably should believe that such amendment, adjustment, assumption or substitution, conversion or modification would cause the Award to violate the requirements of Section 409A. In the event that either the Company or the Optionee believes, at any time, that any benefit or right under this Agreement is subject to Section 409A, then the Committee may (acting alone and without any required consent of the Optionee) amend this Agreement in such manner as the Committee deems necessary or appropriate to be exempt from or otherwise comply with the requirements of Section 409A (including without limitation, amending the Agreement to increase the Exercise Price to such amount as may be required in order for the Option to be exempt from Section 409A).

 

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(b) Notwithstanding the foregoing, the Company does not make any representation to the Optionee that the Option awarded pursuant to this Agreement is exempt from, or satisfies, the requirements of Section 409A, and the Company shall have no liability or other obligation to indemnify or hold harmless the Optionee or any Beneficiary for any tax, additional tax, interest or penalties that the Optionee or any Beneficiary may incur in the event that any provision of this Agreement, or any amendment or modification thereof or any other action taken with respect thereto, that either is consented to by the Optionee or that the Company reasonably believes should not result in a violation of Section 409A, is deemed to violate any of the requirements of Section 409A.

 

14. Incentive Stock Option Treatment. If designated on Schedule I hereof as an Incentive Stock Option: (a) the terms of this Option shall be interpreted in a manner consistent with the intent of the Company and the Optionee that the Option qualify as an Incentive Stock Option under Section 422 of the Code; (b) if any provision of the this Agreement shall be impermissible in order for the Option to qualify as an Incentive Stock Option, then the Option shall be construed and enforced as if such provision had never been included in the Option; and (c) if and to the extent that the number of Options granted pursuant to this Agreement exceeds the limitations contained in Section 422 of the Code on the value of Shares with respect to which this Option may qualify as an Incentive Stock Option, this Option shall be a Non-Qualified Stock Option. If designated on Schedule I hereof as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code, and this Agreement shall be interpreted accordingly. Notwithstanding the foregoing, the Company shall have no liability to the Optionee, any Option Holder or any other person if the Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code.

 

15. Optionee Representations.

 

(a) Entirely for Own Account. This Agreement is made with the Optionee in reliance upon the Optionee’ s representation to the Company, which by the Optionee’ s execution of this Agreement, the Optionee hereby confirms, that the Common Stock to be acquired by the Optionee will be acquired for investment for the Optionee’ s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Optionee has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Optionee further represents that the Optionee does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Shares. The Optionee has not been formed for the specific purpose of acquiring the Shares.

 

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(b) Disclosure of Information. The Optionee has had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the issuance of the shares with the Company’s management and has had an opportunity to review the Company’s facilities.

 

(d) Legends. The Optionee understands that the Shares and any securities issued in respect of or exchange for the Shares, may be notated with any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the certificate, instrument, or book entry so legended.

 

(e) Accredited Investors. The Optionee is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

(f) Foreign Investors. If the Optionee is not a United States person (as defined by Section 7701(a)(30) of the Code), the Optionee hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Optionee’ s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Optionee’ s jurisdiction.

 

16. Section Headings. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

17. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon exercise thereof, shall constitute general funds of the Company.

 

18. Adjustments Upon Changes in Stock. In the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the Grant Date of any Award, Awards granted under the any Award Agreements, the exercise price of Options, the maximum number of shares of Common Stock subject to all Awards will be equitably adjusted or substituted, as to the number, price or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award. In the case of adjustments made pursuant to this Section 19, unless the Company or Committee, as applicable, specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Company or Committee, as applicable, shall, in the case of Incentive Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification, extension or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Non-qualified Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification of such Non-qualified Stock Options within the meaning of Section 409A of the Code. Any adjustments made under this Section 19 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.

 

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19. No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to this Agreement. The Company or Committee, as applicable, shall determine whether cash, additional Awards or other securities or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional shares should be rounded, forfeited or otherwise eliminated.

 

20. Governing Law and Venue. THIS AGREEMENT SHALL AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEVADA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS LOCATED IN THE STATE OF NEW YORK AND AGREES THAT ANY LITIGATION BETWEEN THE PARTIES WILL BE FILED IN COURTS LOCATED IN NEW YORK, NEW YORK.

 

21. Arbitration. By execution hereof, the parties hereto expressly agree that upon the request of any party, whether made before or after the institution of any legal proceeding, any action, dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, arising between the parties in any way arising out of any of the provisions contained in this Agreement shall be resolved by binding arbitration administered by the American Arbitration Association (the “AAA”) and in New York, NY. Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the AAA and, to the maximum extent applicable, the Federal Arbitration Act (Title 9 of the United States Code) except as otherwise specified herein. Judgment upon the award rendered by the arbitrator may be entered in any court having competent jurisdiction. The arbitrator shall resolve all disputes in accordance with the applicable substantive law. A single arbitrator shall be chosen and shall decide the dispute, unless the amount sought in the dispute exceeds $100,000, in which case a panel of three arbitrators shall decide the dispute. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the arbitrator(s) shall make specific, written findings of fact and conclusions of law. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the parties shall have, in addition to the limited statutory right to seek a vacation or modification of an award pursuant to applicable law, the right to vacation or modification of any award that is based, in whole or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for a vacation or modification of such an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the dispute within 15 days from the date the award is rendered. The findings of fact of the arbitrator(s) shall be binding on all parties and shall not be subject to further review except as otherwise allowed by applicable law. No provision of this Agreement nor the exercise of any rights hereunder shall limit the right of any party, and any party shall have the right during any dispute, to seek, use, and employ ancillary or preliminary remedies, such as injunctive relief (including, without limitation, specific performance), from a court having jurisdiction before, during, or after the pendency of any arbitration. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of any party to submit any dispute to arbitration nor render inapplicable the compulsory arbitration provisions hereof.

 

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22. Attorney’s Fees. If any action is brought to enforce or interpret the terms of this Agreement (including through arbitration), the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

23. Counterparts. This Agreement may be executed in any number of counterparts and shall be effective when each party hereto has executed at least one counterpart, with the same effect as if all signing parties had signed the same document. All counterparts will be construed together and evidence only one agreement, which, notwithstanding the actual date of execution of any counterpart, shall be deemed to be dated the day and year first written above. In making proof of this Agreement, it shall not be necessary to account for a counterpart executed by any party other than the party against whom enforcement is sought or to account for more than one counterpart executed by the party against whom enforcement is sought.

 

24. Execution by Facsimile. The manual signature of any party hereto that is transmitted to any other party by facsimile or in portable document format (PDF) shall be deemed for all purposes to be an original signature.

 

Remainder of page intentionally left blank; signature page follows.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the 9th day of July, 2020.

 

  COMPANY:
   
   
   
  By:                      
  Name:  
  Title:  

 

The Optionee acknowledges receipt of a copy of the Agreement and represents that he or she has reviewed the provisions of this Agreement in their entirety, is familiar with and understands their terms and provisions, and hereby accepts this Option subject to all of the terms and provisions of this Agreement. The Optionee further represents that he or she has had an opportunity to obtain the advice of counsel prior to executing this Agreement.

 

Dated:     OPTIONEE:
         
       
      Name: Kristian Srb
         
      Address:  
         

 

[Signature Page to Option Agreement]

 

 

 

 

SCHEDULE I

 

NAME OF OPTIONEE: Kristian Srb
   
DATE OF GRANT: July 9, 2020
   
TYPE OF OPTION: Incentive Stock Option No
     
  Non-Qualified Stock Option Yes
     
NUMBER OF OPTIONED SHARES: 48,214,285
   
OPTION PRICE: $0.0028 per Share
   
EXERCISE PRICE: $0.00308 per Share
   
TERMINATION DATE: Fifth year anniversary of Date of Grant, subject to the other terms of the Option.
   
VESTING: Options vest automatically as of the Date of Grant.
   
PERMISSION TO PAY WITH SHARES: _X _Granted ____ Denied
   
EXPANDED RIGHTS TO TRANSFER OPTION: None

 

[Schedule I to Option Agreement]

 

 

 

Exhibit 4.3

 

SPARTA COMMERCIAL SERVICES, INC.
STOCK OPTION AGREEMENT
FOR

 

Anthony L. Havens

 

Agreement

 

1. Grant of Option. Sparta Commercial Services, Inc., a Nevada corporation (the “Company”), hereby grants, as of the effective date of this Agreement specified on Schedule I hereof beside the caption “Date of Grant” (“Date of Grant”), to Anthony L. Havens (the “Optionee”) an option (the “Option”) to purchase an aggregate number of shares set forth on Schedule I hereof beside the caption “Number of Optioned Shares” (such number being subject to adjustment as provided below) of the Company’s common stock, $0.001 par value per share (the “Shares”), at an exercise price per share set forth on Schedule I hereof beside the caption “Exercise Price” (such exercise price being subject to adjustment as provided below) (the “Exercise Price”). The Option shall be subject to the terms and conditions set forth herein. This Option is designated on Schedule I as either an Incentive Stock Option or a Non-Qualified Stock Option.

 

2. Definitions.

 

(a) Affiliate” means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, the Company.

 

(b) Applicable Laws” means the requirements related to or implicated by the applicable state corporate law, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under.

 

(c) Award” means any right granted under this Agreement, including an Incentive Stock Option or a Non-qualified Stock Option.

 

(d) Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

 

(e) Board” means the Board of Directors of the Company, as constituted at any time.

 

(f) Cause” means:

 

  (i) With respect to any particular Service Provider, who is not a Director:

 

  a. if such Service Provider is a party to an employment or service agreement with the Company, or its affiliates, and such agreement provides for a definition of Cause, the definition contained therein; or

 

 

 

 

  b. if not such agreement exists, or if such agreement does not define Cause: (1) a Service Provider’s repeated failure to perform substantially his or her duties as an employee or other associate of the Company or any of the Subsidiaries (other than any such failure resulting from his or her Disability) which failure, whether committed willfully or negligently, has continued unremedied for more than thirty (30) days after the Company has provided written notice thereof; provided, that, a failure to meet financial performance expectations shall not, by itself, constitute a failure by the Service Provider to substantially perform his or her duties; (2) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (3) a Service Provider’s material dishonesty or breach of fiduciary duty of loyalty against the Company or any Affiliate; (4) conduct that brings or is reasonably likely to bring the Company or an Affiliate negative publicity or into public disgrace, embarrassment, or disrepute; (4) gross negligence or willful misconduct with respect to the Company or an Affiliate; (5) material violation of state or federal securities laws; or (6) material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct.

 

  (ii) With respect to any Service Provider who is a Director, a determination by a majority of the disinterested Board members that the Director has engaged in any of the following:

 

  a. malfeasance in office;
     
  b. discrimination, harassment and other behaviors that would reasonably likely bring the company negative publicity or embarrassment;
     
  c. gross misconduct or neglect;
     
  d. false or fraudulent misrepresentation inducing the director’s appointment;
     
  e. willful conversion of corporate funds; or
     
  f. repeated failure to participate in Board meetings on a regular basis despite having received proper notice of the meetings in advance.

 

(g) Change in Control” means:

 

(i) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its subsidiaries, taken as a whole, to any Person that is not a subsidiary of the Company;

 

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(ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election;

 

(iii) the date which is 10 business days prior to the consummation of a complete liquidation or dissolution of the Company;

 

(iv) the acquisition by any Person of Beneficial Ownership of 50% or more (on a fully diluted basis) of either (a) the then outstanding shares of Common Stock of the Company, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Agreement, the following acquisitions shall not constitute a Change in Control: (1) any acquisition by the Company or any Affiliate, (2) any acquisition by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (3) any acquisition which complies with clauses, (a), (b) and (c) of subsection (v) of this definition or (4) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant); or

 

(v) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the approval of the Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (a) more than 50% of the total voting power of (A) the entity resulting from such Business Combination (the “Surviving Company”), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company (the “Parent Company”), is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Outstanding Company Voting Securities among the holders thereof immediately prior to the Business Combination; (b) no Person (other than any employee benefit plan sponsored or maintained by the Surviving Company or the Parent Company) is or becomes the Beneficial Owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect members of the board of directors of the Parent Company (or the analogous governing body) (or, if there is no Parent Company, the Surviving Company); and (c) at least a majority of the members of the board of directors (or the analogous governing body) of the Parent Company (or, if there is no Parent Company, the Surviving Company) following the consummation of the Business Combination were Board members at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination.

 

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(h) Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.

 

(i) Common Stock” means common stock, $0.001 par value per share, of the Company, or such other securities of the Company as may be designated by the Company from time to time in substitution thereof.

 

(j) Consultant” means any individual or entity which performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act.

 

(k) Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, consultant or Director, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Company or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. The Company or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes of affected Awards, and such decision shall be final, conclusive and binding.

 

(l) Director” means a member of the Board.

 

(m) Effective Date” shall mean the date as of which this Agreement is adopted by the Board.

 

(n) Employee” means any person, including an Officer or Director, employed by the Company or an Affiliate; provided that for purposes of determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or a parent or subsidiary corporation within the meaning of Section 424 of the Code. Mere service as a Director or payment of a Director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

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

 

(p) Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment; provided, however, for purposes of determining the term of an Incentive Stock Option, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Company. Except in situations where the Company is determining Disability for purposes of the term of an Incentive Stock Option within the meaning of Section 22(e)(3) of the Code, the Company may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.

 

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(q) Fair Market Value” means, as of any date, the value of the Common Stock as determined below. If the Common Stock is listed on any established stock exchange or a national market, including without limitation, the New York Stock Exchange or the Nasdaq Stock Market, the Fair Market Value shall be the closing price of a share of Common Stock (or if no sales were reported the closing price on the date immediately preceding such date) as quoted on such exchange or system on the day of determination. In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Company and such determination shall be conclusive and binding on all persons.

 

(r) Incentive Stock Option” means an Option that is designated by the Company as an incentive stock option within the meaning of Section 422 of the Code and that meets the requirements set out in this Agreement, if applicable.

 

(s) Incumbent Directors” means individuals who, on the Effective Date, constitute the Board; provided that any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) shall be an Incumbent Director. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.

 

(t) Non-employee Director” means a Director who is a “non-employee director” within meaning of Rule 16b-3.

 

(u) Non-qualified Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

 

(v) Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(w) Participant” means an eligible person to whom an Award is granted pursuant to this Agreement or, if applicable, such other person who holds an outstanding Award.

 

(x) Person” means a person defined in Section 13(d)(3) of the Exchange Act.

 

(y) Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

(z) Securities Act” means the Securities Act of 1933, as amended.

 

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3. Exercise Schedule. Except as otherwise provided in Sections 6 or 10 of this Agreement, the Option is exercisable in installments as specified on Schedule I hereof beside the caption “Vesting”, which shall be cumulative. To the extent that the Option has become exercisable with respect to a percentage of Shares as provided on Schedule I hereof beside the caption “Vesting” on each date (each date being, a “Vesting Date”) upon which the Optionee shall be entitled to exercise the Option with respect to the percentage of Shares granted as indicated for each Vesting Date (provided that the Continuous Service of the Optionee continues through and on the applicable Vesting Date), the Option may thereafter be exercised by the Optionee, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein. Except as otherwise specifically provided herein, there shall be no proportionate or partial vesting in the periods prior to each Vesting Date, and all vesting shall occur only on the appropriate Vesting Date. Upon the termination of the Optionee’ s Continuous Service, any unvested portion of the Option shall terminate and be null and void.

 

4. Method of Exercise. The vested portion of this Option shall be exercisable in whole or in part, in accordance with the Vesting of such Options provided in Schedule I and as set forth in Section 3 hereof, by written notice which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares as may be required by the Company pursuant to the provisions of this Agreement. Such written notice shall be signed by the Optionee or if someone other than the Optionee exercises the Option, by such other person who provides documentation acceptable to the Company, or Committee, verifying that such person has the legal right to exercise such Option, and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised after both (a) receipt by the Company of such written notice accompanied by the Exercise Price and (b) arrangements that are satisfactory to the Committee, in its sole discretion, have been made for Optionee’ s payment to the Company of the amount, if any, that is necessary to be withheld in accordance with applicable Federal or state withholding requirements. No Shares shall be issued pursuant to the Option unless and until such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares then may be traded.

 

5. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

 

(a) in cash or by certified or bank check at the time the Option is exercised;

 

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(b) to the extent permitted by the Committee, or as provided on Schedule I hereof beside the caption “Permission to Pay with Shares”, and if there is a public market available for the Shares at the time of such exercise: (i) with Shares owned by the Optionee, duly endorsed for transfer to the Company, with a fair market value on the date of delivery equal to the Exercise Price (or portion thereof) due for the number of shares being acquired; (ii) by withholding or reducing the number of Shares otherwise deliverable to the Optionee upon exercise of such Option by a number of Shares with an aggregate fair market value equal to the aggregate Exercise Price at the time of exercise; or (iii) pursuant to a “cashless exercise” procedure established with a broker; provided that such payment by this method requires delivery of a properly executed exercise notice together with such other documentation, and subject to such guidelines, as the Committee or Company shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the Company of proceeds from the sale of Shares sufficient to pay the Exercise Price and any applicable income or employment taxes; provided further that the Optionee shall provide irrevocable written instructions (x) to such designated brokerage firm to effect the immediate sale of a portion of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, an amount sufficient to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable state and federal income and employment taxes required to be withheld by the Company by reason of such purchase and/or sale and (y) to the Company to deliver the certificates for the purchase Shares directly to such brokerage firm to effect the sale transaction; or

 

(c) in any other consideration or in such other manner as may be determined by the Committee, in its absolute discretion.

 

Notwithstanding anything contained herein to the contrary, no exercise shall become effective until the Company determines that the issuance and delivery of the Shares pursuant to such exercise is in compliance with all applicable laws, regulations and requirements of any securities exchange on which the Shares may be traded.

 

6. Termination of Option

 

(a) General. Any unexercised portion of the Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:

 

(i) unless the Committee otherwise determines in writing in its sole discretion, three months after the date on which the Optionee’ s Continuous Service is terminated by the Company or Related Entity for (a) Cause, (b) a Disability of the Optionee as determined by a medical doctor satisfactory to the Committee, or (c) the death of the Optionee;

 

(ii) immediately upon the termination of the Optionee’ s Continuous Service by the Company or a Related Entity for Cause;

 

(iii) twelve months after the date on which the Optionee’ s Continuous Service is terminated by reason of a Disability as determined by a medical doctor satisfactory to the Committee;

 

(iv) twelve months after the date of termination of the Optionee’ s Continuous Service by reason of the death of the Optionee; or

 

(v) the fifth anniversary of the date as of which the Option is granted (or, if a different date is shown on Schedule I hereof beside the caption “Termination Date”, such date).

 

(b) Cancellation. To the extent not previously exercised:

 

(i) the Option shall terminate immediately in the event of (a) the liquidation or dissolution of the Company, or (b) any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive or the Shares are exchanged for or converted into securities issued by another entity, or an affiliate of such successor or acquiring entity, unless the successor or acquiring entity, or an Affiliate thereof, assumes the Option or substitutes an equivalent option or right; and

 

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(ii) the Committee in its sole discretion may by written notice cancel (“cancellation notice”), effective upon the consummation of any transaction that constitutes a Change in Control, the Option (or portion thereof) that remains unexercised on such date.

 

The Committee shall give written notice of any proposed transaction referred to in this Section 6(b) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that the Optionee may have a reasonable period of time prior to the closing date of such transaction within which to exercise the Option if and to the extent that it then is exercisable (including any portion of the Option that may become exercisable upon the closing date of such transaction). The Optionee may condition their exercise of the Option upon the consummation of a transaction referred to in this Section 6(b).

 

7. Transferability. Unless (i) transfers are expressly permitted in the language appearing beside the caption “Expanded Rights to Transfer Option” on Schedule I hereof or (ii) otherwise determined by the Company or Committee, the Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution, and during the lifetime of the Optionee the Option shall be exercisable only by the Optionee, or the Optionee’ s guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of any execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

 

8. No Rights of Stockholders. Neither the Optionee nor any personal representative (or beneficiary) shall be, or shall have any of the rights and privileges of, a stockholder of the Company with respect to any Shares purchasable or issuable upon the exercise of the Option, in whole or in part, prior to the date on which the Shares are issued.

 

9. Acceleration of Exercisability of Option.

 

(a) Acceleration Upon Certain Terminations or Cancellations of Option. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, (i) the Option is terminated pursuant to Section 6(b)(i) hereof, or (ii) the Company exercises its discretion to provide a cancellation notice with respect to the Option pursuant to Section 6(b)(ii) hereof.

 

(b) Acceleration Upon Change in Control. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, and during the Optionee’ s Continuous Service, there is a Change in Control.

 

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10. No Right to Continuous Service. Neither the Option nor this Agreement shall confer upon the Optionee any right to Continuous Service with the Company or any Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause or (b) the service of a Director pursuant to the By-laws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

11. Information Confidential. As partial consideration for the granting of the Option, the Optionee agrees with the Company to keep confidential all information and knowledge that the Optionee has relating to the manner and amount of the Optionee’ s participation; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Optionee’ s spouse, the Optionee’ s tax and financial advisors, or financial institutions to the extent that such information is necessary to secure a loan.

 

12. Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid to the address specified by the person who is to receive the same. Each such notice, request, demand, or other communication hereunder shall be deemed to have been given (whether actually received or not) on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone or facsimile-machine-generated confirmation), or on the third day following the date of mailing, if mailed in accordance with this Section, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this Section shall be deemed to have been given on the date actually received. Each such notice, request, demand, or other communication hereunder shall be addressed, in the case of the Company, to the Company’s Secretary at Sparta Commercial Services, Inc. 555 Fifth Avenue, 14th Floor, New York, NY 10017, or if the Company should move its principal office, to such principal office, and, in the case of the Optionee, to the Optionee’ s last permanent address as shown on the Company’s records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section. Any person entitled to any notice, request, demand, or other communication hereunder may waive the notice, request, demand, or other communication.

 

13. Section 409A.

 

(a) It is intended that the Option awarded pursuant to this Agreement be exempt from Section 409A of the Code (“Section 409A”) because it is believed that (i) the Exercise Price may never be less than the Fair Market Value of a Share on the Date of Grant and the number of Shares subject to the Option is fixed on the original Date of Grant, (ii) the transfer or exercise of the Option is subject to taxation under Section 83 of the Code and Treas. Reg. 1.83-7, and (iii) the Option does not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the Option. The provisions of this Agreement shall be interpreted in a manner consistent with this intention, and the provisions of this Agreement may not be amended, adjusted, assumed or substituted for, converted or otherwise modified without the Optionee’ s prior written consent if and to the extent that the Company believes or reasonably should believe that such amendment, adjustment, assumption or substitution, conversion or modification would cause the Award to violate the requirements of Section 409A. In the event that either the Company or the Optionee believes, at any time, that any benefit or right under this Agreement is subject to Section 409A, then the Committee may (acting alone and without any required consent of the Optionee) amend this Agreement in such manner as the Committee deems necessary or appropriate to be exempt from or otherwise comply with the requirements of Section 409A (including without limitation, amending the Agreement to increase the Exercise Price to such amount as may be required in order for the Option to be exempt from Section 409A).

 

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(b) Notwithstanding the foregoing, the Company does not make any representation to the Optionee that the Option awarded pursuant to this Agreement is exempt from, or satisfies, the requirements of Section 409A, and the Company shall have no liability or other obligation to indemnify or hold harmless the Optionee or any Beneficiary for any tax, additional tax, interest or penalties that the Optionee or any Beneficiary may incur in the event that any provision of this Agreement, or any amendment or modification thereof or any other action taken with respect thereto, that either is consented to by the Optionee or that the Company reasonably believes should not result in a violation of Section 409A, is deemed to violate any of the requirements of Section 409A.

 

14. Incentive Stock Option Treatment. If designated on Schedule I hereof as an Incentive Stock Option: (a) the terms of this Option shall be interpreted in a manner consistent with the intent of the Company and the Optionee that the Option qualify as an Incentive Stock Option under Section 422 of the Code; (b) if any provision of the this Agreement shall be impermissible in order for the Option to qualify as an Incentive Stock Option, then the Option shall be construed and enforced as if such provision had never been included in the Option; and (c) if and to the extent that the number of Options granted pursuant to this Agreement exceeds the limitations contained in Section 422 of the Code on the value of Shares with respect to which this Option may qualify as an Incentive Stock Option, this Option shall be a Non-Qualified Stock Option. If designated on Schedule I hereof as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code, and this Agreement shall be interpreted accordingly. Notwithstanding the foregoing, the Company shall have no liability to the Optionee, any Option Holder or any other person if the Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code.

 

15. Optionee Representations.

 

(a) Entirely for Own Account. This Agreement is made with the Optionee in reliance upon the Optionee’ s representation to the Company, which by the Optionee’ s execution of this Agreement, the Optionee hereby confirms, that the Common Stock to be acquired by the Optionee will be acquired for investment for the Optionee’ s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Optionee has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Optionee further represents that the Optionee does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Shares. The Optionee has not been formed for the specific purpose of acquiring the Shares.

 

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(b) Disclosure of Information. The Optionee has had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the issuance of the shares with the Company’s management and has had an opportunity to review the Company’s facilities.

 

(d) Legends. The Optionee understands that the Shares and any securities issued in respect of or exchange for the Shares, may be notated with any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the certificate, instrument, or book entry so legended.

 

(e) Accredited Investors. The Optionee is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

(f) Foreign Investors. If the Optionee is not a United States person (as defined by Section 7701(a)(30) of the Code), the Optionee hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Optionee’ s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Optionee’ s jurisdiction.

 

16. Section Headings. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

17. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon exercise thereof, shall constitute general funds of the Company.

 

18. Adjustments Upon Changes in Stock. In the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the Grant Date of any Award, Awards granted under the any Award Agreements, the exercise price of Options, the maximum number of shares of Common Stock subject to all Awards will be equitably adjusted or substituted, as to the number, price or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award. In the case of adjustments made pursuant to this Section 19, unless the Company or Committee, as applicable, specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Company or Committee, as applicable, shall, in the case of Incentive Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification, extension or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Non-qualified Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification of such Non-qualified Stock Options within the meaning of Section 409A of the Code. Any adjustments made under this Section 19 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.

 

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19. No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to this Agreement. The Company or Committee, as applicable, shall determine whether cash, additional Awards or other securities or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional shares should be rounded, forfeited or otherwise eliminated.

 

20. Governing Law and Venue. THIS AGREEMENT SHALL AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEVADA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS LOCATED IN THE STATE OF NEW YORK AND AGREES THAT ANY LITIGATION BETWEEN THE PARTIES WILL BE FILED IN COURTS LOCATED IN NEW YORK, NEW YORK.

 

21. Arbitration. By execution hereof, the parties hereto expressly agree that upon the request of any party, whether made before or after the institution of any legal proceeding, any action, dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, arising between the parties in any way arising out of any of the provisions contained in this Agreement shall be resolved by binding arbitration administered by the American Arbitration Association (the “AAA”) and in New York, NY. Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the AAA and, to the maximum extent applicable, the Federal Arbitration Act (Title 9 of the United States Code) except as otherwise specified herein. Judgment upon the award rendered by the arbitrator may be entered in any court having competent jurisdiction. The arbitrator shall resolve all disputes in accordance with the applicable substantive law. A single arbitrator shall be chosen and shall decide the dispute, unless the amount sought in the dispute exceeds $100,000, in which case a panel of three arbitrators shall decide the dispute. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the arbitrator(s) shall make specific, written findings of fact and conclusions of law. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the parties shall have, in addition to the limited statutory right to seek a vacation or modification of an award pursuant to applicable law, the right to vacation or modification of any award that is based, in whole or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for a vacation or modification of such an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the dispute within 15 days from the date the award is rendered. The findings of fact of the arbitrator(s) shall be binding on all parties and shall not be subject to further review except as otherwise allowed by applicable law. No provision of this Agreement nor the exercise of any rights hereunder shall limit the right of any party, and any party shall have the right during any dispute, to seek, use, and employ ancillary or preliminary remedies, such as injunctive relief (including, without limitation, specific performance), from a court having jurisdiction before, during, or after the pendency of any arbitration. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of any party to submit any dispute to arbitration nor render inapplicable the compulsory arbitration provisions hereof.

 

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22. Attorney’s Fees. If any action is brought to enforce or interpret the terms of this Agreement (including through arbitration), the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

23. Counterparts. This Agreement may be executed in any number of counterparts and shall be effective when each party hereto has executed at least one counterpart, with the same effect as if all signing parties had signed the same document. All counterparts will be construed together and evidence only one agreement, which, notwithstanding the actual date of execution of any counterpart, shall be deemed to be dated the day and year first written above. In making proof of this Agreement, it shall not be necessary to account for a counterpart executed by any party other than the party against whom enforcement is sought or to account for more than one counterpart executed by the party against whom enforcement is sought.

 

24. Execution by Facsimile. The manual signature of any party hereto that is transmitted to any other party by facsimile or in portable document format (PDF) shall be deemed for all purposes to be an original signature.

 

Remainder of page intentionally left blank; signature page follows.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the 9th day of July, 2020.

 

  COMPANY:
     
   
     
  By:  
  Name: Sandra Ahman
  Title: Vice President of Operations

 

The Optionee acknowledges receipt of a copy of the Agreement and represents that he or she has reviewed the provisions of this Agreement in their entirety, is familiar with and understands their terms and provisions, and hereby accepts this Option subject to all of the terms and provisions of this Agreement. The Optionee further represents that he or she has had an opportunity to obtain the advice of counsel prior to executing this Agreement.

 

Dated:____________________________ OPTIONEE:
     
 
  Name: Anthony L. Havens
     
  Address:  
     

 

 

 

SCHEDULE I

 

NAME OF OPTIONEE: Anthony L. Havens
   
DATE OF GRANT: July 9, 2020
   
TYPE OF OPTION: Incentive Stock Option     No
   
  Non-Qualified Stock Option Yes
   
NUMBER OF OPTIONED SHARES:

37,625,574 

   
OPTION PRICE: $0.0028 per Share
   
EXERCISE PRICE: $0.00308 per Share
   
TERMINATION DATE: Fifth year anniversary of Date of Grant, subject to the other terms of the Option.
   
VESTING:

Vesting shall take place as follows: (1) 12,541,858 options vest immediately; (2) 12,541,858 options vest one year from the date of grant and 12,541,858 options vest two years from the date of grant. 

   
PERMISSION TO PAY WITH SHARES: _X _Granted ____ Denied
   
EXPANDED RIGHTS TO TRANSFER OPTION: None

 

 

 

 

 

Exhibit 4.4

 

SPARTA COMMERCIAL SERVICES, INC.

STOCK OPTION AGREEMENT

FOR

 

Sandra L. Ahman

 

Agreement

 

1. Grant of Option. Sparta Commercial Services, Inc., a Nevada corporation (the “Company”), hereby grants, as of the effective date of this Agreement specified on Schedule I hereof beside the caption “Date of Grant” (“Date of Grant”), to Sandra L. Ahman (the “Optionee”) an option (the “Option”) to purchase an aggregate number of shares set forth on Schedule I hereof beside the caption “Number of Optioned Shares” (such number being subject to adjustment as provided below) of the Company’s common stock, $0.001 par value per share (the “Shares”), at an exercise price per share set forth on Schedule I hereof beside the caption “Exercise Price” (such exercise price being subject to adjustment as provided below) (the “Exercise Price”). The Option shall be subject to the terms and conditions set forth herein. This Option is designated on Schedule I as either an Incentive Stock Option or a Non-Qualified Stock Option.

 

2. Definitions.

 

(a) “Affiliate” means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, the Company.

 

(b) “Applicable Laws” means the requirements related to or implicated by the applicable state corporate law, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under.

 

(c) “Award” means any right granted under this Agreement, including an Incentive Stock Option or a Non-qualified Stock Option.

 

(d) “Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

 

(e) “Board” means the Board of Directors of the Company, as constituted at any time.

 

(f) “Cause” means:

 

  (i) With respect to any particular Service Provider, who is not a Director:

 

  a. if such Service Provider is a party to an employment or service agreement with the Company, or its affiliates, and such agreement provides for a definition of Cause, the definition contained therein; or

 

     

 

 

  b. if not such agreement exists, or if such agreement does not define Cause: (1) a Service Provider’s repeated failure to perform substantially his or her duties as an employee or other associate of the Company or any of the Subsidiaries (other than any such failure resulting from his or her Disability) which failure, whether committed willfully or negligently, has continued unremedied for more than thirty (30) days after the Company has provided written notice thereof; provided, that, a failure to meet financial performance expectations shall not, by itself, constitute a failure by the Service Provider to substantially perform his or her duties; (2) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (3) a Service Provider’s material dishonesty or breach of fiduciary duty of loyalty against the Company or any Affiliate; (4) conduct that brings or is reasonably likely to bring the Company or an Affiliate negative publicity or into public disgrace, embarrassment, or disrepute; (4) gross negligence or willful misconduct with respect to the Company or an Affiliate; (5) material violation of state or federal securities laws; or (6) material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct.

 

  (ii) With respect to any Service Provider who is a Director, a determination by a majority of the disinterested Board members that the Director has engaged in any of the following:

 

  a. malfeasance in office;
     
  b. discrimination, harassment and other behaviors that would reasonably likely bring the company negative publicity or embarrassment;
     
  c. gross misconduct or neglect;
     
  d. false or fraudulent misrepresentation inducing the director’s appointment;
     
  e. willful conversion of corporate funds; or
     
  f. repeated failure to participate in Board meetings on a regular basis despite having received proper notice of the meetings in advance.

 

(g) “Change in Control” means:

 

(i) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its subsidiaries, taken as a whole, to any Person that is not a subsidiary of the Company;

 

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(ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election;

 

(iii) the date which is 10 business days prior to the consummation of a complete liquidation or dissolution of the Company;

 

(iv) the acquisition by any Person of Beneficial Ownership of 50% or more (on a fully diluted basis) of either (a) the then outstanding shares of Common Stock of the Company, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Agreement, the following acquisitions shall not constitute a Change in Control: (1) any acquisition by the Company or any Affiliate, (2) any acquisition by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (3) any acquisition which complies with clauses, (a), (b) and (c) of subsection (v) of this definition or (4) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant); or

 

(v) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the approval of the Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (a) more than 50% of the total voting power of (A) the entity resulting from such Business Combination (the “Surviving Company”), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company (the “Parent Company”), is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Outstanding Company Voting Securities among the holders thereof immediately prior to the Business Combination; (b) no Person (other than any employee benefit plan sponsored or maintained by the Surviving Company or the Parent Company) is or becomes the Beneficial Owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect members of the board of directors of the Parent Company (or the analogous governing body) (or, if there is no Parent Company, the Surviving Company); and (c) at least a majority of the members of the board of directors (or the analogous governing body) of the Parent Company (or, if there is no Parent Company, the Surviving Company) following the consummation of the Business Combination were Board members at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination.

 

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(h) “Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.

 

(i) “Common Stock” means common stock, $0.001 par value per share, of the Company, or such other securities of the Company as may be designated by the Company from time to time in substitution thereof.

 

(j) “Consultant” means any individual or entity which performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act.

 

(k) “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, consultant or Director, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Company or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. The Company or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes of affected Awards, and such decision shall be final, conclusive and binding.

 

(l) “Director” means a member of the Board.

 

(m) “Effective Date” shall mean the date as of which this Agreement is adopted by the Board.

 

(n) “Employee” means any person, including an Officer or Director, employed by the Company or an Affiliate; provided that for purposes of determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or a parent or subsidiary corporation within the meaning of Section 424 of the Code. Mere service as a Director or payment of a Director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

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

 

(p) “Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment; provided, however, for purposes of determining the term of an Incentive Stock Option, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Company. Except in situations where the Company is determining Disability for purposes of the term of an Incentive Stock Option within the meaning of Section 22(e)(3) of the Code, the Company may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.

 

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(q) “Fair Market Value” means, as of any date, the value of the Common Stock as determined below. If the Common Stock is listed on any established stock exchange or a national market, including without limitation, the New York Stock Exchange or the Nasdaq Stock Market, the Fair Market Value shall be the closing price of a share of Common Stock (or if no sales were reported the closing price on the date immediately preceding such date) as quoted on such exchange or system on the day of determination. In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Company and such determination shall be conclusive and binding on all persons.

 

(r) “Incentive Stock Option” means an Option that is designated by the Company as an incentive stock option within the meaning of Section 422 of the Code and that meets the requirements set out in this Agreement, if applicable.

 

(s) “Incumbent Directors” means individuals who, on the Effective Date, constitute the Board; provided that any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) shall be an Incumbent Director. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.

 

(t) “Non-employee Director” means a Director who is a “non-employee director” within meaning of Rule 16b-3.

 

(u) “Non-qualified Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

 

(v) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(w) “Participant” means an eligible person to whom an Award is granted pursuant to this Agreement or, if applicable, such other person who holds an outstanding Award.

 

(x) “Person” means a person defined in Section 13(d)(3) of the Exchange Act.

 

(y) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

(z) “Securities Act” means the Securities Act of 1933, as amended.

 

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3. Exercise Schedule. Except as otherwise provided in Sections 6 or 10 of this Agreement, the Option is exercisable in installments as specified on Schedule I hereof beside the caption “Vesting”, which shall be cumulative. To the extent that the Option has become exercisable with respect to a percentage of Shares as provided on Schedule I hereof beside the caption “Vesting” on each date (each date being, a “Vesting Date”) upon which the Optionee shall be entitled to exercise the Option with respect to the percentage of Shares granted as indicated for each Vesting Date (provided that the Continuous Service of the Optionee continues through and on the applicable Vesting Date), the Option may thereafter be exercised by the Optionee, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein. Except as otherwise specifically provided herein, there shall be no proportionate or partial vesting in the periods prior to each Vesting Date, and all vesting shall occur only on the appropriate Vesting Date. Upon the termination of the Optionee’ s Continuous Service, any unvested portion of the Option shall terminate and be null and void.

 

4. Method of Exercise. The vested portion of this Option shall be exercisable in whole or in part, in accordance with the Vesting of such Options provided in Schedule I and as set forth in Section 3 hereof, by written notice which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares as may be required by the Company pursuant to the provisions of this Agreement. Such written notice shall be signed by the Optionee or if someone other than the Optionee exercises the Option, by such other person who provides documentation acceptable to the Company, or Committee, verifying that such person has the legal right to exercise such Option, and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised after both (a) receipt by the Company of such written notice accompanied by the Exercise Price and (b) arrangements that are satisfactory to the Committee, in its sole discretion, have been made for Optionee’ s payment to the Company of the amount, if any, that is necessary to be withheld in accordance with applicable Federal or state withholding requirements. No Shares shall be issued pursuant to the Option unless and until such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares then may be traded.

 

5. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

 

(a) in cash or by certified or bank check at the time the Option is exercised;

 

(b) to the extent permitted by the Committee, or as provided on Schedule I hereof beside the caption “Permission to Pay with Shares”, and if there is a public market available for the Shares at the time of such exercise: (i) with Shares owned by the Optionee, duly endorsed for transfer to the Company, with a fair market value on the date of delivery equal to the Exercise Price (or portion thereof) due for the number of shares being acquired; (ii) by withholding or reducing the number of Shares otherwise deliverable to the Optionee upon exercise of such Option by a number of Shares with an aggregate fair market value equal to the aggregate Exercise Price at the time of exercise; or (iii) pursuant to a “cashless exercise” procedure established with a broker; provided that such payment by this method requires delivery of a properly executed exercise notice together with such other documentation, and subject to such guidelines, as the Committee or Company shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the Company of proceeds from the sale of Shares sufficient to pay the Exercise Price and any applicable income or employment taxes; provided further that the Optionee shall provide irrevocable written instructions (x) to such designated brokerage firm to effect the immediate sale of a portion of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, an amount sufficient to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable state and federal income and employment taxes required to be withheld by the Company by reason of such purchase and/or sale and (y) to the Company to deliver the certificates for the purchase Shares directly to such brokerage firm to effect the sale transaction; or

 

  6  

 

 

(c) in any other consideration or in such other manner as may be determined by the Committee, in its absolute discretion.

 

Notwithstanding anything contained herein to the contrary, no exercise shall become effective until the Company determines that the issuance and delivery of the Shares pursuant to such exercise is in compliance with all applicable laws, regulations and requirements of any securities exchange on which the Shares may be traded.

 

6. Termination of Option

 

(a) General. Any unexercised portion of the Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:

 

(i) unless the Committee otherwise determines in writing in its sole discretion, three months after the date on which the Optionee’ s Continuous Service is terminated by the Company or Related Entity for (a) Cause, (b) a Disability of the Optionee as determined by a medical doctor satisfactory to the Committee, or (c) the death of the Optionee;

 

(ii) immediately upon the termination of the Optionee’ s Continuous Service by the Company or a Related Entity for Cause;

 

(iii) twelve months after the date on which the Optionee’ s Continuous Service is terminated by reason of a Disability as determined by a medical doctor satisfactory to the Committee;

 

(iv) twelve months after the date of termination of the Optionee’ s Continuous Service by reason of the death of the Optionee; or

 

(v) the fifth anniversary of the date as of which the Option is granted (or, if a different date is shown on Schedule I hereof beside the caption “Termination Date”, such date).

 

(b) Cancellation. To the extent not previously exercised:

 

(i) the Option shall terminate immediately in the event of (a) the liquidation or dissolution of the Company, or (b) any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive or the Shares are exchanged for or converted into securities issued by another entity, or an affiliate of such successor or acquiring entity, unless the successor or acquiring entity, or an Affiliate thereof, assumes the Option or substitutes an equivalent option or right; and

 

  7  

 

 

 

(ii) the Committee in its sole discretion may by written notice cancel (“cancellation notice”), effective upon the consummation of any transaction that constitutes a Change in Control, the Option (or portion thereof) that remains unexercised on such date.

 

The Committee shall give written notice of any proposed transaction referred to in this Section 6(b) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that the Optionee may have a reasonable period of time prior to the closing date of such transaction within which to exercise the Option if and to the extent that it then is exercisable (including any portion of the Option that may become exercisable upon the closing date of such transaction). The Optionee may condition their exercise of the Option upon the consummation of a transaction referred to in this Section 6(b).

 

7. Transferability. Unless (i) transfers are expressly permitted in the language appearing beside the caption “Expanded Rights to Transfer Option” on Schedule I hereof or (ii) otherwise determined by the Company or Committee, the Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution, and during the lifetime of the Optionee the Option shall be exercisable only by the Optionee, or the Optionee’ s guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of any execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

 

8. No Rights of Stockholders. Neither the Optionee nor any personal representative (or beneficiary) shall be, or shall have any of the rights and privileges of, a stockholder of the Company with respect to any Shares purchasable or issuable upon the exercise of the Option, in whole or in part, prior to the date on which the Shares are issued.

 

9. Acceleration of Exercisability of Option.

 

(a) Acceleration Upon Certain Terminations or Cancellations of Option. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, (i) the Option is terminated pursuant to Section 6(b)(i) hereof, or (ii) the Company exercises its discretion to provide a cancellation notice with respect to the Option pursuant to Section 6(b)(ii) hereof.

 

(b) Acceleration Upon Change in Control. This Option shall become immediately fully exercisable in the event that, prior to the termination of the Option pursuant to Section 6 hereof, and during the Optionee’ s Continuous Service, there is a Change in Control.

 

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10. No Right to Continuous Service. Neither the Option nor this Agreement shall confer upon the Optionee any right to Continuous Service with the Company or any Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause or (b) the service of a Director pursuant to the By-laws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

11. Information Confidential. As partial consideration for the granting of the Option, the Optionee agrees with the Company to keep confidential all information and knowledge that the Optionee has relating to the manner and amount of the Optionee’ s participation; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Optionee’ s spouse, the Optionee’ s tax and financial advisors, or financial institutions to the extent that such information is necessary to secure a loan.

 

12. Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid to the address specified by the person who is to receive the same. Each such notice, request, demand, or other communication hereunder shall be deemed to have been given (whether actually received or not) on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone or facsimile-machine-generated confirmation), or on the third day following the date of mailing, if mailed in accordance with this Section, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this Section shall be deemed to have been given on the date actually received. Each such notice, request, demand, or other communication hereunder shall be addressed, in the case of the Company, to the Company’s Secretary at Sparta Commercial Services, Inc. 555 Fifth Avenue, 14th Floor, New York, NY 10017, or if the Company should move its principal office, to such principal office, and, in the case of the Optionee, to the Optionee’ s last permanent address as shown on the Company’s records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section. Any person entitled to any notice, request, demand, or other communication hereunder may waive the notice, request, demand, or other communication.

 

13. Section 409A.

 

(a) It is intended that the Option awarded pursuant to this Agreement be exempt from Section 409A of the Code (“Section 409A”) because it is believed that (i) the Exercise Price may never be less than the Fair Market Value of a Share on the Date of Grant and the number of Shares subject to the Option is fixed on the original Date of Grant, (ii) the transfer or exercise of the Option is subject to taxation under Section 83 of the Code and Treas. Reg. 1.83-7, and (iii) the Option does not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the Option. The provisions of this Agreement shall be interpreted in a manner consistent with this intention, and the provisions of this Agreement may not be amended, adjusted, assumed or substituted for, converted or otherwise modified without the Optionee’ s prior written consent if and to the extent that the Company believes or reasonably should believe that such amendment, adjustment, assumption or substitution, conversion or modification would cause the Award to violate the requirements of Section 409A. In the event that either the Company or the Optionee believes, at any time, that any benefit or right under this Agreement is subject to Section 409A, then the Committee may (acting alone and without any required consent of the Optionee) amend this Agreement in such manner as the Committee deems necessary or appropriate to be exempt from or otherwise comply with the requirements of Section 409A (including without limitation, amending the Agreement to increase the Exercise Price to such amount as may be required in order for the Option to be exempt from Section 409A).

 

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(b) Notwithstanding the foregoing, the Company does not make any representation to the Optionee that the Option awarded pursuant to this Agreement is exempt from, or satisfies, the requirements of Section 409A, and the Company shall have no liability or other obligation to indemnify or hold harmless the Optionee or any Beneficiary for any tax, additional tax, interest or penalties that the Optionee or any Beneficiary may incur in the event that any provision of this Agreement, or any amendment or modification thereof or any other action taken with respect thereto, that either is consented to by the Optionee or that the Company reasonably believes should not result in a violation of Section 409A, is deemed to violate any of the requirements of Section 409A.

 

14. Incentive Stock Option Treatment. If designated on Schedule I hereof as an Incentive Stock Option: (a) the terms of this Option shall be interpreted in a manner consistent with the intent of the Company and the Optionee that the Option qualify as an Incentive Stock Option under Section 422 of the Code; (b) if any provision of the this Agreement shall be impermissible in order for the Option to qualify as an Incentive Stock Option, then the Option shall be construed and enforced as if such provision had never been included in the Option; and (c) if and to the extent that the number of Options granted pursuant to this Agreement exceeds the limitations contained in Section 422 of the Code on the value of Shares with respect to which this Option may qualify as an Incentive Stock Option, this Option shall be a Non-Qualified Stock Option. If designated on Schedule I hereof as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code, and this Agreement shall be interpreted accordingly. Notwithstanding the foregoing, the Company shall have no liability to the Optionee, any Option Holder or any other person if the Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code.

 

15. Optionee Representations.

 

(a) Entirely for Own Account. This Agreement is made with the Optionee in reliance upon the Optionee’ s representation to the Company, which by the Optionee’ s execution of this Agreement, the Optionee hereby confirms, that the Common Stock to be acquired by the Optionee will be acquired for investment for the Optionee’ s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Optionee has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Optionee further represents that the Optionee does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Shares. The Optionee has not been formed for the specific purpose of acquiring the Shares.

 

(b) Disclosure of Information. The Optionee has had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the issuance of the shares with the Company’s management and has had an opportunity to review the Company’s facilities. 

 

(d) Legends. The Optionee understands that the Shares and any securities issued in respect of or exchange for the Shares, may be notated with any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the certificate, instrument, or book entry so legended.

 

(e) Accredited Investors. The Optionee is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

(f) Foreign Investors. If the Optionee is not a United States person (as defined by Section 7701(a)(30) of the Code), the Optionee hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Optionee’ s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Optionee’ s jurisdiction.

 

16. Section Headings. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

17. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon exercise thereof, shall constitute general funds of the Company.

 

18. Adjustments Upon Changes in Stock. In the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the Grant Date of any Award, Awards granted under the any Award Agreements, the exercise price of Options, the maximum number of shares of Common Stock subject to all Awards will be equitably adjusted or substituted, as to the number, price or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award. In the case of adjustments made pursuant to this Section 19, unless the Company or Committee, as applicable, specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Company or Committee, as applicable, shall, in the case of Incentive Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification, extension or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Non-qualified Stock Options, ensure that any adjustments under this Section 19 will not constitute a modification of such Non-qualified Stock Options within the meaning of Section 409A of the Code. Any adjustments made under this Section 19 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.

 

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19. No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to this Agreement. The Company or Committee, as applicable, shall determine whether cash, additional Awards or other securities or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional shares should be rounded, forfeited or otherwise eliminated.

 

20. Governing Law and Venue. THIS AGREEMENT SHALL AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEVADA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS LOCATED IN THE STATE OF NEW YORK AND AGREES THAT ANY LITIGATION BETWEEN THE PARTIES WILL BE FILED IN COURTS LOCATED IN NEW YORK, NEW YORK.

 

21. Arbitration. By execution hereof, the parties hereto expressly agree that upon the request of any party, whether made before or after the institution of any legal proceeding, any action, dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, arising between the parties in any way arising out of any of the provisions contained in this Agreement shall be resolved by binding arbitration administered by the American Arbitration Association (the “AAA”) and in New York, NY. Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the AAA and, to the maximum extent applicable, the Federal Arbitration Act (Title 9 of the United States Code) except as otherwise specified herein. Judgment upon the award rendered by the arbitrator may be entered in any court having competent jurisdiction. The arbitrator shall resolve all disputes in accordance with the applicable substantive law. A single arbitrator shall be chosen and shall decide the dispute, unless the amount sought in the dispute exceeds $100,000, in which case a panel of three arbitrators shall decide the dispute. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the arbitrator(s) shall make specific, written findings of fact and conclusions of law. In all arbitration proceedings in which the amount of any award exceeds $100,000, in the aggregate, the parties shall have, in addition to the limited statutory right to seek a vacation or modification of an award pursuant to applicable law, the right to vacation or modification of any award that is based, in whole or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for a vacation or modification of such an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the dispute within 15 days from the date the award is rendered. The findings of fact of the arbitrator(s) shall be binding on all parties and shall not be subject to further review except as otherwise allowed by applicable law. No provision of this Agreement nor the exercise of any rights hereunder shall limit the right of any party, and any party shall have the right during any dispute, to seek, use, and employ ancillary or preliminary remedies, such as injunctive relief (including, without limitation, specific performance), from a court having jurisdiction before, during, or after the pendency of any arbitration. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of any party to submit any dispute to arbitration nor render inapplicable the compulsory arbitration provisions hereof.

 

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22. Attorney’s Fees. If any action is brought to enforce or interpret the terms of this Agreement (including through arbitration), the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

23. Counterparts. This Agreement may be executed in any number of counterparts and shall be effective when each party hereto has executed at least one counterpart, with the same effect as if all signing parties had signed the same document. All counterparts will be construed together and evidence only one agreement, which, notwithstanding the actual date of execution of any counterpart, shall be deemed to be dated the day and year first written above. In making proof of this Agreement, it shall not be necessary to account for a counterpart executed by any party other than the party against whom enforcement is sought or to account for more than one counterpart executed by the party against whom enforcement is sought.

 

24. Execution by Facsimile. The manual signature of any party hereto that is transmitted to any other party by facsimile or in portable document format (PDF) shall be deemed for all purposes to be an original signature.

 

Remainder of page intentionally left blank; signature page follows.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the 9th day of July, 2020.

 

  COMPANY:
   
   
   
  By:  
  Name: Anthony L. Havens
  Title: CEO

 

The Optionee acknowledges receipt of a copy of the Agreement and represents that he or she has reviewed the provisions of this Agreement in their entirety, is familiar with and understands their terms and provisions, and hereby accepts this Option subject to all of the terms and provisions of this Agreement. The Optionee further represents that he or she has had an opportunity to obtain the advice of counsel prior to executing this Agreement.

 

Dated:     OPTIONEE:
       
       
      Name: Sandra L. Ahman
         
      Address:  
         

 

[Signature Page to Option Agreement]

 

     

 

 

SCHEDULE I

 

NAME OF OPTIONEE: Sandra L. Ahman
   
DATE OF GRANT: July 9th, 2020
   
TYPE OF OPTION: Incentive Stock Option No
   
  Non-Qualified Stock Option Yes
   
NUMBER OF OPTIONED SHARES:

12,541,858

   
OPTION PRICE: $0.0028 per Share
   
EXERCISE PRICE: $0.00308 per Share
   
TERMINATION DATE: Fifth year anniversary of Date of Grant, subject to the other terms of the Option.
   
VESTING:

Vesting shall take place as follows: (1) 4,180,620 options vest immediately; (2) 4,180,620 options vest one year from the date of grant and 4,180,618 options vest two years from the date of grant.

   
PERMISSION TO PAY WITH SHARES: _X _Granted ____ Denied
   
EXPANDED RIGHTS TO TRANSFER OPTION: None

 

[Schedule I to Option Agreement]

 

     

 

 

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

AGREEMENT dated as of July 9, 2020 by and between Sparta Commercial Services, Inc., a Nevada corporation with an address at 555 Fifth Avenue, 14th Floor, New York, New York 10017(the “Company”) and Anthony L. Havens (“Executive”) with an address at 555 Fifth Avenue, 14th Floor, New York, New York 10017.

 

WHEREAS, the Company and Executive entered into an Employment Agreement dated as of July 9, 2020 and the Company and Executive wish to enter into a new agreement relating to the employment of Executive by the Company and completely replacing such prior agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows:

 

1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company for a period commencing on the date hereof (the “Commencement Date”) and ending on the fifth anniversary of the Commencement Date (the “Employment Term”), on the terms and subject to the conditions set forth in this Agreement. Notwithstanding the preceding sentence, the Employment Term shall be automatically extended for an additional five-year period followed by further one-year periods, unless the Company or Executive provides the other party hereto 3 months prior written notice before the expiration of the then current Employment Term that the Employment Term shall not be so extended. “Employment Term” shall include any extension that becomes applicable pursuant to the preceding sentence.

 

2. Position.

 

(a) During the Employment Term, Executive shall serve as the Company’s Chairman of the Board and Chief Executive Officer. In such position, Executive shall have the powers, duties and responsibilities that are customary for such positions for a corporation of the size, type and nature of the Company and shall perform such other duties as the Company’s Board of Directors shall determine in their reasonable discretion, including in connection with the Company’s subsidiaries. Executive shall report exclusively to the Company’s Board of Directors. Executive shall comply with all federal, state and local laws applicable to his duties and also shall comply with the rules and regulations of any self-regulatory organization (as such term is defined in Rule 3(a)(26) of the Securities Exchange Act of 1934, as amended) having jurisdiction over the Company.

 

(b) During the Employment Term, Executive will devote his full business time to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Company’s Board of Directors. Nothing contained herein shall preclude Executive from (i) serving on corporate, civic and charitable boards or committees and (ii) managing his personal investments; provided that none of the activities set forth in clauses (i) and (ii) interferes in any material respect with the performance of Executive’s employment hereunder or conflict in any material respect with the business of the Company.

 

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3. Base Salary.

 

During the Employment Term, the Company shall pay Executive a base salary (the “Base Salary”) at the annual rate of $280,000.00, payable in regular installments in accordance with the Company’s usual payment practices. Executive shall be entitled to such annual increases in his Base Salary, if any, as may be determined in the sole discretion of the Company’s Board of Directors or of the Compensation Committee thereof. Executive may elect to defer all or any portion of his Base Salary during the Employment Term (the “Deferred Amount”) to the extent eligible. Executive shall notify the Company not later than March 31 of each year if he elects to defer all or any portion of the Deferred Amount for such year. The Company shall deduct from Executive’s regular pay the pro rata portion of the Deferred Amount for any such year allocable to each pay period commencing after the date of Executive’s notice to the Company of his election. Each such deducted amount shall be deposited in an interest bearing account at the Company’s current bank. Upon such deposit Executive shall not be allowed to withdraw such deposits until January 1 of the year following the year in which such deductions were made.

 

4. Additional Compensation.

 

In addition to Base Salary and other compensation specified in this agreement, Executive may from time to time, receive such additional compensation from the Company in such form or forms as may be determined by the Company’s Board of Directors or the Compensation Committee thereof from time to in order to more fully compensate Executive for the true value of his services to the Company.

 

5. Disposition of Company Stock Held by Executive.

 

Following the termination of Executive’s employment hereunder, if Executive determines to sell all or any portion of his shares of the Common Stock of the Company, Executive shall first offer to sell such shares to the Company by providing written notice to the Company setting forth the number of such shares to be sold. If the Company elects to purchase all of such shares so offered the purchase price per share therefor shall equal 90% of the average daily bid price per share of the Company’s Common Stock during the 7-trading day period following receipt by the Company of such notice. If the Company elects to purchase less than all of such shares so offered, the purchase price per share shall be 100% of the average daily bid price per share of the Company’s Common Stock during the 7-trading day period following receipt by the Company of such notice. The Company shall notify Executive in writing of its decision whether to purchase any or all of such shares so offered within three days of the end of such 7-trading day period. If the Company elects to purchase such shares, the Company shall pay the full purchase price therefor within thirty (30) days of the Company’s election to so purchase. If the Company does not so elect or fails to notify Executive of its election within the time specified herein, Executive shall be free to sell such shares in the open market in accordance with the applicable rules and regulations of the Securities and Exchange Commission

 

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6. Employee Benefits; Stock Options.

 

(a) During the Employment Term, Executive shall be provided, in accordance with the terms of the Company’s employee benefit plans as in effect from time to time, health insurance and short term and long term disability insurance, retirement benefits and fringe benefits (collectively “Employee Benefits”) on the same bases as those benefits are generally made available to other senior executives of the Company. Executive shall be entitled to paid vacation of six (6) weeks per calendar year within the Employment Term. Such vacation shall be taken at times consistent with the proper performance by the Executive of his duties and responsibilities and with the approval of the Company’s Board of Directors. Vacation not taken in any calendar year shall carry forward to any future year within the employment period.

 

(b) In addition to any other benefits payable to Executive hereunder, the Company hereby grants to Executive options to purchase 37,625,574 shares of its Common Stock, par value $0.001 per share, in accordance with the provisions of the Stock Option Agreement attached hereto as Exhibit A. The Company’s Board of Directors may elect to issue Executive additional stock options to maintain his ownership percentage based on future issuances.

 

7. Business Expenses.

 

During the Employment Term, reasonable business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies.

 

8. Termination. Notwithstanding any other provision of this Agreement:

 

(a) By the Company for Cause or By Executive Resignation without Good Reason. (i) The Employment Term and Executive’s employment hereunder may be terminated by the Company for Cause (as defined below) or by Executive’s resignation without Good Reason (as defined in Section 8(c)); (ii) For purposes of this Agreement, “Cause” shall mean (A) the Executive’s willful and continued failure to substantially perform the duties of his position or breach of material terms of his Agreement, after notice (specifying the details of such alleged failure) and a reasonable opportunity to cure if such breach can be cured; (B) any willful act or omission which is demonstrably and materially injurious to the Company or any of its subsidiaries or affiliates; (C) conviction or plea of nolo contendere to a felony or other crime of moral turpitude involving imprisonment of more than one year; or (D) willful failure to carry out the legitimate directives of the Company’s Board of Directors. No act or failure to act will be deemed “willful” (i) unless effected without a reasonable belief that such action or failure to act was in or not opposed to the Company’s best interest; or (ii) if it results from any physical or mental incapacity. (iii) If Executive’s employment is terminated by the Company for Cause, or if Executive resigns without Good Reason, Executive shall be entitled to receive (A) any accrued but unpaid Base Salary through the date of termination; (B) the opportunity to exercise vested stock options for 30 days following the later of the date of termination or the date of resolution of any arbitration contesting such termination; (C) such compensation and Employee Benefits, if any, as to which Executive may be entitled under the employee compensation and benefit plans of the Company and any other long-term incentive or equity program pursuant to the terms hereof through the date of termination; (D) any reimbursable business expenses incurred; and any Additional Compensation earned through the termination date. Following such termination of Executive’s employment by the Company for Cause or resignation by Executive without Good Reason, except as set forth in Section 6(b) and this Section 8(a), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

 

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(b) Disability, Death or Retirement.

 

(i) The Employment Term and Executive’s employment hereunder shall terminate (A) upon his death; (B) if Executive becomes physically or mentally incapacitated for a period of indefinite duration and is therefore unable for a period of six (6) consecutive months or for an aggregate of twelve (12) months, or such longer period as the Company’s Board of Directors in its sole discretion may determine, in any twenty-four (24) consecutive month period to perform his duties, (such incapacity is hereinafter referred to as “Disability”); and (C) upon his Retirement (as defined below). Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. For purposes of this Agreement, “Retirement” shall mean a Participant’s voluntary resignation any time.

 

(ii) Upon termination of Executive’s employment hereunder for death, Disability or Retirement, Executive or his estate (as the case may be) shall be entitled to receive (A) any accrued but unpaid Base Salary through the end of the calendar year in which such termination occurs, (B) a pro rata portion of any Additional Compensation that the Executive would have been entitled to receive pursuant to Section 4 hereof in such year based upon the percentage of the calendar year that shall have elapsed through the date of Executive’s termination of employment, payable when such Additional Compensation would have otherwise been payable had the Executive’s employment not terminated, (C) the opportunity to exercise vested stock options and Executive’s stock options scheduled to vest during the year following such termination (i) in the case of death or Disability, for one year following such termination or (ii) in the case of Retirement, for four years following such termination, (D) a pro rata portion of any long term incentive granted to the Executive and (E) such compensation and Employee Benefits, if any, as to which he may be entitled under the employee compensation and benefit plans and arrangements of the Company. Following such termination of Executive’s employment due to death, Disability or Retirement, except as set forth in Section 6(b) or this Section 8(b), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

 

(c) By the Company without Cause or Resignation by Executive for Good Reason.

 

(i) The Employment Term and Executive’s employment hereunder may be terminated by the Company without Cause or by Executive’s resignation for Good Reason.

 

(ii) For purposes of this Agreement, “Good Reason” shall mean: (A) assignment of duties to Executive inconsistent with his status as Chief Executive Officer or otherwise inconsistent with the terms of Section 2 of this Agreement; (B) Executive’s relocation by the Company beyond 75 miles of his current place of residence; (C) any material breach of the Agreement by the Company; or (D) failure of any successor to all or substantially all of business of the Company to assume this Agreement.

 

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(iii) If Executive’s employment is terminated by the Company without Cause (other than by reason of death or Disability) or if Executive resigns for Good Reason, Executive shall be entitled to receive (A) within 30 business days after such termination, any accrued but unpaid Base Salary and Deferred Amount through the end of the calendar year in which such termination occurred in accordance with normal Company payroll policies, (B) unpaid Additional Compensation for the fiscal year prior to termination in accordance with standard Company policies, (C) a pro rata portion of any Additional Compensation that the Executive would have been entitled to receive pursuant to Section 4 hereof in the year of termination based upon the percentage of the calendar year that shall have elapsed through the date of Executive’s termination of employment, payable when such Additional Compensation would have otherwise been payable had the Executive’s employment not terminated provided that such Additional Compensation shall be equal to not less than six (6) months of Additional Compensation, (D) payment equal to the Severance in accordance with Section 9 hereof; (E) continued coverage under the Company’s welfare benefit plans available to senior executives for the lesser of (i) the time Executive is not covered by a comparable welfare benefit plan or (ii) a period of 24 months, (F) except as provided in Section 5 hereof, accelerated vesting of all equity awards (including, but not limited to, Executive’s stock options) and the opportunity to exercise such awards on or before the earlier of (i) one year following such termination or (ii) the date of termination of such award and (G) such vested compensation and Employee Benefits, if any, as to which Executive may be entitled under the employee compensation and benefit plans and arrangements of the Company.

 

(iv) If the Executive resigns for Good Reason or is terminated without cause within 12 months after a Change in Control (as defined below), Executive shall be entitled to receive, in addition to his entitlements in (iii) above, and (A) within 30 business days after such termination, an additional lump sum payment equal to the greater of the Severance payment in accordance with Section 9 hereof or the balance of Executive’s base salary hereunder for the balance of the Employment Term had this Agreement not been terminated and (B) continued coverage under the Company welfare benefit plans available to senior executives for an additional 24 month period and (C) the value of full vesting of the Executive’s account balance under the Company’s 401(k) plan.

 

(v) For purposes of this Agreement, “Change in Control” shall mean:

 

(A) any Person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) who becomes the Beneficial Owner (as defined in Rule 13d-3 of the Exchange Act) (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or any Significant Subsidiary (as defined below), representing 50% or more of the combined voting power of the Company’s or such Significant Subsidiary’s then-outstanding securities and is the largest shareholder of the Company;

 

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(B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director 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 but excluding for this purpose any such new director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, or partnership, group, associate or other entity or Person other than the Board (the “Continuing Directors”), cease for any reason to constitute at least a majority of the Board;

 

(C) the consummation of a merger or consolidation of the Company or any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Company (a “Significant Subsidiary”) with any other entity, other than a merger or consolidation which would result in the voting securities of the Company or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation;

 

(D) the Company disposes of all or substantially all of the consolidated assets of the Company (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of the common stock of the Company immediately prior to such sale or disposition) in which case the Board shall determine the effective date of the Change in Control resulting therefrom; or if the Company elects to terminate this Agreement by not renewing this Agreement at the end of the Employment Term, Executive shall be entitled to receive Severance equal to two and one-half (2 1/2) years of his Base Salary payable in accordance with the Company’s standard payroll policy plus standard Employee Benefits in place during such two and one-half (2 1/2) year period.

 

(d) If the Company, or any successor in interest, fails to fully perform all or any portion of its obligations under this Section 8, the Company, or such successor in interest, shall be obligated to pay to Executive an amount equal to five (5) times the value of the unperformed obligation.

 

(e) Notice of Termination. Any purported termination of employment by the Company or by Executive (other than due to Executive’s death or in accordance with the provisions of Section 1 hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12(i) hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.

 

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9. Severance. Subject to the provisions of Section 8(c)(v) this Agreement, Executive shall earn additional “Severance” compensation based on Executive’s base salary according to Executive’s length of service with the Company. Executive shall earn three months of Severance for up to six months of service for each year of employment hereunder payable in accordance with the Company’s regular payroll policy, plus full participation in all standard employee benefits during the period of such payments.

 

10. Confidentiality. Executive will not at any time (whether during or after his employment with the Company), unless required by a court or administrative agency, disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive’s breach of this covenant.

 

Executive shall not disclose the existence or terms of this Agreement to any person except the CEO or the Board of Directors of the Company and to its auditors and counsel and to Executive’s own personal financial advisor, accountant and counsel unless otherwise required by applicable law.

 

11. Noncompetition. During the term of Executive’s employment with the Company and for a period of one (1) year after he ceases to be employed by the Company, Executive shall not engage directly or indirectly in competition with the Company or its Affiliates (as such term is defined in Rule 501(b) of the Securities Act of 1933, as amended) in any of the businesses of the Company or its subsidiaries. Competition shall include, without limitation, any role as a sponsor, consultant, employee, partner or stockholder which aids or abets any business to compete or prepare for competition with the Company or its Affiliates in any business in which any of them is engaged or planning to engage. Executive further acknowledges that competitive activities in violation of this Section could cause irreparable injury to the Company and that such injury would be difficult or impossible to measure. Accordingly, the Company shall be entitled to an injunction and other equitable remedies for any violation. This noncompetition clause shall only be effective if the Company has made all payments and fulfilled all terms of this employment agreement.

 

12. Miscellaneous.

 

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

 

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(b) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration held in New York and conducted in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”) in effect at the time of the arbitration before a single arbitrator appointed by the President of the AAA; provided that such arbitrator shall be an expert in the field of finance and shall not have had any previous dealings or relationships with either party. The Company shall reimburse Executive’s legal fees of one counsel and costs incurred to enforce his rights under this Agreement if Executive substantially prevails in any dispute or controversy. During the period of such dispute, Executive shall be entitled to receive his Base Salary and standard Employee Benefits.

 

(c) Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company with respect to the subject matter hereof. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter hereof other than those expressly set forth herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.

 

(d) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

(e) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.

 

(f) Assignment. This Agreement shall not be assignable by Executive. This Agreement may be assigned by the Company to a company which is a successor in interest to substantially all of the business operations of the Company. Such assignment shall become effective when the Company notifies the Executive of such assignment or at such later date as may be specified in such notice. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such successor company regardless of whether any assignee expressly assumes the obligations, rights and privileges of this Agreement.

 

(g) Mitigation. Executive shall not be required to mitigate damages or the amount of any payment to Executive provided for under this Agreement by seeking other employment or otherwise, nor, except as otherwise provided herein, shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment after termination.

 

(h) Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributes, devises and legatees.

 

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(i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by facsimile or United States registered mail, return receipt requested, postage prepaid, or by recognized overnight courier service addressed to the respective addresses set forth on the execution page of this Agreement or such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

 

If delivery is by facsimile:

 

If to the Company, at 646-514-4514

 

If to Executive, at 212-239-2822.

 

(j) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

(k) Survival. The provisions of Section 6(b), 8, 9, 10, 11, 12(b) and 12(g) shall survive the expiration or termination of this Agreement regardless of the reason or reasons therefor.

 

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

 

   
 

Anthony L. Havens

   
  SPARTA COMMERCIAL SERVICES, INC.
   
  By:
  Name: Sandra L. Ahman
 

Title:

Vice President, Operations

 

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EXHIBIT A

 

Stock Option Agreement

 

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Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

AGREEMENT dated as of July 9, 2020 by and between Sparta Commercial Services, Inc., a Nevada corporation with an address at 555 Fifth Avenue, 14th Floor, New York, New York 10017(the “Company”) and Sandra Ahman (“Executive”) with an address at 555 Fifth Avenue, 14th Floor, New York, New York 10017.

 

WHEREAS, the Company and Executive entered into an Employment Agreement dated as of July 9, 2020 and the Company and Executive wish to enter into a new agreement relating to the employment of Executive by the Company and completely replacing such prior agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows:

 

1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company for a period commencing on the date hereof (the “Commencement Date”) and ending on the fifth anniversary of the Commencement Date (the “Employment Term”), on the terms and subject to the conditions set forth in this Agreement. Notwithstanding the preceding sentence, the Employment Term shall be automatically extended for an additional five-year period followed by further one-year periods, unless the Company or Executive provides the other party hereto 3 months prior written notice before the expiration of the then current Employment Term that the Employment Term shall not be so extended. “Employment Term” shall include any extension that becomes applicable pursuant to the preceding sentence.

 

2. Position.

 

(a) During the Employment Term, Executive shall serve as the Company’s Vice President of Operations and a Director. In such position, Executive shall have the powers, duties and responsibilities that are customary for such positions for a corporation of the size, type and nature of the Company and shall perform such other duties as the Company’s Board of Directors shall determine in their reasonable discretion, including in connection with the Company’s subsidiaries. Executive shall report exclusively to the Company’s Chief Executive Officer. Executive shall comply with all federal, state and local laws applicable to her duties and also shall comply with the rules and regulations of any self-regulatory organization (as such term is defined in Rule 3(a)(26) of the Securities Exchange Act of 1934, as amended) having jurisdiction over the Company.

 

(b) During the Employment Term, Executive will devote her full business time to the performance of her duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Company’s Board of Directors. Nothing contained herein shall preclude Executive from (i) serving on corporate, civic and charitable boards or committees and (ii) managing her personal investments; provided that none of the activities set forth in clauses (i) and (ii) interferes in any material respect with the performance of Executive’s employment hereunder or conflict in any material respect with the business of the Company.

 

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3. Base Salary.

 

During the Employment Term, the Company shall pay Executive a base salary (the “Base Salary”) at the annual rate of $140,000.00, payable in regular installments in accordance with the Company’s usual payment practices. Executive shall be entitled to such annual increases in her Base Salary, if any, as may be determined in the sole discretion of the Company’s Board of Directors or of the Compensation Committee thereof. Executive may elect to defer all or any portion of her Base Salary during the Employment Term (the “Deferred Amount”) to the extent eligible. Executive shall notify the Company not later than March 31 of each year if she elects to defer all or any portion of the Deferred Amount for such year. The Company shall deduct from Executive’s regular pay the pro rata portion of the Deferred Amount for any such year allocable to each pay period commencing after the date of Executive’s notice to the Company of her election. Each such deducted amount shall be deposited in an interest bearing account at the Company’s current bank. Upon such deposit Executive shall not be allowed to withdraw such deposits until January 1 of the year following the year in which such deductions were made.

 

4. Additional Compensation.

 

In addition to Base Salary and other compensation specified in this agreement, Executive may from time to time, receive such additional compensation from the Company in such form or forms as may be determined by the Company’s Board of Directors or the Compensation Committee thereof from time to in order to more fully compensate Executive for the true value of her services to the Company.

 

5. Disposition of Company Stock Held by Executive.

 

Following the termination of Executive’s employment hereunder, if Executive determines to sell all or any portion of her shares of the Common Stock of the Company, Executive shall first offer to sell such shares to the Company by providing written notice to the Company setting forth the number of such shares to be sold. If the Company elects to purchase all of such shares so offered the purchase price per share therefor shall equal 90% of the average daily bid price per share of the Company’s Common Stock during the 7-trading day period following receipt by the Company of such notice. If the Company elects to purchase less than all of such shares so offered, the purchase price per share shall be 100% of the average daily bid price per share of the Company’s Common Stock during the 7-trading day period following receipt by the Company of such notice. The Company shall notify Executive in writing of its decision whether to purchase any or all of such shares so offered within three days of the end of such 7-trading day period. If the Company elects to purchase such shares, the Company shall pay the full purchase price therefor within thirty (30) days of the Company’s election to so purchase. If the Company does not so elect or fails to notify Executive of its election within the time specified herein, Executive shall be free to sell such shares in the open market in accordance with the applicable rules and regulations of the Securities and Exchange Commission

 

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6. Employee Benefits; Stock Options.

 

(a) During the Employment Term, Executive shall be provided, in accordance with the terms of the Company’s employee benefit plans as in effect from time to time, health insurance and short term and long term disability insurance, retirement benefits and fringe benefits (collectively “Employee Benefits”) on the same bases as those benefits are generally made available to other senior executives of the Company. Executive shall be entitled to paid vacation of six (6) weeks per calendar year within the Employment Term. Such vacation shall be taken at times consistent with the proper performance by the Executive of her duties and responsibilities and with the approval of the Company’s Board of Directors. Vacation not taken in any calendar year shall carry forward to any future year within the employment period.

 

(b) In addition to any other benefits payable to Executive hereunder, the Company hereby grants to Executive options to purchase 12,541,858 shares of its Common Stock, par value $0.001 per share, in accordance with the provisions of the Stock Option Agreement attached hereto as Exhibit A. The Company’s Board of Directors may elect to issue Executive additional stock options to maintain her ownership percentage based on future issuances.

 

7. Business Expenses.

 

During the Employment Term, reasonable business expenses incurred by Executive in the performance of her duties hereunder shall be reimbursed by the Company in accordance with Company policies.

 

8. Termination. Notwithstanding any other provision of this Agreement:

 

(a) By the Company for Cause or By Executive Resignation without Good Reason. (i) The Employment Term and Executive’s employment hereunder may be terminated by the Company for Cause (as defined below) or by Executive’s resignation without Good Reason (as defined in Section 8(c)); (ii) For purposes of this Agreement, “Cause” shall mean (A) the Executive’s willful and continued failure to substantially perform the duties of her position or breach of material terms of her Agreement, after notice (specifying the details of such alleged failure) and a reasonable opportunity to cure if such breach can be cured; (B) any willful act or omission which is demonstrably and materially injurious to the Company or any of its subsidiaries or affiliates; (C) conviction or plea of nolo contendere to a felony or other crime of moral turpitude involving imprisonment of more than one year; or (D) willful failure to carry out the legitimate directives of the Company’s Board of Directors. No act or failure to act will be deemed “willful” (i) unless effected without a reasonable belief that such action or failure to act was in or not opposed to the Company’s best interest; or (ii) if it results from any physical or mental incapacity. (iii) If Executive’s employment is terminated by the Company for Cause, or if Executive resigns without Good Reason, Executive shall be entitled to receive (A) any accrued but unpaid Base Salary through the date of termination; (B) the opportunity to exercise vested stock options for 30 days following the later of the date of termination or the date of resolution of any arbitration contesting such termination; (C) such compensation and Employee Benefits, if any, as to which Executive may be entitled under the employee compensation and benefit plans of the Company and any other long-term incentive or equity program pursuant to the terms hereof through the date of termination; (D) any reimbursable business expenses incurred; and any Additional Compensation earned through the termination date. Following such termination of Executive’s employment by the Company for Cause or resignation by Executive without Good Reason, except as set forth in Section 6(b) and this Section 8(a), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

 

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(b) Disability, Death or Retirement.

 

(i) The Employment Term and Executive’s employment hereunder shall terminate (A) upon her death; (B) if Executive becomes physically or mentally incapacitated for a period of indefinite duration and is therefore unable for a period of six (6) consecutive months or for an aggregate of twelve (12) months, or such longer period as the Company’s Board of Directors in its sole discretion may determine, in any twenty-four (24) consecutive month period to perform her duties, (such incapacity is hereinafter referred to as “Disability”); and (C) upon her Retirement (as defined below). Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. For purposes of this Agreement, “Retirement” shall mean a Participant’s voluntary resignation any time.

 

(ii) Upon termination of Executive’s employment hereunder for death, Disability or Retirement, Executive or her estate (as the case may be) shall be entitled to receive (A) any accrued but unpaid Base Salary through the end of the calendar year in which such termination occurs, (B) a pro rata portion of any Additional Compensation that the Executive would have been entitled to receive pursuant to Section 4 hereof in such year based upon the percentage of the calendar year that shall have elapsed through the date of Executive’s termination of employment, payable when such Additional Compensation would have otherwise been payable had the Executive’s employment not terminated, (C) the opportunity to exercise vested stock options and Executive’s stock options scheduled to vest during the year following such termination (i) in the case of death or Disability, for one year following such termination or (ii) in the case of Retirement, for four years following such termination, (D) a pro rata portion of any long term incentive granted to the Executive and (E) such compensation and Employee Benefits, if any, as to which she may be entitled under the employee compensation and benefit plans and arrangements of the Company. Following such termination of Executive’s employment due to death, Disability or Retirement, except as set forth in Section 6(b) or this Section 8(b), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

 

(c) By the Company without Cause or Resignation by Executive for Good Reason.

 

(i) The Employment Term and Executive’s employment hereunder may be terminated by the Company without Cause or by Executive’s resignation for Good Reason.

 

(ii) For purposes of this Agreement, “Good Reason” shall mean: (A) assignment of duties to Executive inconsistent with her status as Chief Executive Officer or otherwise inconsistent with the terms of Section 2 of this Agreement; (B) Executive’s relocation by the Company beyond 75 miles of her current place of residence; (C) any material breach of the Agreement by the Company; or (D) failure of any successor to all or substantially all of business of the Company to assume this Agreement.

 

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(iii) If Executive’s employment is terminated by the Company without Cause (other than by reason of death or Disability) or if Executive resigns for Good Reason, Executive shall be entitled to receive (A) within 30 business days after such termination, any accrued but unpaid Base Salary and Deferred Amount through the end of the calendar year in which such termination occurred in accordance with normal Company payroll policies, (B) unpaid Additional Compensation for the fiscal year prior to termination in accordance with standard Company policies, (C) a pro rata portion of any Additional Compensation that the Executive would have been entitled to receive pursuant to Section 4 hereof in the year of termination based upon the percentage of the calendar year that shall have elapsed through the date of Executive’s termination of employment, payable when such Additional Compensation would have otherwise been payable had the Executive’s employment not terminated provided that such Additional Compensation shall be equal to not less than six (6) months of Additional Compensation, (D) payment equal to the Severance in accordance with Section 9 hereof; (E) continued coverage under the Company’s welfare benefit plans available to senior executives for the lesser of (i) the time Executive is not covered by a comparable welfare benefit plan or (ii) a period of 24 months, (F) except as provided in Section 5 hereof, accelerated vesting of all equity awards (including, but not limited to, Executive’s stock options) and the opportunity to exercise such awards on or before the earlier of (i) one year following such termination or (ii) the date of termination of such award and (G) such vested compensation and Employee Benefits, if any, as to which Executive may be entitled under the employee compensation and benefit plans and arrangements of the Company.

 

(iv) If the Executive resigns for Good Reason or is terminated without cause within 12 months after a Change in Control (as defined below), Executive shall be entitled to receive, in addition to her entitlements in (iii) above, and (A) within 30 business days after such termination, an additional lump sum payment equal to the greater of the Severance payment in accordance with Section 9 hereof or the balance of Executive’s base salary hereunder for the balance of the Employment Term had this Agreement not been terminated and (B) continued coverage under the Company welfare benefit plans available to senior executives for an additional 24 month period and (C) the value of full vesting of the Executive’s account balance under the Company’s 401(k) plan.

 

(v) For purposes of this Agreement, “Change in Control” shall mean:

 

(A) any Person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) who becomes the Beneficial Owner (as defined in Rule 13d-3 of the Exchange Act) (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or any Significant Subsidiary (as defined below), representing 50% or more of the combined voting power of the Company’s or such Significant Subsidiary’s then-outstanding securities and is the largest shareholder of the Company;

 

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(B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director 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 but excluding for this purpose any such new director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, or partnership, group, associate or other entity or Person other than the Board (the “Continuing Directors”), cease for any reason to constitute at least a majority of the Board;

 

(C) the consummation of a merger or consolidation of the Company or any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Company (a “Significant Subsidiary”) with any other entity, other than a merger or consolidation which would result in the voting securities of the Company or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation;

 

(D) the Company disposes of all or substantially all of the consolidated assets of the Company (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of the common stock of the Company immediately prior to such sale or disposition) in which case the Board shall determine the effective date of the Change in Control resulting therefrom; or if the Company elects to terminate this Agreement by not renewing this Agreement at the end of the Employment Term, Executive shall be entitled to receive Severance equal to two and one-half (2 1/2) years of her Base Salary payable in accordance with the Company’s standard payroll policy plus standard Employee Benefits in place during such two and one-half (2 1/2) year period.

 

(d) If the Company, or any successor in interest, fails to fully perform all or any portion of its obligations under this Section 8, the Company, or such successor in interest, shall be obligated to pay to Executive an amount equal to five (5) times the value of the unperformed obligation.

 

(e) Notice of Termination. Any purported termination of employment by the Company or by Executive (other than due to Executive’s death or in accordance with the provisions of Section 1 hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12(i) hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.

 

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9. Severance. Subject to the provisions of Section 8(c)(v) this Agreement, Executive shall earn additional “Severance” compensation based on Executive’s base salary according to Executive’s length of service with the Company. Executive shall earn three months of Severance for up to six months of service for each year of employment hereunder payable in accordance with the Company’s regular payroll policy, plus full participation in all standard employee benefits during the period of such payments.

 

10. Confidentiality. Executive will not at any time (whether during or after her employment with the Company), unless required by a court or administrative agency, disclose or use for her own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive’s breach of this covenant.

 

Executive shall not disclose the existence or terms of this Agreement to any person except the CEO or the Board of Directors of the Company and to its auditors and counsel and to Executive’s own personal financial advisor, accountant and counsel unless otherwise required by applicable law.

 

11. Noncompetition. During the term of Executive’s employment with the Company and for a period of one (1) year after she ceases to be employed by the Company, Executive shall not engage directly or indirectly in competition with the Company or its Affiliates (as such term is defined in Rule 501(b) of the Securities Act of 1933, as amended) in any of the businesses of the Company or its subsidiaries. Competition shall include, without limitation, any role as a sponsor, consultant, employee, partner or stockholder which aids or abets any business to compete or prepare for competition with the Company or its Affiliates in any business in which any of them is engaged or planning to engage. Executive further acknowledges that competitive activities in violation of this Section could cause irreparable injury to the Company and that such injury would be difficult or impossible to measure. Accordingly, the Company shall be entitled to an injunction and other equitable remedies for any violation. This noncompetition clause shall only be effective if the Company has made all payments and fulfilled all terms of this employment agreement.

 

7

 

 

12. Miscellaneous.

 

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

 

(b) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration held in New York and conducted in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”) in effect at the time of the arbitration before a single arbitrator appointed by the President of the AAA; provided that such arbitrator shall be an expert in the field of finance and shall not have had any previous dealings or relationships with either party. The Company shall reimburse Executive’s legal fees of one counsel and costs incurred to enforce her rights under this Agreement if Executive substantially prevails in any dispute or controversy. During the period of such dispute, Executive shall be entitled to receive her Base Salary and standard Employee Benefits.

 

(c) Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company with respect to the subject matter hereof. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter hereof other than those expressly set forth herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.

 

(d) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

(e) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.

 

(f) Assignment. This Agreement shall not be assignable by Executive. This Agreement may be assigned by the Company to a company which is a successor in interest to substantially all of the business operations of the Company. Such assignment shall become effective when the Company notifies the Executive of such assignment or at such later date as may be specified in such notice. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such successor company regardless of whether any assignee expressly assumes the obligations, rights and privileges of this Agreement.

 

(g) Mitigation. Executive shall not be required to mitigate damages or the amount of any payment to Executive provided for under this Agreement by seeking other employment or otherwise, nor, except as otherwise provided herein, shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment after termination.

 

8

 

 

(h) Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributes, devises and legatees.

 

(i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by facsimile or United States registered mail, return receipt requested, postage prepaid, or by recognized overnight courier service addressed to the respective addresses set forth on the execution page of this Agreement or such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

 

If delivery is by facsimile:

 

If to the Company, at 646-514-4514

 

If to Executive, at 646-514-4483.

 

(j) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

(k) Survival. The provisions of Section 6(b), 8, 9, 10, 11, 12(b) and 12(g) shall survive the expiration or termination of this Agreement regardless of the reason or reasons therefor.

 

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

 

   
  Sandra L. Ahman
   
  SPARTA COMMERCIAL SERVICES, INC.
   
  By:  
  Name: Anthony L. Havens
  Title: Chief Executive Officer

 

9

 

 

EXHIBIT A

 

Stock Option Agreement

 

10

 

 

EXHIBIT 31.1

 

CERTIFICATIONS

 

I, Anthony L. Havens, certify that:

 

1. I have reviewed this report on Form 10-Q for the quarterly period ended January 31, 2020 of Sparta Commercial Services, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 9, 2020

 

  /s/ Anthony L. Havens
  Anthony L. Havens
  Chief Executive Officer, principal executive officer

 

 

 

EXHIBIT 31.2

 

CERTIFICATIONS

 

I, Anthony L. Havens, certify that:

 

1. I have reviewed this report on Form 10-Q for the quarterly period ended January 31, 2020 of Sparta Commercial Services, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 9, 2020

 

  /s/ Anthony L. Havens
  Anthony L. Havens
  Principal financial and accounting officer

 

 

 

 

EXHIBIT 32.1

 

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report of Sparta Commercial Services, Inc. (the “Company”) on Form 10-Q for the quarterly period ended January 31, 2020, as filed with the Securities and Exchange Commission on the date therein specified (the “Report”), I, Anthony L. Havens, as Chief Executive Officer and principal financial and accounting officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: July 9, 2020

 

  /s/ Anthony L. Havens
  Anthony L. Havens, Chief Executive Officer, principal executive officer, principal financial and accounting officer