UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of
Report (Date of earliest event reported): January 8,
2019
EXACTUS, INC.
(Exact
name of the registrant as specified in its charter)
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Nevada
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000-55828
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27-1085858
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(State or other jurisdiction of
incorporation)
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(Commission File
Number)
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(IRS Employer Identification
No.)
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4870 Sadler Road, Suite 300, Glen Allen, Virginia
23060
(Address
of principle executive offices) (Zip code)
Registrant’s
telephone number, including area code:
(804) 205-5036
______________________________________________________
(Former
name or address if changed since last report)
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the Registrant
under any of the following provisions (
see
General Instruction A.2
below):
[ ]
Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425).
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12).
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b)).
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)).
Indicate
by check mark whether the registrant is an emerging growth company
as defined in as defined in Rule 405 of the Securities Act of 1933
(§230.405 of this chapter) or Rule 12b-2 of the Securities
Exchange Act of 1934 (§240.12b-2 of this
chapter).
[ ]
Emerging growth company
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.
[
]
SECTION 1 – REGISTRANT’S BUSINESS AND
OPERATIONS
Item 1.01
Entry
into a Material Definitive Agreement.
Exactus, Inc.
Exactus,
Inc. (the “Company”, “Exactus”,
“we”, “our” or “us”) is a life
sciences company pursuing opportunities in two distinct business
segments, point of care diagnostics and Cannabidiol
(“CBD”).
Cannabidiol (CBD) Products
Background
.
Cannabidiol (CBD)
is a phyto-cannabinoid discovered in 1940 and initially thought not
to be psychoactive. It is one of at least 113 cannabinoids
identified in hemp plants, accounting for up to 40% of the plant's
extract. Our U.S. based activities will be organized through our
largest shareholder, Ceed2Med, LLC (“C2M”), who will
oversee raw material supply chain, raw material processing, product
development, manufacturing, testing, sales and marketing. We will
continue to scale-up our sourcing and marketing capability to
accommodate new products in our pipeline. As a result, maintaining
a strong relationship with C2M, our largest shareholder, is a
material factor in our efforts to successfully establish ourselves
in this segment.
Since
December 2018 our efforts have been focused on identifying
relationships and pursuing opportunities to develop a business in
marketing and selling hemp-based CBD in a variety of forms to a
range of market sectors. The Company has no prior experience in
this rapidly evolving segment. CBD is derived from industrial hemp
and because of its low THC content is lawful in the United States
and has no measurable psychoactive effects. High quality raw
materials made from hemp are essential to produce the isolates and
distillates used to produce CBD products. Industrial hemp is
defined as plants with less than 0.3% of the psychoactive compound
THC found in cannabis plants.
Our
goal is to establish relationships that will provide availability
of supply of raw materials and finished products and to expand our
skills by aligning with committed partners who have the requisite
expertise to allow us to rapidly launch a business in hemp-based
CBD products. As we develop this business, we perceive there to be
many challenges to our success. One of the early challenges to
success is procuring adequate supply of precursor materials to
support wholesale and retail demand. Since we believe access to
supply or quality products for human and animal consumption will be
highly regulated, production to Current Good Manufacturing Practice
(cGMP) standards is of the utmost importance as regulation
increases. cGMP refers to the Current Good Manufacturing
Practice regulations enforced by the FDA. cGMP standards provide
for systems that assure proper design, monitoring, and control of
manufacturing processes and facilities. cGMP is and will be a major
challenge as the industry matures. Since shortages and uncertainty
over reliable raw material availability are paramount to becoming a
reliable provider, our initial focus is on establishing
relationships with cGMP vendors.
Ceed2Med Master
Product Development and Supply Agreement
. On January 8, 2019 we entered into a Master
Product Development and Supply Agreement (the “Development
Agreement”) with C2M. C2M owns and operates cGMP facilities
located in the State of Florida and elsewhere and has the
expertise, resources, skills and experience suitable for active
phyto-cannabinoid (CBD) rich ingredients including isolates,
distillates, water soluble, and proprietary formulations. Under the
Agreement, we have been allotted a minimum of 50 and up to 300
kilograms per month, and up to 2,500 kilograms annually, of active
phyto-cannabinoid (CBD) rich ingredients for resale. We expect to
be able to offer tinctures, edibles, capsules, topical solutions
and animal health products manufactured for us by C2M to satisfy
demand for branded and white-label products that we intend to offer
to sell in the future. We expect to begin marketing during the
first quarter of 2019. C2M is seeking to continually advance CBD
technology and has established relationships in order to be able to
continue to provide innovative new solutions, including water
soluble solutions intended to be offered in the future. The
founders of C2M established their first CBD business in 2014. C2M
was issued 67,085,523 shares of our common stock, or approximately
fifty-one (51%) percent of our issued and outstanding shares of
common stock on a fully-diluted basis, on January 8, 2019 upon
effectiveness of the Development Agreement. As a result, C2M is our
largest shareholder.
Our
relationship with, and majority ownership by, C2M provides us with
access to the skills and experience of seasoned advisors with over
four years of experience with industrial hemp. C2M has
well-established relationships with leading companies in genetics
(seed), farming, processing, manufacturing, testing, and
distribution and directly leases, owns and operates several
warehouse and processing facilities within this supply chain. C2M
has farmed industrial hemp in Oregon and Kentucky, among other
places.
Initially,
because we have entered into the Development Agreement, we do not
anticipate that we will make direct investment in biomass,
processing or farming, nor in isolate, distillate, or finished
product inventory, in order to commence our CBD operations.
Currently, through C2M, we are in negotiation to establish
relationships that may permit us to commence our own farming during
2019 which will be overseen by C2M personnel. Farming and
processing industrial hemp to finished product entails significant
lead time, delay, cost and uncertainty.
Industrial
Hemp.
We seek to take advantage
of an emerging worldwide trend to utilize the production of
industrial hemp in consumer products. Hemp is being used today in
cosmetics, nutritional supplements, and animal feed, where we also
intend to focus our efforts. The market for hemp-derived products
is expected to increase substantially over the next five years, and
we are endeavoring to prepare the Company to be positioned as a
significant player in the industry.
We
expect to realize revenue through our efforts, if successful, to
sell wholesale and retail finished products to third parties.
However, as we are in a start-up phase in a new business venture in
a rapidly evolving industry many of our costs and challenges are
new and unknown. In order to fund our activities, we will need to
raise additional capital either through the issuance of equity
and/or the issuance of debt. In the event we are unsuccessful in
raising sufficient additional capital to fund our efforts, we may
need to curtail, abandon or delay our plans to enter into this
segment.
Competition
.
We believe a multitude (hundreds) of companies, large and small,
including mom and pops, have launched or intend to launch retail
brands and white label products containing CBD. Many of these are
offering CBD and are dependent upon third parties to provide raw
material inventory for sale. We believe this makes many of the
participants in the industry vulnerable to shortages, quality
issues, reliability and pricing variability. While we also intend
to pursue retail and white label strategies, we believe our
relationship with C2M may provide supply chain efficiencies that
will put us among the few companies that maintain a a competitive
pricing and supply advantage, poised for revenue growth during 2019
and beyond. We also intend to pursue FDA approval for all of our
activities.
The
CBD-based consumer product industry is highly fragmented with
numerous companies, many of which are under-capitalized. There are
also large, well-funded companies that currently do not offer
hemp-based consumer products including large agribusiness companies
such as Cargill and Tyson Foods, but may do so in the future and
become significant competitors.
Our
goal is to rapidly establish one or more principal sources of
supply and to develop wholesale and retail sales channels for CBD
end-products to be sold to humans and for animal health, such as
nutraceuticals, supplements and pet and farm products. We intend to
follow regulatorily compliant pathways by adopting practices
established by the FDA for CBD. Companies such as CV Sciences, Inc.
(OTCQB: CVSI) and recent acquisitions by TerrAscend Corp. (CSE:
TER; OTCQX: TRSSF) are considered by us to be competitors for our
planned CBD product offerings.
Non-CBD
Competition
. We do not intend
to offer and do not compete with companies that offer cannabis
products containing psychoactive THC levels, such as is legal in
Canada and elsewhere, or on a state by state basis in the United
States. We may offer our products in dispensaries, but will not
compete with any medical or recreational marijuana sellers due to
legal and regulatory restrictions and uncertainty in the United
States. There are several companies developing cannabinoid
therapeutics for a range of medical indications. The cannabinoid
therapeutic area currently includes formulated extracts of the
cannabis plant and synthetic formulations. These formulations
include CBD and THC, or a combination of CBD/THC as the active
pharmaceutical ingredient. Certain companies such as GW
Pharmaceuticals, PLC have focused on plant-based CBD formulations
while other companies such as Zynerba Pharmaceuticals Inc. and
Insys Therapeutics Inc. have focused on synthetic CBD formulations.
Many of our competitors are private companies and as a result,
little or no reliable information is available. Of the publicly
reporting companies, we believe many of the CBD companies are
principally focused on high THC content marijuana. Because of
regulatory challenges facing marijuana companies in the United
States the vast majority of the companies focused on THC are
Canadian and foreign, although several have begun to pursue
domestic activities in states that permit marijuana sales. Federal
law does not generally recognize marijuana (or Hemp that exceeds
0.3% THC) as lawful, although that may change in the future.
Because of these factors our competitors that have focused on CBD
are limited.
Retail
Strategy
. Our focus will
include establishing wholesale and retail distribution by
developing our own brands, selling white label branded products to
others and making acquisitions of existing businesses engaged in
marketing or sales, in both online and retail channels. We may
supply to wholesalers, retailers, and distribution centers as we
seek to launch our retail strategy. We intend to initially focus on
developing products to reach medical and health communities sold or
promoted by or through medical professionals such as internists,
dermatologists, osteopaths, chiropractors, pharmacists, and other
holistic or natural products purveyors, but will not be limited to
such efforts. We intend to focus on higher margin opportunities
utilizing online sales and sales in stores, offices or
pharmacies.
Source and
Availability of Raw Materials.
C2M has historically sourced raw materials from
well-established and well-recognized hemp growers in the United
States. We have established access to C2M for their raw material
supply, and continue to explore and develop other options to ensure
that we can meet the expected demand for bulk hemp products well
into the future. Accordingly, we are heavily reliant upon the
continued success of C2M and our ability to maintain good relations
with C2M in order to have a source of raw materials and
opportunities to pursue our plans in the future. C2M is a recently
formed privately-owned limited liability company and as a result
limited information about C2M is available.
Environmental
Matters
. Compliance with
federal, state and local requirements regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, have not had, nor are they expected
to have, any direct material effect on our capital expenditures,
earnings or competitive position however such factors could
indirectly affect us should they affect C2M, its business,
operations, vendors or suppliers.
Point of Care Diagnostics -
As
previously reported under “Business” in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2017,
which is incorporated herein by reference, the second segment of
our business is the development of point of care diagnostic
devices. We have since February 2016 been developing devices for
measuring proteolytic enzymes in the blood, known as the FibriLyzer
and collagenase levels in the blood, known as the MatriLyzer. We
are considering evaluating technology that could be useful as in
testing for CBD and THC levels for use in the manufacture of CBD
products. We believe our diagnostic business has been severely
hampered by a shortage of capital for development and as a result
our licenses for the underlying technology FibriLyzer and
MatriLyzer technology may be discontinued since we have received
notice of termination of certain of our licenses for non-payment of
fees. For the past 9 months we have been engaged in discussions
with third-parties regarding funding and possible third-party
merger candidate to develop our diagnostic business. We have
obtained a third-party valuation for our FibriLyzer business that
concludes the business could be worth as much as $60 million in a
merger or sale, although there can be no assurance that such value
can be realized. Accordingly, we have determined to continue to
look for partners or buyers of this business segment. If successful
we could sell or license our rights to third parties with
substantially greater resources than us.
Corporate History
We
were incorporated under the name Solid Solar Energy, Inc. in the
State of Nevada on January 18, 2008. and changed our name to Spiral
Energy Tech., Inc. in 2013. Through 2016 our Company’s
management expertise was in the field of alternative energy. We
were engaged in the business of design and development of patented
remote monitoring systems for solar and other renewable energy
systems, as well as development of solar skyports, energy demand
networks and provisioning systems for electric drones. During 2014,
we sold our patents to a third party patent assertion entity. Our
skyport, energy demand networks and provisioning systems under
development were designed to allow for charging via remotely
located solar enabled skyports facilitating drone recharging and
operation away from home ports, including seeking patent protection
for certain technology. During 2016 we exited these business to
focus on point of care diagnostics due to a lack of funds to
support further development efforts.
Advisory Board
On
January 9, 2019, we adopted an Advisory Board Charter and
established our advisory board and adopted a Code of
Ethics.
On
January 9, 2019, Emiliano Aloi was appointed to our recently
established Board of Advisors. Mr. Aloi is a co-founder of C2M and
previously served as Vice President and Director of Strategic
Development for GenCanna Global, Inc. Previously, Mr. Aloi was a
director of UY Grow and Managing Partner of Santa Maria Investment,
and Cleanenergy Group and held positions with Beverage Metrics. Mr.
Aloi is an agrobusiness expert skilled in supply and market
development.
We also plan to expand our board of advisors with additional
experts that will assist us with CBD, FDA regulatory and product
development and marketing.
No Planned Name Change
We
do not plan to change our name or adopt a new trading symbol at the
present time. The Company’s common stock is presently quoted
on OTC Markets under the symbol
“EXDI”.
RISK FACTORS
Investing in our securities involves a high degree of risk. Before
making an investment decision, you should carefully consider the
risks, uncertainties and forward-looking statements described under
"Risk Factors" in Item 1A of our most recent Annual Report on Form
10-K for the fiscal year ended December 31, 2017 filed with the
Securities and Exchange Commission (the "SEC") on April 2, 2018, as
well as information incorporated by reference into this Current
Report on Form 8-K. If any of these risks were to occur, our
business, financial condition or results of operations would likely
suffer. In that event, the value of our securities could decline,
and you could lose part or all of your investment. The risks and
uncertainties we describe are not the only ones facing us.
Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations. In
addition, our past financial performance may not be a reliable
indicator of future performance, and historical trends should not
be used to anticipate results in the future. See "Forward-Looking
Statements" below.
FORWARD-LOOKING STATEMENTS
This current report on Form 8-K, including the documents that we
incorporate by reference, contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange
Act. Such forward-looking statements include those that express
plans, anticipation, intent, contingency, goals, targets or future
development and/or otherwise are not statements of historical fact.
These forward-looking statements are based on our current
expectations and projections about future events and they are
subject to risks and uncertainties known and unknown that could
cause actual results and developments to differ materially from
those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by
terminology, such as "expects," "anticipates," "intends,"
"estimates," "plans," "believes," "seeks," "may," "should", "could"
or the negative of such terms or other similar expressions.
Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially
from those expressed in them. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed
throughout this prospectus.
You should read this current report on Form 8-K and the documents
that we reference herein and therein and have filed as exhibits
completely and with the understanding that our actual future
results may be materially different from what we expect. You should
assume that the information appearing in this current report on
Form 8-K is accurate as of the date hereof only. Because the risk
factors referred to above, as well as the risk factors incorporated
herein by reference, could cause actual results or outcomes to
differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue
reliance on any forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is
made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which factors will arise. In
addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. We qualify all of the
information presented in this prospectus and any accompanying
prospectus supplement, and particularly our forward-looking
statements, by these cautionary statements.
An investment in the Company’s common stock involves a high
degree of risk. In determining whether to purchase the
Company’s common stock, an investor should carefully consider
all of the material risks described below, together with the other
information contained in this report and the Company’s other
public filings before making a decision to purchase the
Company’s securities. An investor should only purchase the
Company’s securities if he or she can afford to suffer the
loss of his or her entire investment.
The following risk factors are intended to supplement and should be
read along with the “Risk Factors” Under Item 1A
contained in our Annual Report on Form 10-K filed
with the SEC on April 2, 2018, and our other filings and reports
with the SEC, which risk factors are incorporated herein by
reference.
Risks Related to Our Business
We may need additional capital in the future, which could dilute
the ownership of current shareholders or we may be unable to secure
additional funding in the future or to obtain such funding on
favorable terms.
Historically, we have raised equity capital to support and expand
our operations. To the extent that we raise additional equity
capital, existing shareholders will experience a dilution in the
voting power and ownership of their common stock, and earnings per
share, if any, would be negatively impacted. Our inability to use
our equity securities to finance our operations could materially
limit our growth. Any borrowings made to finance operations could
make us more vulnerable to a downturn in our operating results, a
downturn in economic conditions, or increases in interest rates on
borrowings that are subject to interest rate fluctuations. The
amount and timing of such additional financing needs will vary
principally depending on the timing of new product launches,
investments and/or acquisitions, and the amount of cash flow from
our operations. If our resources are insufficient to satisfy our
cash requirements, we may seek to issue additional equity or debt
securities or obtain a credit facility. If our cash flow from
operations is insufficient to meet our debt service requirements,
we could be required to sell additional equity securities,
refinance our obligations, or dispose of assets in order to meet
debt service requirements. There can be no assurance that any
financing will be available to us when needed or will be available
on terms acceptable to us. Our failure to obtain sufficient
financing on favorable terms and conditions could have a material
adverse effect on the business, prospects results of operations or
financial condition of the Company.
Even if we obtain customers, there is no assurance that we will
continue to make a profit.
Even if we obtain customers, there is no guarantee that we will be
able to generate a profit. Because we are a small company and have
limited capital, we must limit our products and services. Further,
we are subject to raw material pricing which can erode the
profitability of our products and put additional negative pressure
on profitability. If we cannot operate profitably, we may
have to suspend or cease operations.
FDA regulation could negatively affect the hemp industry, which
would directly affect our financial condition.
The U.S. Food and Drug Administration ("FDA") may seek expanded
regulation of hemp under the Food, Drug and Cosmetics Act of 1938.
Additionally, the FDA may issue rules and regulations including
certified good manufacturing practices, or cGMPs, related to the
growth, cultivation, harvesting and processing of hemp. Clinical
trials may be needed to verify efficacy and safety. It is also
possible that the FDA would require that facilities where hemp is
grown register with the FDA and comply with certain federally
prescribed regulations. In the event that some or all of these
regulations are imposed, we do not know what the impact would be on
the hemp industry, including what costs, requirements and possible
prohibitions may be enforced. If we or our partners are unable to
comply with the regulations or registration as prescribed by the
FDA, we and or our partners (including C2M) may be unable to
continue to operate their and our business in its current or
planned form or at all.
Changes in the Law and Development Programs
For the first time since 1937, industrial hemp has been
decriminalized at the federal level and can be grown legally in the
United States, but on a limited basis. A landmark provision passed
in the Agricultural Act of 2014 recognizes hemp as distinct from
its genetic cousin, marijuana. Federal law now exempts industrial
hemp from U.S. drug laws to allow for crop research by
universities, colleges and state agriculture departments. The new
Federal law allows for agricultural programs for industrial hemp
“in states that permit the growth or cultivation of
hemp.”
Cannabis remains illegal under federal law, and therefore, strict
enforcement of federal laws regarding cannabis would likely result
in our inability and the inability of our customers to execute our
respective business plans.
Although we intend to conduct our business in a manner intended to
comply with federal law by utilizing low THC industrial hemp (less
than 0.3%), cannabis has historically been a Schedule I controlled
substance under the Controlled Substances Act of 1970 (the
“CSA”). On December 20, 2018 President Trump signed the
2018 Farm Bill which removed low THC hemp from Schedule I
controlled substance listing.
Even in those jurisdictions in which the manufacture and use of
medical cannabis has been legalized at the state level, the
possession, use and cultivation of cannabis all remain violations
of federal law that are punishable by imprisonment, substantial
fines and forfeiture. Moreover, individuals and entities may
violate federal law if they intentionally aid and abet another in
violating these federal controlled substance laws, or conspire with
another to violate them. The U.S. Supreme Court has ruled
in
United States v. Oakland
Cannabis Buyers' Coop.
and
Gonzales v.
Raich
that it is the
federal government that has the right to regulate and criminalize
the sale, possession and use of cannabis, even for medical
purposes. We would likely be unable to execute our business plan if
the federal government were to enforce federal law regarding
cannabis and applied such laws to low THC containing hemp, or other
federal or state laws were to be extended to our business. For this
reason, we continue to believe cannabis legislation and the
enforcement of laws should be considered a significant risk factor
to our business. Confusion surrounding the nature of our products,
inaccurate or incomplete testing, farming practices and law
enforcement vigilance or lack of education could result in
confusion and our products could be intercepted and our business
interrupted, or we could be required to undertake processes that
could delay shipments, impede sales or result in seizures, proper
or not, that would be costly to rectify or remove and which could
have a material adverse effect on the business, prospects, results
of operations or financial condition of the
Company.
In January 2018, the Department of Justice (the “DOJ”)
rescinded certain memoranda, including the so-called “Cole
Memo” issued on August 29, 2013 under the Obama
Administration, which had characterized enforcement of federal
cannabis prohibitions under the CSA to prosecute those complying
with state regulatory systems allowing the use, manufacture and
distribution of medical cannabis as an inefficient use of federal
investigative and prosecutorial resources when state regulatory and
enforcement efforts are effective with respect to enumerated
federal enforcement priorities under the CSA. The impact of the
DOJ's rescission of the Cole Memo and related memoranda is unclear,
but may result in the DOJ increasing its enforcement actions
against the state-regulated cannabis industry
generally.
Congress previously enacted an omnibus spending bill that includes
a provision prohibiting the DOJ (which includes the Drug
Enforcement Agency (the “DEA”)) from using funds
appropriated by that bill to prevent states from implementing their
medical-use cannabis laws. This provision, however, expired on
December 7, 2018, and must be renewed by Congress.
In
USA
vs. McIntosh
, the U.S. Court of
Appeals for the Ninth Circuit held that this provision prohibits
the DOJ from spending funds from relevant appropriations acts to
prosecute individuals who engage in conduct permitted by state
medical-use cannabis laws and who strictly comply with such laws.
However, the Ninth Circuit's opinion, which only applies to the
states of Alaska, Arizona, California, Hawaii, and Idaho, also held
that persons who do not strictly comply with all state laws and
regulations regarding the distribution, possession and cultivation
of medical-use cannabis have engaged in conduct that is
unauthorized, and in such instances the DOJ may prosecute those
individuals.
Additionally, financial transactions involving proceeds generated
by cannabis-related conduct can form the basis for prosecution
under the federal money laundering statutes, unlicensed money
transmitter statutes and the Bank Secrecy Act. The penalties for
violation of these laws include imprisonment, substantial fines and
forfeiture. Prior to the DOJ's rescission of the “Cole
Memo”, supplemental guidance from the DOJ issued under the
Obama administration directed federal prosecutors to consider the
federal enforcement priorities enumerated in the “Cole
Memo” when determining whether to charge institutions or
individuals with any of the financial crimes described above based
upon cannabis-related activity. With the rescission of the
“Cole Memo,” there is increased uncertainty and added
risk that federal law enforcement authorities could seek to pursue
money laundering charges against entities or individuals engaged in
supporting the cannabis industry.
Federal prosecutors have significant discretion and no assurance
can be given that the federal prosecutor in each judicial district
where we operate will not choose to strictly enforce the federal
laws governing cannabis production or distribution. Any change in
the federal government's enforcement posture with respect to
state-licensed cultivation of cannabis, including the enforcement
postures of individual federal prosecutors in judicial districts
where we operate, would result in our inability to execute our
business plan, and we would likely suffer significant losses, which
would adversely affect the trading price of our securities. We have
not requested or obtained any opinion of counsel or ruling from any
authority to determine if our operations are in compliance with or
violate any state or federal laws or whether we are assisting
others to violate a state or federal law. In the event that our
operations are deemed to violate any laws or if we are deemed to be
assisting others to violate a state or federal law, any resulting
liability could cause us to modify or cease our
operations.
Although we believe the foregoing will be applicable to business
other than hemp-based CBD businesses there is risk that confusion
or uncertainty surrounding our products with regulated cannabis
could occur on the state or federal level and impact us. We may
have difficulty with establishing banking relationships, working
with investment banks and brokers who would be willing to offer and
sell our securities or accept deposits from shareholders, and
auditors willing to certify our financial statements if we are
confused with businesses that are in the cannabis business. Any of
these additional factors, should they occur, could also affect our
business, prospects, assets or results of operation could have a
material adverse effect on the business, prospects, results of
operations or financial condition of the Company.
Our inability to effectively manage our growth could harm our
business and materially and adversely affect our operating results
and financial condition.
Our strategy envisions growing our business. We are actively
launching and expect to expand our product, sales, administrative
and marketing operations. Any growth in or expansion of our
business is likely to continue to place a strain on our management
and administrative resources, infrastructure and systems. As with
other growing businesses, we expect that we will need to further
refine and expand our business development capabilities, our
systems and processes and our access to financing sources. We also
continue to hire, train, supervise, and manage a significant number
of new employees. These processes are time consuming and expensive,
will increase management responsibilities and will divert
management attention. We cannot assure that we will be able
to:
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expand
our products effectively or efficiently or in a timely
manner;
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allocate
our human resources optimally;
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meet
our capital needs;
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identify
and hire qualified employees or retain valued employees;
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effectively
incorporate the components of any business or product line that we
may acquire in our effort to achieve growth.
|
Our inability or failure to manage our growth and expansion
effectively could harm our business and materially and adversely
affect our operating results and financial condition.
If we do not successfully generate additional products and
services, or if such products and services are developed but not
successfully commercialized, we could lose revenue
opportunities.
Our future success depends, in part, on our ability to expand our
product and service offerings. To that end we have engaged in the
process of identifying new product opportunities to provide
additional products and related services to our customers. The
processes of identifying and commercializing new products is
complex and uncertain, and if we fail to accurately predict
customers’ changing needs and emerging trends, our business
could be harmed. We have already and may have to continue to commit
significant resources to commercializing new products before
knowing whether our investments will result in products the market
will accept. Furthermore, we may not execute successfully on
commercializing those products because of errors in product
planning or timing, technical hurdles that we fail to overcome in a
timely fashion, or a lack of appropriate resources. This could
result in competitors providing those solutions before we do and a
reduction in net sales and earnings.
The success of new products depends on several factors, including
proper new product definition, timely completion, and introduction
of these products, differentiation of new products from those of
our competitors, and market acceptance of these products. There can
be no assurance that we will successfully identify additional new
product opportunities, develop and bring new products to market in
a timely manner, or achieve market acceptance of our products or
that products and technologies developed by others will not render
our products or technologies obsolete or
noncompetitive.
Our future success depends on our ability to grow and expand our
customer base. Our failure to achieve such growth or expansion
could materially harm our business.
To date, our revenue growth plans have been derived from projected
sales of our products, not actual sales or historical experience.
Our success and the planned growth and expansion of our business
depends on us achieving greater and broader acceptance of our
products and expanding our customer base. There can be no assurance
that customers will purchase our products or that we will continue
to expand our customer base. If we are unable to effectively market
or expand our product offerings, we will be unable to grow and
expand our business or implement our business strategy. This could
materially impair our ability to increase sales and revenue and
materially and adversely affect our margins, which could harm our
business and cause our stock price to decline.
Our suppliers could fail to fulfill our orders for parts used to
assemble our products, which would disrupt our business, increase
our costs, harm our reputation, and potentially cause us to lose
our market.
We depend on third party suppliers for materials used to assemble
our products. These suppliers could fail to produce products to our
specifications or in a workmanlike manner and may not deliver the
material or products on a timely basis. Our suppliers may also have
to obtain inventories of the necessary parts and tools for
production. Any change in our suppliers’ approach to
resolving production issues could disrupt our ability to fulfill
orders and could also disrupt our business due to delays in finding
new suppliers, providing specifications and testing initial
production. Such disruptions in our business and/or delays in
fulfilling orders could harm our reputation and could potentially
cause us to lose our market.
Our inability to effectively protect our intellectual property
would adversely affect our ability to compete effectively, our
revenue, our financial condition, and our results of
operations.
We may be unable to obtain intellectual property rights to
effectively protect our branding, products, and other intangible
assets. Our ability to compete effectively may be affected by the
nature and breadth of our intellectual property rights. While we
intend to defend against any threats to our intellectual property
rights, there can be no assurance that any such actions will
adequately protect our interests. If we are unable to secure
intellectual property rights to effectively protect our branding,
products, and other intangible assets, our revenue and earnings,
financial condition, or results of operations could be adversely
affected.
We also rely on non-disclosure and non-competition agreements to
protect portions of our intellectual property portfolio. There can
be no assurance that these agreements will not be breached, that we
will have adequate remedies for any breach, that third parties will
not otherwise gain access to our trade secrets or proprietary
knowledge, or that third parties will not independently develop
competitive products with similar intellectual
property.
We will be required to attract and retain top quality talent to
compete in the marketplace.
We believe our future growth and success will depend in part on our
ability to attract and retain highly skilled managerial, product
development, sales and marketing, and finance personnel. There can
be no assurance of success in attracting and retaining such
personnel. Shortages in qualified personnel could limit our ability
to increase sales of existing products and services and launch new
product and service offerings.
If we fail to retain key personnel and hire, train and retain
qualified employees, we may not be able to compete effectively,
which could result in reduced revenue or increased
costs.
Our success is highly dependent on the continued services of key
management and technical personnel. Our management and other
employees may voluntarily terminate their employment at any time
upon short notice. The loss of the services of any member of the
senior management team or any of the managerial or technical staff
or members of our Advisory Board on which we principally rely for
expertise on our CBD segment may significantly delay or prevent the
achievement of product development, our growth strategies and other
business objectives. Our future success will also depend on our
ability to identify, recruit and retain additional qualified
technical and managerial personnel. We operate in several
geographic locations where labor markets are particularly
competitive, where demand for personnel with these skills is
extremely high and is likely to remain high. As a result,
competition for qualified personnel is intense, particularly in the
areas of general management, finance, engineering and science, and
the process of hiring suitably qualified personnel is often lengthy
and expensive, and may become more expensive in the future. If we
are unable to hire and retain a sufficient number of qualified
employees, our ability to conduct and expand our business could be
seriously reduced.
We face risks associated with strategic acquisitions.
As an important part of our business strategy, we have
strategically acquired several businesses, and plan to continue
strategic acquisitions, some of which may be material. These
acquisitions may involve a number of financial, accounting,
managerial, operational, legal, compliance and other risks and
challenges, including the following, any of which could adversely
affect our results of operations:
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Any
acquired business could under-perform relative to our expectations
and the price that we paid for it, or not perform in accordance
with our anticipated timetable;
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We may
incur or assume significant debt in connection with our
acquisitions;
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Acquisitions
could cause our results of operations to differ from our own or the
investment community’s expectations in any given period, or
over the long term; and
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Acquisitions
could create demands on our management that we may be unable to
effectively address, or for which we may incur additional
costs.
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Additionally, following any business acquisition, we could
experience difficulty in integrating personnel, operations,
financial and other systems, and in retaining key employees and
customers.
We may record goodwill and other intangible assets on our
consolidated balance sheet in connection with our acquisitions. If
we are not able to realize the value of these assets, we may be
required to incur charges relating to the impairment of these
assets, which could materially impact our results of
operations.
If product liability lawsuits are successfully brought against us,
we will incur substantial liabilities.
We face an inherent risk of product liability. For example, we may
be sued if any product we sell allegedly causes injury or is found
to be otherwise unsuitable during product testing, manufacturing,
marketing or sale. Any such product liability claims may include
allegations of defects in manufacturing, defects in design, a
failure to warn of dangers inherent in the product, negligence,
strict liability and a breach of warranties. Claims could also be
asserted under state consumer protection acts. If we cannot
successfully defend ourselves against product liability claims, we
may incur substantial liabilities or be required to limit sales of
our products. Even successful defense would require significant
financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in:
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decreased
demand for our products;
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injury
to our reputation;
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costs
to defend the related litigation;
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a
diversion of management's time and our resources;
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substantial
monetary awards to users of our products;
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product
recalls or withdrawals;
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a
decline in our stock price.
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In addition, while we continue to take what we believe are
appropriate precautions, we may be unable to avoid significant
liability if any product liability lawsuit is brought against
us.
We are subject to cyber-security risks, including those related to
customer, employee, vendor or other company data and including in
connection with integration of acquired businesses and
operations.
We use information technologies to securely manage operations and
various business functions. We rely on various technologies, some
of which are managed by third parties, to process, transmit and
store electronic information, and to manage or support a variety of
business processes and activities, including reporting on our
business and interacting with customers, vendors and employees. In
addition, we collect and store certain data, including proprietary
business information, and may have access to confidential or
personal information that is subject to privacy and security laws,
regulations and customer-imposed controls. Our systems are subject
to repeated attempts by third parties to access information or to
disrupt our systems. Despite our security design and controls, and
those of our third-party providers, we may become subject to system
damage, disruptions or shutdowns due to any number of causes,
including cyber-attacks, breaches, employee error or malfeasance,
power outages, computer viruses, telecommunication or utility
failures, systems failures, service providers, natural disasters or
other catastrophic events. It is possible for such vulnerabilities
to remain undetected for an extended period. We may face other
challenges and risks as we upgrade and standardize our information
technology systems as part of our integration of acquired
businesses and operations. We do not have contingency plans in
place to prevent or mitigate the impact of these events, and these
events could result in operational disruptions or the
misappropriation of sensitive data, and depending on their nature
and scope, could lead to the compromise of confidential
information, improper use of our systems and networks, manipulation
and destruction of data, defective products, production downtimes
and operational disruptions and exposure to liability. Such
disruptions or misappropriations and the resulting repercussions,
including reputational damage and legal claims or proceedings, may
adversely affect our results of operations, cash flows and
financial condition, and the trading price of our common
stock.
Our operating results, including net sales, gross margin and net
income (loss), as well as our stock price have varied in the past,
and our future operating results will continue to be subject to
quarterly and annual fluctuations based upon numerous factors,
including those discussed in this Item 1A and throughout this
report. Our stock price will continue to be subject to daily
variations as well. Our future operating results and stock price
may not follow any past trends or meet our guidance and
expectations.
Our net sales and operating results, net income (loss) and
operating expenses, and our stock price have varied in the past and
may vary significantly from quarter to quarter and from year to
year in the future. We believe a number of factors, many of which
are outside of our control, could cause these variations and make
them difficult to predict, including:
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fluctuations
in demand for our products or downturns in the industries that we
serve;
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the
ability of our suppliers, both internal and external, to produce
and deliver products including sole or limited source components,
in a timely manner, in the quantity, quality and prices
desired;
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the
timing of receipt of bookings and the timing of and our ability to
ultimately convert bookings to net sales;
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rescheduling
of shipments or cancellation of orders by our
customers;
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fluctuations
in our product mix;
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the
ability of our customers' other suppliers to provide sufficient
material to support our customers' products;
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currency
fluctuations and stability, in particular the U.S. dollar as
compared to ,other currencies;
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introductions
of new products and product enhancements by our competitors, entry
of new competitors into our markets, pricing pressures and other
competitive factors;
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our
ability to develop, introduce, manufacture and ship new and
enhanced products in a timely manner without defects;
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our
ability to manage our manufacturing capacity across our diverse
product lines and that of our suppliers, including our ability to
successfully expand our manufacturing capacity in various locations
around the world;
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our
ability to successfully and fully integrate acquisitions, into our
operations and management;
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our
ability to successfully internally transfer products as part of our
integration efforts;
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our
reliance on contract manufacturing;
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our
customers' ability to manage their susceptibility to adverse
economic conditions;
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the
rate of market acceptance of our new products;
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the
ability of our customers to pay for our products;
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expenses
associated with acquisition-related activities;
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access
to applicable credit markets by us and our customers;
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our
ability to control expenses;
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potential
excess and/or obsolescence of our inventory;
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impairment
of goodwill, intangible assets and other long-lived
assets;
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our
ability to meet our expectations and forecasts and those of public
market analysts and investors;
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our
ability and the ability of our contractual counterparts to comply
with the terms of our contracts;
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damage
to our reputation as a result of coverage in social media, Internet
blogs or other media outlets;
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managing
our internal and third party sales representatives and
distributors, including compliance with all applicable
laws;
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costs,
expenses and damages arising from litigation;
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individual
employees intentionally or negligently failing to comply with our
internal controls; and
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distraction
of management related to acquisition, integration or divestment
activities.
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Our expenses for any given quarter are typically based on expected
sales and if sales are below expectations in any given quarter, the
adverse impact of the shortfall on our operating results may be
magnified by our inability to adjust spending quickly enough to
compensate for the shortfall. We also base our inventory levels on
our forecasted product mix for the quarter. If the actual product
mix varies significantly from our forecast, we may not be able to
fill some orders during that quarter, which would result in delays
in the shipment of our products. Accordingly, variations in timing
of sales, particularly for our higher priced, higher margin
products, can cause significant fluctuations in quarterly operating
results.
Due to these and other factors, such as varying product mix,
quarter-to-quarter and year-to-year comparisons of our historical
operating results may not be meaningful. You should not rely on our
results for any quarter or year as an indication of our future
performance. Our operating results in future quarters and years may
be below public market analysts' or investors' expectations, which
would likely cause the price of our stock to fall. In addition,
over the past several years, U.S. and global equity markets have
experienced significant price and volume fluctuations that have
affected the stock prices of many companies involved in the
cannabis industry as well as in and outside our industry. There has
not always been a direct correlation between this volatility and
the performance of particular companies subject to these stock
price fluctuations. These factors, as well as general economic and
political conditions may have a material adverse effect on the
market price of our stock in the future.
Reliance on C2M and other Manufacturers.
The ability of the Company to compete and grow will be dependent on
it having access, at a reasonable cost and in a timely manner, to
skilled labor, equipment, parts and CBD components. No assurances
can be given that the Company will be successful in maintaining its
required supply of skilled labor, equipment, parts and
components.
The Company relies on third parties to supply the materials for and
manufacturer the research and development of the product
candidates, principally C2M. The Company cannot provide assurance
that access to C2M for supply or expertise materials will not be
limited, interrupted, restricted in certain geographic regions, be
of satisfactory quality or be delivered in a timely manner. In this
regard, C2M will require continued access to Good Manufacturing
Practices (“
GMP
”) manufacturer facilities. If the Company
is unable to obtain access to a GMP manufacturer, the Company may
be restricted from operations which would have a materially adverse
effect on the business and operations of the
Company.
Transportation Risks
The Company’s shipments, and the active ingredients used to
manufacture, requires transportation, principally across state
lines. The process may require the issuance of bills of lading or.
The issuance of bills of lading and granting and maintenance of
licenses is uncertain. Any failure in the ability to transport
product or ship finished goods via overnight delivery service or
the mail would have a material adverse effect on the business,
results of operations or financial condition of the
Company.
In the event licenses are granted, the Company may depend on fast
and efficient courier services to distribute its product, and
specific restrictions might be placed on distribution methods and
logistics due to the regulated nature of cannabinoid based products
or confusion that could occur with high THC containing products.
Any prolonged disruption of this courier service may result in the
product batches being stored outside required temperature ranges.
Inappropriate storage may damage the product shipment resulting in
delays, upon commercialization, a partial or total loss of revenue
from one or more shipments or product delays. A partial or total
loss of revenue from delays in shipment
could have a material adverse effect on the
business, results of operations or financial condition of the
Company. Rising costs associated with the courier services used by
the Company to ship its products may also adversely impact the
business of the Company and its ability to operate
profitably.
The Company’s success may also be impacted by interstate
trade barriers to the transportation and marketing of products. If
the Company is unsuccessful in obtaining authorization to transport
or market the product candidates across interstate lines it will
materially adversely affect the Company’s business and
operations.
Employees
As of January 9, 2019, we had a total of 4 employees. In addition
to our employees, we contract with third-parties for assistance as
consultants, advisors and independent contractors. We have no
collective bargaining agreements with our employees and none are
represented by labor unions. Management believes the Company has
good relationships with its employees.
SECTION 3 – SECURITIES AND TRADING MARKETS
Item
3.02 Unregistered
Sales of Equity Securities.
Issuance of Common Stock and Options under the Development
Agreement with C2M
As discussed in Item 1.01, above, we issued a total of 67,085,523
shares of common stock to C2M under the terms of the Development
Agreement. In addition, pursuant to the Development Agreement and
under the terms of our 2019 Equity Incentive Plan, we issued
options to purchase a total of 6,000,000 shares of our common stock
at a price of $0.04 per share to the principals of C2M. These
options, which are exercisable for a period of 10 years, were
issued as follows:
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Name
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10 yr. options exercisable at $0.04 per share
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Emiliano Aloi, founder C2M
|
2,000,000
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Jamie Goldstein, founder C2M
|
2,000,000
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Vladislav Yampolsky, founder C2M
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2,000,000
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Total
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6,000,000
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The issuance of the shares and options pursuant to the Development
Agreement is intended to be exempt under Section 4(a)(1) of the
Securities Act of 1933, as amended (the “Securities
Act”).
Note Restructuring/Exchange Agreements; Issuance New Series A
Convertible Preferred Stock
We
entered into a series of exchange agreements (the “Exchange
Agreements”) with certain holders (each a
“Holder”, and collectively the “Holders”)
of convertible debentures and promissory notes (each a
“Note”, collectively, the “Notes”)
previously issued by the Company, with various interest rates,
maturity dates and conversion prices between 2018 and 2019. We have
agreed with the Note purchasers to exchange the Notes for the
purchase price thereof (including principal, interest, default
interest, penalties and costs) in the amount of approximately
$46,840 (including waiver of any and all defaults) and relinquished
any and all other rights they may have pursuant to the Notes in
exchange for an equal amount of stated value of our newly
designated Series A Convertible Preferred Stock (the “Series
A Preferred”). Such exchange is intended to be
subject to the exemption provided by Section 3(a)(9) of the
Securities Act.
On
December 21, 2018, we filed a Certificate of Cancellation of our
previously filed Certificate of Designation of Preferences, Rights
and Limitations of Series A Preferred Stock in order to designate
1,000,000 shares as a new Series of Preferred Stock for issuance to
former Holders of our Notes under the Exchange Agreements, and
filed a new Certificate of Designation of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock as required by
the Exchange Agreements.
Series A Convertible Preferred Stock
Pursuant
to the Series A Preferred Certificate of Designation, the Company
issued shares of Series A Preferred. Each share of Series A
Preferred has a stated value of $1.00 per share. In the
event of a liquidation, dissolution or winding up of the Company,
each share of Series A Preferred Stock will be entitled to a
payment as set forth in the Certificate of Designation. The Series
A Preferred is convertible into such number of shares of the
Company’s common stock, par value $0.0001 per share (the
“Common Stock”) equal to the Stated Value as defined in
the Certificate of Designation, divided by $0.025 per
share. Pursuant to the Exchange Agreements each holder
of Notes shall be issued Series A Preferred in the amount of the
purchase price paid for such Notes by the buyer under the Exchange
Agreement, including any penalty, interest and premium payments.
Each share of Series A Preferred entitles the holder to vote on all
matters voted on by holders of Common Stock as a single class. With
respect to any such vote, each share of Series A Preferred entitles
the holder to cast such number of votes equal to the number of
shares of Common Stock such share of Series A Preferred is
convertible into at such time, but not in excess of the conversion
limitations set forth in the Series A Preferred Certificate of
Designation. The Series A Preferred will be entitled to dividends
to the extent declared by the Company.
The
Company is prohibited from effecting the conversion of the Series A
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99%, in the
aggregate, of the issued and outstanding shares of the
Company’s common stock calculated immediately after giving
effect to the issuance of shares of common stock upon the
conversion of the Series A Preferred Stock (the “Beneficial
Ownership Limitation”). The Beneficial Ownership Limitation
may be increased by the holder up to, but not exceeding,
9.99%. Each share of Series A Preferred Stock entitles the
holder to vote on all matters voted on by holders of common stock.
With respect to any such vote, each share of Series A Preferred
Stock entitles the holder to cast such number of votes equal to the
number of shares of common stock such shares of Series A Preferred
Stock are convertible into at such time, but not in excess of the
Beneficial Ownership Limitation.
Issuance of New Convertible Promissory Note
On January 11, 2019, we issued a new Convertible
Promissory Note (the “Note”) to Harvey Kesner in
consideration for debt funding in the amount of $206,909.67. The
Note, which features an original issue discount of 10%, was issued
in the amount of $229,899.63. The Note bears interest at a rate of
8% per year, and is due 12 months from the date of issue. Beginning
on the 170
th
day after issue, the Note is
convertible to our common stock at price equal to the lesser of
$0.25 per share, or a the variable conversion price. The variable
conversion price is defined as 60% of the average of our 3 lowest
trading prices in the 20 trading days prior to the conversion.
Conversions are limited such that no conversion will be allowed to
the extent that the
number of shares of common stock
issuable upon the any conversion of the Note would result in
beneficial ownership by the holder and its affiliates of more than
4.99% of the outstanding shares of our common stock.
The
foregoing is a summary of the material terms of the Note. The Note,
which is attached as Exhibit 10.9 hereto, contains additional terms
and conditions and should be reviewed in its entirety.
Capitalization
Pending Reverse Split
On January
11
, 2019, our shareholders authorized a reverse
split of our common stock on the basis of 1 share for every 8
shares of Common Stock (the “Reverse Split”), effective
20 days following our mailing of an Information Statement on Form
14C to our shareholders, as required by the Securities Exchange Act
of 1934, as amended (the “1934 Act”). The
capitalization amounts set forth below are prior to giving effect
to such Reverse Split.
Current Capitalization Prior to Effectiveness of Reverse
Split
As
of December 22, 2018 we had 44,275,689 shares of Common Stock
outstanding and 27,559,001 shares of common stock equivalents, such
amount taking into account all conversions of options, warrants and
preferred stock outstanding on such date (71,834,690 shares of
Common Stock on a fully-diluted basis). On January 11, 2019 we
agreed to issue approximately 4,592,500 shares of Common Stock to
settle certain claims plus 67,085,523 shares of Common Stock to
C2M. On a fully diluted basis, our capitalization consists of
143,512,713 shares of Common Stock. Such amount excludes any shares
of Common Stock issuable upon the conversion of any outstanding
Notes not converted prior to such date. The Notes are convertible
at different conversion prices and are incapable of calculation
until converted.
Upon giving effect to the Exchange Agreements,
Notes in the amount of $46,840 will be exchanged for Series A
Preferred is convertible into 1,873,600 shares of our Common
Stock.
Excludes shares issued
and issuable under our 2018 Executive Incentive Plan and 2019
Executive Incentive Plan.
After
giving effect to the Reverse Split the below table reflects our
capitalization (after giving effect to the Exchange Agreements) on
a pro forma basis:
Common Stock and Equivalents
1
|
|
9,094,024
|
|
|
|
9,135,691
|
|
Issuable under Preferred A Note Exchange Agreements
|
|
234,200
|
|
Total issued and outstanding (fully-diluted)
|
|
18,463,915
|
1
Includes shares issuable under Series B-1, B-1,
C, and D Preferred Stock pursuant to the original terms of
issuance. Excludes $100,000 of 5% convertible notes due February
2023. Excludes shares issued and issuable under our 2018 Executive
Incentive Plan and 2019 Executive Incentive
Plan.
SECTION 5 – CORPORATE GOVERNANCE AND MANAGEMENT
Item
5.01
Changes
in Control of Registrant
Following the
effectiveness of the Development Agreement, a change in control of
the Company has occurred effective January 8, 2019. In
consideration for its entry into the Development Agreement, C2M was
issued 67,085,523 shares of common stock, which constitutes
approximately 51% of our issued and outstanding common
stock.
There
are no arrangements, known to us, the operation of which may at a
subsequent date result in a further change in control of the
Company.
Item
5.02
Departure
of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers
Appointment of New Directors
On
January 9, 2019, Kevin Esval, Jeffrey Thompson and Ken Puzder were
appointed to the Board of Directors of the Company. Each of such
persons (other than Ken Puzder) meets the definition of
“independent” director under SEC rules and the rules
and regulations promulgated by NASDAQ. Such persons were deemed by
the board of directors to be appointed to our board because of
their expertise in capital markets, finance, and public company
governance and management and in the case of Mr. Esval, skills and
experience in life science, pharmaceutical and drug industries. In
connection with their appointment the Company adopted a
compensation arrangement for directors under which upon initial
appointment, each new independent director will receive 50,000 of
10 year options under the 2019 Equity Incentive Plan, exercisable
at $0.025 per share ($0.20 following the Reverse Split) vesting
1/24 on the date of award and 1/24 on the first day of each
calendar month thereafter until fully vested.
Kevin J. Esval
has served as Executive
Managing Director and CCO of VelocityHealth Securities since
founding the company in 2000. Mr. Esval has significant industry
and investment banking experienced in most sectors of health care
including specialty pharmaceuticals & generics, health care
services, health care IT, diagnostics, biotechnology, and other
sectors. With his extensive transactional and financing experience
serving as a valuable resource, Mr. Esval takes an active role with
all clients. Additionally, through his prior operating experience
as an executive in growth oriented health care companies and active
roles on boards of directors, Mr. Esval has developed a keen
understanding of the challenges faced by middle market and growth
companies. Mr. Esval has negotiated, structured, and executed
various types of transactions including mergers, acquisitions,
divestitures, and licensings; corporate and transactional
financings, including equity, mezzanine and debt
financings.
Previously, Mr.
Esval served as a divisional SVP and COO for UnitedHealth Group
(NYSE: UNH), one of the largest health care services companies in
the world with annual revenues exceeding $200 billion. As one of
the original startup executives of his division, Mr. Esval was
instrumental in taking it from $0 to $400 million as of his
departure. His career in health care began with a venture-backed
startup Complete Health Services, Inc. This firm was one of Inc.
Magazine’s “Fastest Growing Private Companies” in
1994. During this period, Mr. Esval was this company’s top
sales executive, and managed the startup of two new
divisions.
Additionally, Mr.
Esval spent 5 years in sales, financial analysis, and trading roles
at several financial derivatives companies, including Chicago based
Rosenthal-Collins Group and R. J. O’Brien. During this
period, his roles included working on the floor of the Chicago
Board of Trade (CBOT) and the Chicago Mercantile Exchange
(CME).
Mr.
Esval has served on the Board of Directors of multiple health care
companies, and currently serves on the Board of Directors on
several specialty pharmaceutical companies.
Mr.
Esval received his BA degree from Furman University while on a
football scholarship. Additionally, he studied internationally in
Lausanne, Switzerland. Mr. Esval is a dual citizen of the USA and
the Republic of Ireland.
Mr.
Esval holds Series 24, 7 & 63 Licenses.
Jeffrey
Thompson
founded Red Cat
Propware Inc., a provider of cloud-based analytics, storage, and
services for drone aircraft, in 2016 and is currently its CEO and
sole Director. In December 1999 he founded Towerstream Corp.
Towerstream Corp. became a publicly traded company on the NASDAQ in
June 2007, when Mr. Thompson was president, chief executive officer
and a director. In 1994, Mr. Thompson founded EdgeNet Inc., a
privately held Internet service provider (which was sold to Citadel
Broadcasting Corporation in 1997) and became eFortress through
1999. Mr. Thompson holds a B.S. degree from the University of
Massachusetts.
Kenneth E. Puzder
serves as Chief
Financial Officer of C2M. In addition, from December of 2014 to the
present, he has served as the co-founder, Managing Member, and CFO
of the Lukens Group, LLC, a behavioral therapy firm that focuses on
a variety of behavioral struggles including alcoholism, drug abuse,
depression and anxiety with a special emphasis on PTSD. Previously,
from January of 2007 to December of 2017, Mr. Puzder was president
of his own consulting firm, Kenneth E. Puzder Consulting. As a
seasoned financial executive, Mr. Puzder specialized in debtor side
representations in financial leadership, mergers and acquisitions,
restructuring and turnaround, and personal and partnership tax
returns. From July of 2003 through December of 2006, he served in
various positions with the Arby’s Restaurant Group
(“ARG”) family of companies, including as Chief
Financial Officer of AFA Service Corporation (a sister company to
ARG), VP for Accounting and Finance or Arby’s Restaurant
Group, Inc., and Regional Controller or RTM, Inc. (a subsidiary of
ARG). From August of 2000 through April of 2003, Mr. Puzder was
with Panera Bread Company. From January of 1999 through August of
2000, he served as Vice President and Secretary of the Linder
Funds, a series of mutual funds. Prior to serving that position,
from March of 1998 through August of 2000, he was Financial
Operations Principal and Assistant Secretary of Lindner Asset
Management, the asset management firm for the Linder Funds. From
February of 1996 until March of 1998, he was an audit manager with
KPMG Peat Marwick, LLP, a Big 4 accounting firm. From June of 1990
through February of 1996, Mr. Puzder was with Mills Group, Inc.,
serving as its Chief Financial Officer and Treasurer of Mills
Group, Inc. from July 1991 to February 1996.
Mr.
Puzder holds a B.S. in Accounting from the University of Missouri,
St. Louis and is a Certified Public Accountant in the state of
Missouri.
New Employment Agreements with Management
On
January 11, 2019, we entered into new employment agreement with our
CEO, Philp J. Young, our Executive Vice President, Timothy Ryan,
and our CFO Kelley Wendt, (the “Employment
Agreements”). Under the new Employment Agreements, each
executive agreed to their service for a period of two (2) years,
subject to renewal, respectively. Mr. Young’s annual salary
will be $150,000 per annum. Mr. Ryan and Ms. Wendt’s annual
salaries will each be $120,000 per annum. Additionally,
the executives shall be entitled to an annual cash bonus in an
amount as determined by the board of directors, if the Company
meets or exceeds criteria adopted by the Compensation Committee of
the Board of Directors. The executives shall also be eligible
for grants of awards under stock option or other equity incentive
plans of the Company as the Company’s Compensation Committee
or, in the absence thereof, the Company’s Board of Directors
may from time to time determine and shall be entitled to
participate in all benefits plans the Company provides to its
senior executives. The Company shall reimburse the
executives for all reasonable expenses incurred in the course of
employment. In the event employment is terminated
without Cause or by the executives with Good Reason (as such terms
are defined in the Employment Agreement), the Executives shall be
entitled to receive severance benefits equal to the greater of the
Base Salary (as then in effect) for the remaining balance of the
Employment Agreement or six months, continued coverage under the
Company’s benefit plans and payment of her pro-rated earned
annual bonus, provided certain conditions are met. The executives
are subject to a one (1) year non-competition and non-solicitation
provision.
The
foregoing description of the Employment Agreements does not purport
to be complete and is qualified in its entirety by reference to the
complete text of the Employment Agreements, which are filed as
Exhibits hereto, and which are incorporated herein by
reference.
Adoption of 2019 Equity Incentive Plan
On
January 11, 2019, our shareholders approved the Exactus, Inc. 2019
Equity Incentive Plan (the “Plan”). The purpose of the
Plan is to provide a means for the Company to continue to attract,
motivate and retain management, key employees, consultants and
other independent contractors, and to provide these individuals
with greater incentive for their service to the Company by linking
their interests in the Company’s success with those of the
Company and its shareholders. The Plan is limited such that the
maximum number of shares of Common Stock that may be delivered
pursuant to awards granted under the Plan may not exceed fifteen
percent (15%) of the total of: (a) the issued and outstanding
shares of our Common Stock, and (b) all shares common stock
issuable upon conversion or exercise of any of our outstanding
securities which are convertible or exercisable into shares of
Common Stock under the terms thereof.
The
foregoing description of the Plan is not complete and is qualified
in its entirety by reference to the full text of the Plan, a copy
of which is filed as Exhibit 10.8 to this Form 8-K and is
incorporated by reference herein.
Item
5.03
Amendments to Articles of Incorporation of Bylaws; Change in Fiscal
Year
Designation of New Series A Convertible Preferred
Stock
As discussed above, on December 21, 2018, we filed a Certificate of
Cancellation of our previously filed Certificate of Designation of
Preferences, Rights and Limitations of Series A Preferred Stock. On
January 9, 2019, our board of directors approved the designation of
1,000,000 shares of our blank check preferred stock as a new Series
of Preferred Stock for issuance to former Holders of our Notes
under the Exchange Agreements to be designated Series A Convertible
Preferred Stock, and filed a new Certificate of Designation of
Preferences, Rights and Limitations of Series A Convertible
Preferred Stock as required by the Exchange
Agreements.
Each
share of Series A Preferred has a stated value of $1.00 per
share. In the event of a liquidation, dissolution or
winding up of the Company, each share of Series A Preferred Stock
will be entitled to a payment as set forth in the Certificate of
Designation. The Series A Preferred is convertible into such number
of shares of the Company’s common stock, par value $0.0001
per share (the “Common Stock”) equal to such number of
shares of Series A Preferred being converted and divided by $0.025
per share. Each share of Series A Preferred entitles the
holder to vote on all matters voted on by holders of Common Stock
as a single class. With respect to any such vote, each share of
Series A Preferred entitles the holder to cast such number of votes
equal to the number of shares of Common Stock such share of Series
A Preferred is convertible into at such time, but not in excess of
the conversion limitations set forth in the Series A Preferred
Certificate of Designation. The Series A Preferred will be entitled
to dividends to the extent declared by the Company.
The
Company is prohibited from effecting the conversion of the Series A
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99%, in the
aggregate, of the issued and outstanding shares of the
Company’s common stock calculated immediately after giving
effect to the issuance of shares of common stock upon the
conversion of the Series A Preferred Stock (the “Beneficial
Ownership Limitation”). The Beneficial Ownership Limitation
may be increased by the holder up to, but not exceeding,
9.99%. Each share of Series A Preferred Stock entitles the
holder to vote on all matters voted on by holders of common stock.
With respect to any such vote, each share of Series A Preferred
Stock entitles the holder to cast such number of votes equal to the
number of shares of common stock such shares of Series A Preferred
Stock are convertible into at such time, but not in excess of the
Beneficial Ownership Limitation.
Item
5.05
Amendments to the Registrant’s Code of Ethics, or Waiver of a
Provision of the Code of Ethics
Adoption of Code of Ethics and Insider Trading Policy
As discussed above, on January 9, 2019, our board of directors
adopted a Code of Business Conduct and Ethics applicable to all
directors, executive officers, and employees of the Company. Our
newly-adopted Code of Ethics is furnished herewith as Exhibit 14.1.
In addition, our board of directors adopted an Insider Trading
Policy applicable to all directors, executive officers, and
employees of the Company. Our newly-adopted Insider Trading Policy
is furnished herewith as Exhibit 14.1
Item
5.07
Submission of Matters to a Vote of Security Holders
Approval of 1 for 8 Reverse Split of Common Stock
On
January 11, 2019, a majority of our shareholders acted by written
consent, in lieu of a meeting of shareholders, to authorize a
reverse split of our common stock on the basis of 1 share for every
8 shares of Common Stock held, effective 20 days following our
mailing of an Information Statement on Form 14C to our
shareholders, as required by the Securities Exchange Act of
1934
The
consenting shareholders held 86,377,932 shares of Common Stock, or
approximately 77.55% of the outstanding shares of Common Stock,
together with 600,000 shares of B-1 Preferred Stock, 456,000 shares
of Series B-2 Preferred Stock, and 40 shares of Series D Preferred
Stock. In total, the reverse split was approved by consenting
shareholders casting 95,433,932 votes, representing approximately
71.44% of the total voting power of the Company.
Section 9 – FINANCIAL STATEMENTS AND EXHIBITS
Item
9.01
Financial
Statements and Exhibits
|
Exhibit No.
|
Description
|
|
|
Certificate
of Cancellation of Prior Certificate of Designation for Series A
Preferred Stock
|
|
|
Certificate
of Designation for Series A Convertible Preferred
Stock
|
|
|
Advisory
Board Charter
|
|
|
Master
Product Development and Supply Agreement with Ceed2Med, LLC dated
January 8, 2019
|
|
|
Form of
Subscription Agreement for Common Stock
|
|
|
Form of
Exchange Agreement for Series A Preferred Stock
|
|
|
Employment
Agreement with Philip Young dated January 9, 2019
|
|
|
Employment
Agreement with Timothy Ryan dated January 9, 2019
|
|
|
Employment
Agreement with Kelley Wendt dated January 9, 2019
|
|
|
Exactus,
Inc. 2019 Equity Incentive Plan
|
|
|
Form of
2019 Incentive Plan Non-Qualified Option Award
Certificate
|
|
|
Convertible
Promissory Note issued January 11, 2019
|
|
|
Code of
Business Conduct and Ethics
|
|
|
Insider
Trading Policy
|
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on behalf of the
undersigned hereunto duly authorized.
|
|
EXACTUS,
INC.
|
|
|
|
|
|
|
|
January 14,
2019
|
By:
|
/s/
Philip
J. Young
|
|
|
|
|
Philip J.
Young
|
|
|
|
|
President and Chief
Executive Officer
|
|
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
THE
SERIES A CONVERTIBLE PREFERRED STOCK OF
EXACTUS , INC.
I, Philip Young, hereby certify that I am the
Chief Executive Officer of Exactus , Inc. (the
“
Company
”), a corporation organized and existing
under the Nevada Revised Statutes (the “
NRS
”), and further do hereby
certify:
That pursuant to the authority expressly conferred
upon the Board of Directors of the Company (the
“
Board
”) by the Company’s Articles of
Incorporation (the “
Articles of
Incorporation
”), the
Board on January 7, 2019 adopted the following resolutions creating
a series of shares of Preferred Stock designated as Series A
Convertible Preferred Stock:
RESOLVED,
that the Board designates the Series A Convertible Preferred Stock
and the number of shares constituting such series, and fixes the
rights, powers, preferences, privileges and restrictions relating
to such series in addition to any set forth in the Articles of
Incorporation as follows:
TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK
1.
Designation
and Number of Shares
. There
shall hereby be created and established a series of preferred stock
of the Company designated as “Series A Convertible Preferred
Stock” (the “
Preferred
Shares
”). The authorized
number of Preferred Shares shall be 1,000,000 shares, par value
$0.0001 per share. Capitalized terms not defined herein shall have
the meaning as set forth in Section 23 below.
2.
Ranking
.
Except to the extent that the holders of at least a majority of the
outstanding Preferred Shares (the “
Required
Holders
”) expressly
consent to the creation of Parity Stock (as defined below) or
Senior Preferred Stock (as defined below) in accordance with
Section 12, all shares of capital stock of the Company shall be
junior in rank to all Preferred Shares with respect to the
preferences as to dividends, distributions and payments upon the
liquidation, dissolution and winding up of the Company (such junior
stock is referred to herein collectively as
“
Junior Stock
”). The rights of all such shares of capital
stock of the Company shall be subject to the rights, powers,
preferences and privileges of the Preferred Shares. Without
limiting any other provision of this Certificate of Designations,
without the prior express consent of the Required Holders, voting
separately as a single class, the Company shall not hereafter
authorize or issue any additional or other shares of capital stock
that is (i) of senior rank to the Preferred Shares in respect of
the preferences as to dividends, distributions and payments upon
the liquidation, dissolution and winding up of the Company
(collectively, the “
Senior Preferred
Stock
”), (ii) of pari
passu rank to the Preferred Shares in respect of the preferences as
to dividends, distributions and payments upon the liquidation,
dissolution and winding up of the Company (collectively, the
“
Parity Stock
”) or (iii) any Junior Stock having a
maturity date (or any other date requiring redemption or repayment
of such shares of Junior Stock) that is prior to the date no
Preferred Shares remain outstanding. In the event of the merger or
consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative rights, powers,
designations, privileges and preferences provided for herein and no
such merger or consolidation shall result inconsistent
therewith.
3.
Dividends
.
In addition to Sections 5(a) and 11 below, from and after the first
date of issuance of any Preferred Shares (the
“
Initial Issuance
Date
”), each holder of a
Preferred Share (each, a “
Holder
” and collectively, the
“
Holders
”) shall be entitled to receive dividends
(“
Dividends
”) when and as declared by the Board, from
time to time, in its sole discretion, which Dividends shall be paid
by the Company out of funds legally available therefor, payable,
subject to the conditions and other terms hereof, in cash on the
Stated Value of such Preferred Share.
4.
Conversion
.
Each Preferred Share shall be convertible into validly issued,
fully paid and non-assessable shares of Common Stock (as defined
below) on the terms and conditions set forth in this Section
4.
(a)
Holder’s
Conversion Right
. Subject to
the provisions of Section 4(e) and 4(f), at any time or times on or
after the Initial Issuance Date, each Holder shall be entitled to
convert any whole number of Preferred Shares into validly issued,
fully paid and non-assessable shares of Common Stock in accordance
with Section 4(c) at the Conversion Rate (as defined
below).
(b)
Conversion
Rate
. The number of validly
issued, fully paid and non-assessable shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to
Section 4(a) shall be determined according to the following formula
(the “
Conversion
Rate
”):
Base Amount
Conversion Price
No
fractional shares of Common Stock are to be issued upon the
conversion of any Preferred Shares. If the issuance would result in
the issuance of a fraction of a share of Common Stock, the Company
shall round such fraction of a share of Common Stock up to the
nearest whole share.
(c)
Mechanics
of Conversion
. The conversion
of each Preferred Share shall be conducted in the following
manner:
(i)
Holder’s
Conversion
. To convert a
Preferred Share into validly issued, fully paid and non-assessable
shares of Common Stock on any date (a “
Conversion
Date
”), a Holder shall
deliver (whether via facsimile or otherwise), for receipt on or
prior to 11:59 p.m., New York time, on such date, a copy of an
executed notice of conversion of the share(s) of Preferred Shares
subject to such conversion in the form attached hereto
as
Exhibit
I
(the
“
Conversion
Notice
”) to the Company.
If required by Section 4(c)(vi), within five (5) Trading Days
following a conversion of any such Preferred Shares as aforesaid,
such Holder shall surrender to a nationally recognized overnight
delivery service for delivery to the Company the original
certificates representing the share(s) of Preferred Shares (the
“
Preferred Share
Certificates
”) so
converted as aforesaid.
(ii)
Company’s
Response
. On or before the
first (1
st
) Trading Day following the date of receipt of a
Conversion Notice, the Company shall transmit by facsimile an
acknowledgment of confirmation, in the form attached hereto
as
Exhibit
II
, of receipt of such
Conversion Notice to such Holder and the transfer agent, which
confirmation shall constitute an instruction to the transfer agent
to process such Conversion Notice in accordance with the terms
herein. On or before the second (2
nd
) Trading Day following the date of receipt by the
Company of such Conversion Notice, the Company shall (1) provided
that the transfer agent is participating in DTC Fast Automated
Securities Transfer Program, credit such aggregate number of shares
of Common Stock to which such Holder shall be entitled to such
Holder’s or its designee’s balance account with DTC
through its Deposit/Withdrawal at Custodian system, or (2) if the
transfer agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver (via reputable
overnight courier) to the address as specified in such Conversion
Notice, a certificate, registered in the name of such Holder or its
designee, for the number of shares of Common Stock to which such
Holder shall be entitled. If the number of Preferred Shares
represented by the Preferred Share Certificate(s) submitted for
conversion pursuant to Section 4(c)(vi) is greater than the number
of Preferred Shares being converted, then the Company shall if
requested by such Holder, as soon as practicable and in no event
later than three (3) Trading Days after receipt of the Preferred
Share Certificate(s) and at its own expense, issue and deliver to
such Holder (or its designee) a new Preferred Share Certificate
representing the number of Preferred Shares not
converted.
(iii)
Record
Holder
. The Person or Persons
entitled to receive the shares of Common Stock issuable upon a
conversion of Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on the
Conversion Date.
(iv)
Company’s
Failure to Timely Convert
. If
the Company shall fail, for any reason or for no reason, to issue
to a Holder within three (3) Trading Days after the Company’s
receipt of a Conversion Notice (whether via facsimile or otherwise)
(the “
Share Delivery
Deadline
”), a certificate
for the number of shares of Common Stock to which such Holder is
entitled and register such shares of Common Stock on the
Company’s share register or to credit such Holder’s or
its designee’s balance account with DTC for such number of
shares of Common Stock to which such Holder is entitled upon such
Holder’s conversion of any Preferred Shares (as the case may
be) (a “
Conversion
Failure
”), then, in
addition to all other remedies available to such Holder, such
Holder, upon written notice to the Company, (x) may void its
Conversion Notice with respect to, and retain or have returned (as
the case may be) any Preferred Shares that have not been converted
pursuant to such Holder’s Conversion Notice, provided that
the voiding of a Conversion Notice shall not affect the
Company’s obligations to make any payments which have accrued
prior to the date of such notice pursuant to the terms of this
Certificate of Designations or otherwise and (y) the Company shall
pay in cash to such Holder on each day after such third
(3
rd
) Trading Day that the issuance of such shares of
Common Stock is not timely effected an amount equal to 1.5% of the
product of (A) the aggregate number of shares of Common Stock not
issued to such Holder on a timely basis and to which the Holder is
entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the last possible date on which
the Company could have issued such shares of Common Stock to the
Holder without violating Section 4(c). In addition to the
foregoing, if within three (3) Trading Days after the
Company’s receipt of a Conversion Notice (whether via
facsimile or otherwise), the Company shall fail to issue and
deliver a certificate to such Holder and register such shares of
Common Stock on the Company’s share register or credit such
Holder’s or its designee’s balance account with DTC for
the number of shares of Common Stock to which such Holder is
entitled upon such Holder’s conversion hereunder (as the case
may be), and if on or after such third (3
rd
) Trading Day such Holder (or any other Person in
respect, or on behalf, of such Holder) purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of all or any portion of the
number of shares of Common Stock, or a sale of a number of shares
of Common Stock equal to all or any portion of the number of shares
of Common Stock, issuable upon such conversion that such Holder so
anticipated receiving from the Company, then, in addition to all
other remedies available to such Holder, the Company shall, within
three (3) Business Days after such Holder’s request and in
such Holder’s discretion, either (i) pay cash to such Holder
in an amount equal to such Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses,
if any) for the shares of Common Stock so purchased (including,
without limitation, by any other Person in respect, or on behalf,
of such Holder) (the “
Buy-In Price
”), at which point the Company’s
obligation to so issue and deliver such certificate or credit such
Holder’s balance account with DTC for the number of shares of
Common Stock to which such Holder is entitled upon such
Holder’s conversion hereunder (as the case may be) (and to
issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to so issue and deliver to such
Holder a certificate or certificates representing such shares of
Common Stock or credit such Holder’s balance account with DTC
for the number of shares of Common Stock to which such Holder is
entitled upon such Holder’s conversion hereunder (as the case
may be) and pay cash to such Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such
number of shares of Common Stock multiplied by (B) the lowest
Closing Sale Price of the Common Stock on any Trading Day during
the period commencing on the date of the applicable Conversion
Notice and ending on the date of such issuance and payment under
this clause (ii).
(v)
Pro
Rata Conversion; Disputes
. In
the event the Company receives a Conversion Notice from more than
one Holder for the same Conversion Date and the Company can convert
some, but not all, of such Preferred Shares submitted for
conversion, the Company shall convert from each Holder electing to
have Preferred Shares converted on such date a pro rata amount of
such Holder’s Preferred Shares submitted for conversion on
such date based on the number of Preferred Shares submitted for
conversion on such date by such Holder relative to the aggregate
number of Preferred Shares submitted for conversion on such date.
In the event of a dispute as to the number of shares of Common
Stock issuable to a Holder in connection with a conversion of
Preferred Shares, the Company shall issue to such Holder the number
of shares of Common Stock not in dispute and resolve such dispute
in accordance with Section 22.
(vi)
Book-Entry
.
Notwithstanding anything to the contrary set forth in this Section
4, upon conversion of any Preferred Shares in accordance with the
terms hereof, no Holder thereof shall be required to physically
surrender the certificate representing the Preferred Shares to the
Company following conversion thereof unless (A) the full or
remaining number of Preferred Shares represented by the certificate
are being converted (in which event such certificate(s) shall be
delivered to the Company as contemplated by this Section 4(c)(vi))
or (B) such Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice)
requesting reissuance of Preferred Shares upon physical surrender
of any Preferred Shares. Each Holder and the Company shall maintain
records showing the number of Preferred Shares so converted by such
Holder and the dates of such conversions or shall use such other
method, reasonably satisfactory to such Holder and the Company, so
as not to require physical surrender of the certificate
representing the Preferred Shares upon each such conversion. In the
event of any dispute or discrepancy, such records of such Company
establishing the number of Preferred Shares to which the record
holder is entitled shall be controlling and determinative in the
absence of manifest error. A Holder and any transferee or assignee,
by acceptance of a certificate, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of
any Preferred Shares, the number of Preferred Shares represented by
such certificate may be less than the number of Preferred Shares
stated on the face thereof. Each certificate for Preferred Shares
shall bear the following legend:
ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY
REVIEW THE TERMS OF THE CORPORATION’S CERTIFICATE OF
DESIGNATIONS RELATING TO THE SHARES OF SERIES A PREFERRED STOCK
REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 4(c)(vi)
THEREOF. THE NUMBER OF SHARES OF SERIES A PREFERRED STOCK
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF
SHARES OF SERIES A PREFERRED STOCK STATED ON THE FACE HEREOF
PURSUANT TO SECTION 4(c)(vi) OF THE CERTIFICATE OF DESIGNATIONS
RELATING TO THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY
THIS CERTIFICATE.
(d)
Taxes
.
The Company shall pay any and all documentary, stamp, transfer (but
only in respect of the registered holder thereof), issuance and
other similar taxes that may be payable with respect to the
issuance and delivery of shares of Common Stock upon the conversion
of Preferred Shares.
(e)
Limitation
on Beneficial Ownership
.
Notwithstanding anything to the contrary set forth in this
Certificate of Designation, at no time may all or a portion of the
Series A Preferred Stock be converted if the number of shares of
Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by the
Holder at such time, the number of shares of Common Stock which
would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the 1934 Act and the rules
thereunder) more than 4.99% of all of the Common Stock outstanding
at such time (the “
4.99% Beneficial Ownership
Limitation
”);
provided,
however
, that upon the Holder
providing the Corporation with sixty-one (61) days’ advance
notice (the “
4.99% Waiver
Notice
”) that the Holder
would like to waive this Section 4(e) with regard to any or all
shares of Common Stock issuable upon conversion of the Preferred
Shares, this Section 4(e) will be of no force or effect with regard
to all or a portion of the Series A Preferred Stock referenced in
the 4.99% Waiver Notice but shall in no event waive the 9.99%
Beneficial Ownership Limitation described below. Notwithstanding
anything to the contrary set forth in this Certificate of
Designation, at no time may all or a portion of the Preferred
Shares be converted if the number of shares of Common Stock to be
issued pursuant to such conversion, when aggregated with all other
shares of Common Stock owned by the Holder at such time, would
result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the 1934 Act and the rules
thereunder) in excess of 9.99% of the then issued and outstanding
shares of Common Stock outstanding at such time (the
“
9.99%
Beneficial Ownership Limitation
” and the lower of the 9.99% Beneficial
Ownership Limitation and the 4.99% Beneficial Ownership Limitation
then in effect, the “
Maximum
Percentage
”). By written
notice to the Company, a holder of Preferred Shares may from time
to time decrease the Maximum Percentage to any other percentage
specified in such notice. For purposes hereof, in determining the
number of outstanding shares of Common Stock, the Holder may rely
on the number of outstanding shares of Common Stock as reflected in
(1) the Company’s most recent Form 10-K, Form 10-Q, Current
Report on Form 8-K or other public filing with the SEC, as the case
may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company setting forth the number of shares
of Common Stock outstanding. For any reason at any time, upon the
written or oral request of a holder of Preferred Shares, the
Company shall within three (3) Business Days confirm orally and in
writing to such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including the
Preferred Shares, by the Holder and its Affiliates since the date
as of which such number of outstanding shares of Common Stock was
reported, which in any event are convertible or exercisable, as the
case may be, into shares of the Company’s Common Stock within
60 days’ of such calculation and which are not subject to a
limitation on conversion or exercise analogous to the limitation
contained herein. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 4(e) to correct this
paragraph (or any portion hereof) which may be defective or
inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or
desirable to properly give effect to such
limitation.
(f) Intentionally
omitted.
5.
Rights
Upon Issuance of Purchase Rights and Other Corporate
Events
.
(a)
Purchase
Rights
. In addition to any
adjustments pursuant to Section 7 below, if at any time the Company
grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the
“
Purchase
Rights
”), then each
Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such
Holder could have acquired if such Holder had held the number of
shares of Common Stock acquirable upon complete conversion of all
the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the Preferred Shares) held
by such Holder immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (
provided,
however
, to the extent that
such Holder’s right to participate in any such Purchase Right
would result in such Holder exceeding the Maximum Percentage, then
such Holder shall not be entitled to participate in such Purchase
Right to such extent (or beneficial ownership of such shares of
Common Stock as a result of such Purchase Right to such extent) and
such Purchase Right to such extent shall be held in abeyance for
such Holder until such time, if ever, as its right thereto would
not result in such Holder exceeding the Maximum
Percentage).
(b)
Other
Corporate Events
. In addition
to and not in substitution for any other rights hereunder, prior to
the consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for
shares of Common Stock (a “
Corporate
Event
”), the Company
shall make appropriate provision to insure that each Holder will
thereafter have the right to receive upon a conversion of all the
Preferred Shares held by such Holder (i) in addition to the shares
of Common Stock receivable upon such conversion, such securities or
other assets to which such Holder would have been entitled with
respect to such shares of Common Stock had such shares of Common
Stock been held by such Holder upon the consummation of such
Corporate Event (without taking into account any limitations or
restrictions on the convertibility of the Preferred Shares
contained in this Certificate of Designations) or (ii) in lieu of
the shares of Common Stock otherwise receivable upon such
conversion, such securities or other assets received by the holders
of shares of Common Stock in connection with the consummation of
such Corporate Event in such amounts as such Holder would have been
entitled to receive had the Preferred Shares held by such Holder
initially been issued with conversion rights for the form of such
consideration (as opposed to shares of Common Stock) at a
conversion rate for such consideration commensurate with the
Conversion Rate. The provisions of this Section 5(b) shall apply
similarly and equally to successive Corporate Events and shall be
applied without regard to any limitations on the conversion of the
Preferred Shares contained in this Certificate of
Designations.
6.
Rights
Upon Fundamental Transactions
.
(a)
Assumption
.
The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Certificate of
Designations and the Exchange Agreement in accordance with the
provisions of this Section 6 pursuant to written agreements in form
and substance satisfactory to the Required Holders and approved by
the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Preferred Shares
in exchange for such Preferred Shares a security of the Successor
Entity evidenced by a written instrument substantially similar in
form and substance to this Certificate of Designations, including,
without limitation, having a stated value and dividend rate equal
to the stated value and dividend rate of the Preferred Shares held
by the Holders and having similar ranking to the Preferred Shares,
and reasonably satisfactory to the Required Holders and
(ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose shares of common stock are quoted
on or listed for trading on an Eligible Market. Upon the occurrence
of any Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Certificate of
Designations and the Exchange Agreement referring to the
“Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall
assume all of the obligations of the Company under this Certificate
of Designations and the Exchange Agreement with the same effect as
if such Successor Entity had been named as the Company herein and
therein. In addition to the foregoing, upon consummation of a
Fundamental Transaction, the Successor Entity shall deliver to each
Holder confirmation that there shall be issued upon conversion of
the Preferred Shares at any time after the consummation of such
Fundamental Transaction, in lieu of the shares of Common Stock (or
other securities, cash, assets or other property (except such items
still issuable under Sections 5 and 11, which shall continue to be
receivable thereafter)) issuable upon the conversion of the
Preferred Shares prior to such Fundamental Transaction, such shares
of publicly traded common stock (or their equivalent) of the
Successor Entity (including its Parent Entity) which each Holder
would have been entitled to receive upon the happening of such
Fundamental Transaction had all the Preferred Shares held by each
Holder been converted immediately prior to such Fundamental
Transaction (without regard to any limitations on the conversion of
the Preferred Shares contained in this Certificate of
Designations), as adjusted in accordance with the provisions of
this Certificate of Designations. The provisions of this Section 6
shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations
on the conversion of the Preferred Shares.
7.
Rights
Upon Issuance of Other Securities
.
(a)
Intentionally
Omitted
.
(b)
Adjustment
of Conversion Price upon Subdivision or Combination of Common
Stock
. Without limiting any
provision of Sections 5 and 11, if the Company at any time on or
after the Effective Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares,
the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. Without limiting any
provision of Sections 5 and 11, if the Company at any time on or
after the Effective Date combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section
7(b) shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an
adjustment under this Section 7(b) occurs during the period that a
Conversion Price is calculated hereunder, then the calculation of
such Conversion Price shall be adjusted appropriately to reflect
such event.
(c)
Other
Events
. In the event that the
Company (or any Subsidiary) shall take any action to which the
provisions hereof are not strictly applicable, or, if applicable,
would not operate to protect any Holder from dilution or if any
event occurs of the type contemplated by the provisions of this
Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features),
then the Board shall in good faith determine and implement an
appropriate adjustment in the Conversion Price so as to protect the
rights of such Holder, provided that no such adjustment pursuant to
this Section 7(c) will increase the Conversion Price as otherwise
determined pursuant to this Section 7, provided further that if
such Holder does not accept such adjustments as appropriately
protecting its interests hereunder against such dilution, then the
Board and such Holder shall agree, in good faith, upon an
independent investment bank of nationally recognized standing to
make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the
Company.
(d)
Calculations
.
All calculations under this Section 7 shall be made by rounding to
the nearest one-hundred thousandth of a cent or the nearest
1/100
th
of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company,
and the disposition of any such shares shall be considered an issue
or sale of Common Stock.
8.
Authorized
Shares
.
(a)
Reservation
.
The Company shall initially reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock equal to
100% of the Conversion Rate with respect to the Base Amount of each
Preferred Share as of the Initial Issuance Date (assuming for
purposes hereof, that all the Preferred Shares issuable pursuant to
the Exchange Agreement have been issued, such Preferred Shares are
convertible at the Conversion Price and without taking into account
any limitations on the conversion of such Preferred Shares set
forth in herein) issuable pursuant to the terms of this Certificate
of Designations from the Initial Issuance Date through the second
anniversary of the Initial Issuance Date assuming (assuming for
purposes hereof, that all the Preferred Shares issuable pursuant to
the Exchange Agreement have been issued and without taking into
account any limitations on the issuance of securities set forth
herein). So long as any of the Preferred Shares are outstanding,
the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, as of any given date, 125% of the number of
shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Preferred Shares issued or
issuable pursuant to the Exchange Agreement assuming for purposes
hereof, that all the Preferred Shares issuable pursuant to the
Exchange Agreement have been issued and without taking into account
any limitations on the issuance of securities set forth herein),
provided that at no time shall the number of shares of Common Stock
so available be less than the number of shares required to be
reserved by the previous sentence (without regard to any
limitations on conversions contained in this Certificate of
Designations) (the “
Required
Amount
”). The initial
number of shares of Common Stock reserved for conversions of the
Preferred Shares and each increase in the number of shares so
reserved shall be allocated pro rata among the Holders based on the
number of Preferred Shares held by each Holder on the Initial
Issuance Date or increase in the number of reserved shares (as the
case may be) (the “
Authorized Share
Allocation
”). In the
event a Holder shall sell or otherwise transfer any of such
Holder’s Preferred Shares, each transferee shall be allocated
a pro rata portion of such Holder’s Authorized Share
Allocation. Any shares of Common Stock reserved and allocated to
any Person which ceases to hold any Preferred Shares shall be
allocated to the remaining Holders of Preferred Shares, pro rata
based on the number of Preferred Shares then held by such
Holders.
(b)
Insufficient
Authorized Shares
. If,
notwithstanding Section 8(a) and not in limitation thereof, at any
time while any of the Preferred Shares remain outstanding the
Company does not have a sufficient number of authorized and
unissued shares of Common Stock to satisfy its obligation to have
available for issuance upon conversion of the Preferred Shares at
least a number of shares of Common Stock equal to the Required
Amount (an “
Authorized Share
Failure
”), then the
Company shall promptly take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve and have available the
Required Amount for all of the Preferred Shares then outstanding.
Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized
Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall
hold a meeting of its shareholders or conduct a consent
solicitation for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each shareholder with a proxy statement
and shall use its best efforts to solicit its shareholders’
approval of such increase in authorized shares of Common Stock and
to cause its Board to recommend to the shareholders that they
approve such proposal. Nothing contained in this Section 8 shall
limit any obligations of the Company under any provision of the
Exchange Agreement. In the event that the Company is prohibited
from issuing shares of Common Stock upon a conversion of any
Preferred Share due to the failure by the Company to have
sufficient shares of Common Stock available out of the authorized
but unissued shares of Common Stock (such unavailable number of
shares of Common Stock, the “
Authorization Failure
Shares
”), in lieu of
delivering such Authorization Failure Shares to such Holder of such
Preferred Shares, the Company shall pay cash in exchange for the
cancellation of such Preferred Shares convertible into such
Authorized Failure Shares at a price equal to the sum of (i) the
product of (x) such number of Authorization Failure Shares and (y)
the Closing Sale Price on the Trading Day immediately preceding the
date such Holder delivers the applicable Conversion Notice with
respect to such Authorization Failure Shares to the Company and
(ii) to the extent such Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of Authorization Failure
Shares, any brokerage commissions and other out-of-pocket expenses,
if any, of such Holder incurred in connection
therewith.
9.
Voting
Rights
. Except as otherwise
expressly required by law, each holder of Preferred Shares shall be
entitled to vote on all matters submitted to shareholders of the
Company and shall be entitled to the number of votes for each
Preferred Share owned at the record date for the determination of
shareholders entitled to vote on such matter or, if no such record
date is established, at the date such vote is taken or any written
consent of shareholders is solicited, equal to the number of shares
of Common Stock such Preferred Shares are convertible into (voting
as a class with Common Stock) based on the Conversion Price in
effect on such date, but in no event greater than the Maximum
Percentage then in effect.
10.
Liquidation,
Dissolution, Winding-Up
. In the
event of a Liquidation Event, the Holders shall be entitled to
receive in cash out of the assets of the Company, whether from
capital or from earnings available for distribution to its
shareholders (the “
Liquidation
Funds
”), before any
amount shall be paid to the holders of any of shares of Junior
Stock, an amount per Preferred Share equal to the greater of (A)
the Base Amount thereof on the date of such payment and (B) the
amount per share such Holder would receive if such Holder converted
such Preferred Shares into Common Stock immediately prior to the
date of such payment, provided that if the Liquidation Funds are
insufficient to pay the full amount due to the Holders and holders
of shares of Parity Stock, then each Holder and each holder of
Parity Stock shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such
Holder and such holder of Parity Stock as a liquidation preference,
in accordance with their respective certificate of designations (or
equivalent), as a percentage of the full amount of Liquidation
Funds payable to all holders of Preferred Shares and all holders of
shares of Parity Stock. To the extent necessary, the Company shall
cause such actions to be taken by each of its subsidiaries so as to
enable, to the maximum extent permitted by law, the proceeds of a
Liquidation Event to be distributed to the Holders in accordance
with this Section 10. All the preferential amounts to be paid to
the Holders under this Section 10 shall be paid or set apart for
payment before the payment or setting apart for payment of any
amount for, or the distribution of any Liquidation Funds of the
Company to the holders of shares of Junior Stock in connection with
a Liquidation Event as to which this Section 10
applies.
11.
Participation
.
In addition to any adjustments pursuant to Section 7(b), the
Holders shall, as holders of Preferred Shares, be entitled to
receive such dividends paid and distributions made to the holders
of shares of Common Stock to the same extent as if such Holders had
converted each Preferred Share held by each of them into shares of
Common Stock (without regard to any limitations on conversion
herein or elsewhere) and had held such shares of Common Stock on
the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of shares of Common Stock
(
provided,
however
, to the extent that a
Holder’s right to participate in any such dividend or
distribution would result in such Holder exceeding the Maximum
Percentage, then such Holder shall not be entitled to participate
in such dividend or distribution to such extent (or the beneficial
ownership of any such shares of Common Stock as a result of such
dividend or distribution to such extent) and such dividend or
distribution to such extent shall be held in abeyance for the
benefit of such Holder until such time, if ever, as its right
thereto would not result in such Holder exceeding the Maximum
Percentage).
12.
Vote
to Change the Terms of Preferred Shares
. In addition to any other rights provided by law,
except where the vote or written consent of the holders of a
greater number of shares is required by law or by another provision
of the Articles of Incorporation, without first obtaining the
affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting of the Required Holders, voting
together as a single class, the Company shall not: (a) amend or
repeal any provision of, or add any provision to, its Articles of
Incorporation or bylaws, or file any certificate of designations or
articles of amendment of any series of shares of preferred stock,
if such action would adversely alter or change in any respect the
preferences, rights, privileges or powers, or restrictions provided
for the benefit, of the Preferred Shares, regardless of whether any
such action shall be by means of amendment to the Articles of
Incorporation or by merger, consolidation or otherwise; (b)
increase or decrease (other than by conversion) the authorized
number of Preferred Shares; (c) without limiting any provision of
Section 2, create or authorize (by reclassification or otherwise)
any new class or series of shares that has a preference over or is
on a parity with the Preferred Shares with respect to dividends or
the distribution of assets on the liquidation, dissolution or
winding up of the Company; (d) purchase, repurchase or redeem any
shares of capital stock of the Company junior in rank to the
Preferred Shares (other than pursuant to equity incentive
agreements (that have in good faith been approved by the Board)
with employees giving the Company the right to repurchase shares
upon the termination of services); (e) without limiting any
provision of Section 2, pay dividends or make any other
distribution on any shares of any capital stock of the Company
junior in rank to the Preferred Shares; or (f) without limiting any
provision of Section 16, whether or not prohibited by the terms of
the Preferred Shares, circumvent a right of the Preferred
Shares.
13.
Intentionally
omitted.
14.
Lost
or Stolen Certificates
. Upon
receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any
certificates representing Preferred Shares (as to which a written
certification and the indemnification contemplated below shall
suffice as such evidence), and, in the case of loss, theft or
destruction, of an indemnification undertaking by the applicable
Holder to the Company in customary and reasonable form and, in the
case of mutilation, upon surrender and cancellation of the
certificate(s), the Company shall execute and deliver new
certificate(s) of like tenor and date.
15.
Remedies,
Characterizations, Other Obligations, Breaches and Injunctive
Relief.
The remedies
provided in this Certificate of Designations shall be cumulative
and in addition to all other remedies available under this
Certificate of Designations and the Exchange Agreement, at law or
in equity (including a decree of specific performance and/or other
injunctive relief), and no remedy contained herein shall be deemed
a waiver of compliance with the provisions giving rise to such
remedy. Nothing herein shall limit any Holder’s right to
pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Certificate of
Designations. The Company covenants to each Holder that there shall
be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by a
Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holders
and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach
or threatened breach, each Holder shall be entitled, in addition to
all other available remedies, to an injunction restraining any such
breach or any such threatened breach, without the necessity of
showing economic loss and without any bond or other security being
required. The Company shall provide all information and
documentation to a Holder that is requested by such Holder to
enable such Holder to confirm the Company’s compliance with
the terms and conditions of this Certificate of
Designations.
16.
Noncircumvention
.
The Company hereby covenants and agrees that the Company will not,
by amendment of its Articles of Incorporation, bylaws or through
any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Certificate of
Designations, and will at all times in good faith carry out all the
provisions of this Certificate of Designations and take all action
as may be required to protect the rights of the Holders. Without
limiting the generality of the foregoing or any other provision of
this Certificate of Designations, the Company (i) shall not
increase the par value of any shares of Common Stock receivable
upon the conversion of any Preferred Shares above the Conversion
Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable shares of Common
Stock upon the conversion of Preferred Shares and (iii) shall, so
long as any Preferred Shares are outstanding, take all action
necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, the maximum
number of shares of Common Stock as shall from time to time be
necessary to effect the conversion of the Preferred Shares then
outstanding (without regard to any limitations on conversion
contained herein).
17.
Failure
or Indulgence Not Waiver
. No
failure or delay on the part of a Holder in the exercise of any
power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise
thereof or of any other right, power or privilege. No waiver shall
be effective unless it is in writing and signed by an authorized
representative of the waiving party. This Certificate of
Designations shall be deemed to be jointly drafted by the Company
and all Holders and shall not be construed against any Person as
the drafter hereof.
18.
Notices
.
The Company shall provide each Holder of Preferred Shares with
prompt written notice of all actions taken pursuant to the terms of
this Certificate of Designations, including in reasonable detail a
description of such action and the reason therefor. Whenever notice
is required to be given under this Certificate of Designations,
unless otherwise provided herein, such notice must be in writing
and shall be given in accordance with the Exchange Agreement.
Without limiting the generality of the foregoing, the Company shall
give written notice to each Holder (i) promptly following any
adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen (15) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend
or distribution upon the Common Stock, (B) with respect to any
grant, issuances, or sales of any Options, Convertible Securities
or rights to purchase stock, warrants, securities or other property
to all holders of shares of Common Stock as a class or (C) for
determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided, in each case,
that such information shall be made known to the public prior to,
or simultaneously with, such notice being provided to any
Holder.
19.
Transfer
of Preferred Shares
. Subject to
the restrictions set forth in Exchange Agreement, a Holder may
transfer some or all of its Preferred Shares without the consent of
the Company.
20.
Preferred
Shares Register
. The Company
shall maintain at its principal executive offices (or such other
office or agency of the Company as it may designate by notice to
the Holders), a register for the Preferred Shares, in which the
Company shall record the name, address and facsimile number of the
Persons in whose name the Preferred Shares have been issued, as
well as the name and address of each transferee. The Company may
treat the Person in whose name any Preferred Shares is registered
on the register as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, but in all events
recognizing any properly made transfers.
21.
Shareholder
Matters; Amendment
.
(a)
Shareholder
Matters
. Any shareholder
action, approval or consent required, desired or otherwise sought
by the Company pursuant to the NRS, the Articles of Incorporation,
this Certificate of Designations or otherwise with respect to the
issuance of Preferred Shares may be effected by written consent of
the Company’s shareholders or at a duly called meeting of the
Company’s shareholders, all in accordance with the applicable
rules and regulations of the NRS, the Company’s Articles of
Incorporation and Bylaws. This provision is intended to comply with
the applicable sections of the NRS permitting shareholder action,
approval and consent affected by written consent in lieu of a
meeting.
(b)
Amendment
.
This Certificate of Designations or any provision hereof may be
amended by obtaining the affirmative vote at a meeting duly called
for such purpose, or written consent without a meeting in
accordance with the NRS, of the Required Holders, voting separate
as a single class, and with such other shareholder approval, if
any, as may then be required pursuant to the NRS and the
Company’s Articles of Incorporation and
Bylaws.
22.
Dispute
Resolution
.
(a)
Disputes
Over Closing Bid Price, Closing Sale Price, Conversion Price, VWAP
or Fair Market Value.
(i) In the case of a dispute relating to a Closing
Bid Price, a Closing Sale Price, a Conversion Price, a VWAP or fair
market value (as the case may be) (including, without limitation, a
dispute relating to the determination of any of the foregoing), the
Company or such applicable Holder (as the case may be) shall submit
the dispute via facsimile (I) within two (2) Business Days after
delivery of the applicable notice giving rise to such dispute to
the Company or such Holder (as the case may be) or (II) if no
notice gave rise to such dispute, at any time after such Holder
learned of the circumstances giving rise to such dispute. If such
Holder and the Company are unable to resolve such dispute relating
to such Closing Bid Price, such Closing Sale Price, such Conversion
Price, such VWAP or such fair market value (as the case may be) by
5:00 p.m. (New York time) on the third (3
rd
) Business Day following such delivery by the
Company or such Holder (as the case may be) of such dispute to the
Company or such Holder (as the case may be), then such Holder shall
select an independent, reputable investment bank to resolve such
dispute.
(ii) Such Holder and the Company shall each
deliver to such investment bank (x) a copy of the initial dispute
submission so delivered in accordance with the first sentence of
this Section 22(a) and (y) written documentation supporting its
position with respect to such dispute, in each case, no later than
5:00 p.m. (New York time) by the fifth (5
th
) Business Day immediately following the date on
which such Holder selected such investment bank (the
“
Dispute Submission
Deadline
”) (the documents
referred to in the immediately preceding clauses (x) and (y) are
collectively referred to herein as the “
Required Dispute
Documentation
”) (it being
understood and agreed that if either such Holder or the Company
fails to so deliver all of the Required Dispute Documentation by
the Dispute Submission Deadline, then the party who fails to so
submit all of the Required Dispute Documentation shall no longer be
entitled to (and hereby waives its right to) deliver or submit any
written documentation or other support to such investment bank with
respect to such dispute and such investment bank shall resolve such
dispute based solely on the Required Dispute Documentation that was
delivered to such investment bank prior to the Dispute Submission
Deadline). Unless otherwise agreed to in writing by both the
Company and such Holder or otherwise requested by such investment
bank, neither the Company nor such Holder shall be entitled to
deliver or submit any written documentation or other support to
such investment bank in connection with such dispute (other than
the Required Dispute Documentation).
(iii)
The Company and such Holder shall cause such investment bank to
determine the resolution of such dispute and notify the Company and
such Holder of such resolution no later than ten (10) Business Days
immediately following the Dispute Submission Deadline. The fees and
expenses of such investment bank shall be borne solely by the
Company, and such investment bank’s resolution of such
dispute shall be final and binding upon all parties absent manifest
error.
(b)
Disputes
Over Arithmetic Calculation of the Conversion
Rate.
(i) In the case of a dispute as to the arithmetic
calculation of a Conversion Rate, the Company or such Holder (as
the case may be) shall submit the disputed arithmetic calculation
via facsimile (i) within two (2) Business Days after delivery of
the applicable notice giving rise to such dispute to the Company or
such Holder (as the case may be) or (ii) if no notice gave rise to
such dispute, at any time after such Holder learned of the
circumstances giving rise to such dispute. If such Holder and the
Company are unable to resolve such disputed arithmetic calculation
of such Conversion Rate by 5:00 p.m. (New York time) on the third
(3
rd
) Business Day following such delivery by the
Company or such Holder (as the case may be) of such disputed
arithmetic calculation, then such Holder shall select an
independent, reputable accountant or accounting firm to perform
such disputed arithmetic calculation.
(ii) Such Holder and the Company shall each
deliver to such accountant or accounting firm (as the case may be)
(x) a copy of the initial dispute submission so delivered in
accordance with the first sentence of this Section 22(a) and (y)
written documentation supporting its position with respect to such
disputed arithmetic calculation, in each case, no later than 5:00
p.m. (New York time) by the fifth (5
th
) Business Day immediately following the date on
which such Holder selected such accountant or accounting firm (as
the case may be) (the “
Submission
Deadline
”) (the documents
referred to in the immediately preceding clauses (x) and (y) are
collectively referred to herein as the “
Required
Documentation
”) (it being
understood and agreed that if either such Holder or the Company
fails to so deliver all of the Required Documentation by the
Submission Deadline, then the party who fails to so submit all of
the Required Documentation shall no longer be entitled to (and
hereby waives its right to) deliver or submit any written
documentation or other support to such accountant or accounting
firm (as the case may be) with respect to such disputed arithmetic
calculation and such accountant or accounting firm (as the case may
be) shall perform such disputed arithmetic calculation based solely
on the Required Documentation that was delivered to such accountant
or accounting firm (as the case may be) prior to the Submission
Deadline). Unless otherwise agreed to in writing by both the
Company and such Holder or otherwise requested by such accountant
or accounting firm (as the case may be), neither the Company nor
such Holder shall be entitled to deliver or submit any written
documentation or other support to such accountant or accounting
firm (as the case may be) in connection with such disputed
arithmetic calculation of the Conversion Rate (other than the
Required Documentation).
(iii)
The Company and such Holder shall cause such accountant or
accounting firm (as the case may be) to perform such disputed
arithmetic calculation and notify the Company and such Holder of
the results no later than ten (10) Business Days immediately
following the Submission Deadline. The fees and expenses of such
accountant or accounting firm (as the case may be) shall be borne
solely by the Company, and such accountant’s or accounting
firm’s (as the case may be) arithmetic calculation shall be
final and binding upon all parties absent manifest
error.
(c)
Miscellaneous
.
The Company expressly acknowledges and agrees that (i) this Section
22 constitutes an agreement to arbitrate between the Company and
such Holder (and constitutes an arbitration agreement) under §
7501, et seq. of the New York Civil Practice Law and Rules
(“
CPLR
”) and that each party shall be entitled to
compel arbitration pursuant to CPLR § 7503(a) in order to
compel compliance with this Section 22, (ii) a dispute relating to
a Conversion Price includes, without limitation, disputes as to
whether an agreement, instrument, security or the like constitutes
and Option or Convertible Security (iii) the terms of this
Certificate of Designations and the Exchange Agreement shall serve
as the basis for the selected investment bank’s resolution of
the applicable dispute, such investment bank shall be entitled (and
is hereby expressly authorized) to make all findings,
determinations and the like that such investment bank determines
are required to be made by such investment bank in connection with
its resolution of such dispute and in resolving such dispute such
investment bank shall apply such findings, determinations and the
like to the terms of this Certificate of Designations and the
Exchange Agreement, (iv) the terms of this Certificate of
Designations and the Exchange Agreement shall serve as the basis
for the selected accountant’s or accounting firm’s
performance of the applicable arithmetic calculation, (v) for
clarification purposes and without implication that the contrary
would otherwise be true, disputes relating to matters described in
Section 22(a) shall be governed by Section 22(a) and not by Section
22(b), (vi) such Holder (and only such Holder), in its sole
discretion, shall have the right to submit any dispute described in
this Section 22 to any state or federal court sitting in The City
of New York, Borough of Manhattan in lieu of utilizing the
procedures set forth in this Section 22 and (vii) nothing in this
Section 22 shall limit such Holder from obtaining any injunctive
relief or other equitable remedies (including, without limitation,
with respect to any matters described in Section 22(a) or Section
22(b)).
23.
Certain
Defined Terms
. For purposes of
this Certificate of Designations, the following terms shall have
the following meanings:
(a) “
1934
Act
”
means
the Securities Exchange Act of 1934, as
amended.
(b) “
Affiliate
”
as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition,
“
control
” (including, with correlative meanings, the
terms “
controlling
”, “
controlled
by
” and
“
under
common control with
”), as
applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise. For
purposes of this definition, a Person shall be deemed to be
“
controlled
by
” a Person if such
latter Person possesses, directly or indirectly, power to vote 10%
or more of the securities having ordinary voting power for the
election of directors of such former Person.
(c) “
Base
Amount
” means, with
respect to each Preferred Share, as of the applicable date of
determination, the sum of (1) the Stated Value thereof, plus (2)
the Unpaid Dividend Amount thereon as of such date of
determination.
(d) “
Bloomberg
”
means Bloomberg, L.P.
(e) “
Business
Day
” means any day other
than Saturday, Sunday or other day on which commercial banks in The
City of New York are authorized or required by law to remain
closed.
(f) “
Closing
Bid Price
” and
“
Closing Sale
Price
” means, for any
security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal
Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price (as the
case may be) then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York
time, as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such
security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing
bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask
prices, respectively, of any market makers for such security as
reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Bid Price or the Closing
Sale Price (as the case may be) of such security on such date shall
be the fair market value as mutually determined by the Company and
the applicable Holder. If the Company and such Holder are unable to
agree upon the fair market value of such security, then such
dispute shall be resolved in accordance with the procedures in
Section 22. All such determinations shall be appropriately adjusted
for any stock dividend, stock split, stock combination or other
similar transaction during such period.
(g) “
Common
Stock
” means (i) the
Company’s shares of common stock, no par value per share, and
(ii) any capital stock into which such common stock shall have been
changed or any share capital resulting from a reclassification of
such common stock.
(h) “
Conversion
Price
” means, with
respect to each Preferred Share, as of any Conversion Date or other
applicable date of determination, $0.025, subject to adjustment as
provided herein.
(i) “
Convertible
Securities
” means any
stock or other security (other than Options) that is at any time
and under any circumstances, directly or indirectly, convertible
into, exercisable or exchangeable for, or which otherwise entitles
the holder thereof to acquire, any shares of Common
Stock.
(j) “
Effective
Date
” means the Closing
Date (as defined in the Exchange Agreement).
(k) “
Eligible
Market
” means The New
York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market,
the Nasdaq Global Market, the NASDAQ Capital Market, the OTCQX, the
OTCQB or the Principal Market (or any successor
thereto).
(l) “
Exchange
Agreement
” means that
certain Exchange Agreement by and among the Company and the initial
holders of Preferred Shares, dated as of the Effective Date, as may
be amended from time in accordance with the terms
thereof.
(m) “
Fundamental
Transaction
” means that
(i) the Company or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, (1) consolidate or
merge with or into (whether or not the Company or any of its
subsidiaries is the surviving corporation) any other Person, or (2)
sell, lease, license, assign, transfer, convey or otherwise dispose
of all or substantially all of its respective properties or assets
to any other Person, or (3) allow any other Person to make a
purchase, tender or exchange offer that is accepted by the holders
of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company
held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (4) consummate a stock or share
purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other
Person acquires more than 50% of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of
the Company held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making
or party to, such stock or share purchase agreement or other
business combination), or (5) reorganize, recapitalize or
reclassify the Common Stock, or (ii) any “person” or
“group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Voting Stock of
the Company.
(n) “
Holder
Pro Rata Amount
” means,
with respect to any Holder, a fraction (i) the numerator of
which is the number of Preferred Shares issued to such Holder
pursuant to the Exchange Agreement on the Initial Issuance Date and
(ii) the denominator of which is the number of Preferred
Shares issued to all Holders pursuant to the Exchange Agreement on
the Initial Issuance Date.
(o) “
Liquidation
Event
” means, whether in
a single transaction or series of transactions, the voluntary or
involuntary liquidation, dissolution or winding up of the Company
or such subsidiaries the assets of which constitute all or
substantially all of the assets of the business of the Company and
its subsidiaries, taken as a whole.
(p) “
Options
”
means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible
Securities.
(q) “
Parent
Entity
” of a Person means
an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is
quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with
the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.
(r) “
Person
”
means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or
agency thereof.
(s) “
Principal
Market
” means The over
the counter market maintained by OTC Markets
Group.
(t) “
Securities
”
means, collectively, the Preferred Shares and the shares of Common
Stock issuable upon conversion of (or otherwise in accordance with)
the Preferred Shares.
(u) “
Stated
Value
” shall mean $1.00
per share, subject to adjustment for stock splits, stock dividends,
recapitalizations, reorganizations, reclassifications,
combinations, subdivisions or other similar events occurring after
the Initial Issuance Date with respect to the Preferred
Shares.
(v) “
Successor
Entity
” means the Person
(or, if so elected by the Required Holders, the Parent Entity)
formed by, resulting from or surviving any Fundamental Transaction
or the Person (or, if so elected by the Required Holders, the
Parent Entity) with which such Fundamental Transaction shall have
been entered into.
(w) “
Trading
Day
” means, as
applicable, (x) with respect to all price determinations relating
to the Common Stock, any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the
Common Stock is then traded, provided that “Trading
Day” shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading
during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise
designated as a Trading Day in writing by the Required Holders or
(y) with respect to all determinations other than price
determinations relating to the Common Stock, any day on which The
New York Stock Exchange (or any successor thereto) is open for
trading of securities.
(x) “
Unpaid
Dividend Amount
” means,
as of the applicable date of determination, with respect to each
Preferred Share, all accrued and unpaid Dividends on such Preferred
Share.
(y) “
Voting
Stock
” of a Person means
capital stock of such Person of the class or classes pursuant to
which the holders thereof have the general voting power to elect,
or the general power to appoint, at least a majority of the board
of directors, managers, trustees or other similar governing body of
such Person (irrespective of whether or not at the time capital
stock of any other class or classes shall have or might have voting
power by reason of the happening of any
contingency).
(z) “
VWAP
”
means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market (or, if the
Principal Market is not the principal trading market for such
security, then on the principal securities exchange or securities
market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00
p.m., New York time, as reported by Bloomberg through its
“HP” function set to “weighted average” or,
if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the
electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00
p.m., New York time, as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers
for such security as reported in the “pink sheets” by
OTC Markets Group Inc. (formerly Pink Sheets LLC). If the VWAP
cannot be calculated for such security on such date on any of the
foregoing bases, the VWAP of such security on such date shall be
the fair market value as mutually determined by the Company and
such Holder. If the Company and such Holder are unable to agree
upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 22.
All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar
transaction during such period.
24.
Disclosure
.
Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Certificate of Designations, unless the
Company has in good faith determined that the matters relating to
such notice do not constitute material, non-public information
relating to the Company or any of its subsidiaries, the Company
shall simultaneously with any such receipt or delivery publicly
disclose such material, non-public information on a Current Report
on Form 8-K or otherwise. In the event that the Company believes
that a notice contains material, non-public information relating to
the Company or any of its subsidiaries, the Company so shall
indicate to each Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, each Holder
shall be allowed to presume that all matters relating to such
notice do not constitute material, non-public information relating
to the Company or its subsidiaries. Nothing contained in this
Section 24 shall limit any obligations of the Company, or any
rights of any Holder, under the Exchange
Agreement.
* * * * *
IN
WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations of Series A Convertible Preferred Stock of Exactus ,
Inc. to be signed by its Chief Executive Officer on this 7th day of
January, 2019.
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EXACTUS
, INC.
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By:
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Name:
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Philip
J. Young
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Title:
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Chief
Executive Officer
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EXHIBIT I
EXACTUS , INC.
CONVERSION NOTICE
Reference is made to the Certificate of
Designations, Preferences and Rights of the Series A Convertible
Preferred Stock of Exactus , Inc. (the “
Certificate of
Designations
”). In
accordance with and pursuant to the Certificate of Designations,
the undersigned hereby elects to convert the number of shares of
Series A Convertible Preferred Stock, no par value per share (the
“
Preferred
Shares
”), of Exactus,
Inc., a Nevada corporation (the “
Company
”), indicated below into shares of common
stock, no par value per share (the “
Common Stock
”), of the Company, as of the date specified
below.
Date of Conversion:
_________________________________________________________________________
Number of Preferred Shares to be converted:
______________________________________________________
Share certificate no(s). of Preferred Shares to be
converted:__________________________________________
Tax ID Number (If applicable):
________________________________________________________________
Conversion
Price:____________________________________________________________
Number of shares of Common Stock to be
issued:__________________________________________________
Please issue the shares of Common Stock into which the Preferred
Shares are being converted in the following name and to the
following address:
Issue to:
___________________________________________
___________________________________________
Address:
_________________________________________
Telephone
Number: ________________________________
Facsimile
Number:____________________________________
Holder:_____________________________________________
By:______________________________________
Title:_____________________________________
Dated:____________________________________
Account Number (if electronic book entry
transfer):________________________________________________
Transaction Code Number (if electronic book entry
transfer):_________________________________________
EXHIBIT II
ACKNOWLEDGMENT
The
Company hereby acknowledges this Conversion Notice and hereby
directs __________________ to issue the above indicated number of
shares of Common Stock in accordance with the Irrevocable Transfer
Agent Instructions dated __________, 2017 from the Company and
acknowledged and agreed to by _______________.
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EXACTUS , INC.
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By:
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Name:
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Title:
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CHARTER
OF THE ADVISORY BOARD OF
EXACTUS,
INC.
This
Charter outlines the purpose, composition and responsibilities of
the Advisory Board (the “
Advisory
Board
”) of the Board of Directors (the
“
Board
”) of
Exactus, Inc., a Nevada corporation (the “
Company
”).
The
Advisory Board is responsible for: (a) making recommendations to
the Board regarding the Company's phyto-cannabinoid, FDA and drug
development related strategies and opportunities; (b) performing
such other functions as may be deemed necessary or convenient in
efficiently carrying out the foregoing; and (c) such other
functions as the Board may from time to time assign to the Advisory
Board.
The
Advisory Board shall be composed of a minimum of two members
(including a Chairperson). The members of the Advisory Board and
the Chairperson shall be selected annually by the Board and shall
serve at the pleasure of the Board. Any Advisory Board member
(including the Chairperson) may be removed at any time, with or
without cause, by the Board. The Advisory Board shall have
authority to delegate responsibilities listed herein to
sub-Advisory Boards of the Advisory Board if the Advisory Board
determines such delegation would be in the best interest of the
Company.
III.
MEETING
REQUIREMENTS
The
Advisory Board shall meet as necessary to enable it to fulfill its
responsibilities, but at least once each year.
The
Advisory Board may ask members of management or others whose advice
and counsel are relevant to the issues then being considered by the
Advisory Board to attend any meetings and to provide such pertinent
information as the Advisory Board may request.
The
Chairperson of the Advisory Board shall be responsible for
leadership of the Advisory Board, including preparing the agenda,
presiding over Advisory Board meetings, making Advisory Board
assignments and reporting on the Advisory Board’s activities
to the Board.
IV.
ADVISORY
BOARD RESPONSIBILITIES
In
carrying out its responsibilities, the Advisory Board’s
policies and procedures should remain flexible to enable the
Advisory Board to react to changes in circumstances. In addition to
such other duties as the Board may from time to time assign, the
Advisory Board shall have the following
responsibilities:
A.
Provide strategic
advice and make recommendations to the Board regarding current and
planned programs;
B.
Advise the Board
regarding the merit of technology or products involved in
investment, licensing and acquisition opportunities;
C.
Provide strategic
advice to the Board regarding emerging issues and trends;
and
D.
Report to the full
Board with respect to significant matters covered at Advisory Board
meetings.
SUBSCRIPTION AGREEMENT
EXACTUS, INC.
Exactus,
Inc., a Nevada corporation (hereinafter the "Company") and the
undersigned (hereinafter the “Subscriber”) agree as
follows:
WHEREAS:
A. The
Company desires to issue a maximum of 80,000,000 shares of common
stock of the Company, par value $0.0001 per share, at a price of
$0.025 per share ($2,000,000); and
B.
Subscriber desires to acquire that number of shares as is set forth
on the signature page hereof (hereinafter the "Shares") at the
purchase price set forth herein.
NOW, THEREFORE,
for and in consideration of the premises and
the mutual covenants hereinafter set-forth, the parties hereto do
hereby agree as follows:
SUBSCRIPTION
1.1
Subject to the
terms and conditions hereinafter set forth, the Subscriber hereby
subscribes for and agrees to purchase the Shares from the Company
at a price equal to $0.025 per share, and the Company agrees to
sell the Shares to Subscriber in consideration of said purchase
price. Upon execution, this subscription shall be irrevocable by
Subscriber.
1.2
The purchase price
for the Shares subscribed to hereunder is payable by the Subscriber
contemporaneously with the execution and e-mail delivery of this
Subscription Agreement to the Company at
tryan@exactusinc.com
.
Payment shall be made by wire transfer of the purchase price in the
amount of $0.025 per Share to the Company as follows:
Bank:
Wells Fargo Bank,
N.A.
Address:
420 Montgomery
Street,
San
Francisco, CA 94104
REPRESENTATIONS AND WARRANTIES BY SUBSCRIBER
2.1
Subscriber hereby
acknowledges, represents and warrants to the Company the
following:
(A)
Subscriber
acknowledges that the purchase of the Shares involves a high degree
of risk and that the Company may require substantial additional
funds;
(B)
Subscriber
recognizes that an investment in the Company is highly speculative
and only investors who can afford the loss of their entire
investment should consider investing in the Company and the
Shares;
(C)
Subscriber has such
knowledge and experience in finance, securities, investments,
including investment in unregistered securities, and other business
matters so as to be able to protect its interests in connection
with this transaction;
(D)
Unless allowed to
participated in this offering as a non-accredited investor by
permission of the Board of Directors of the Company, the Subscriber
is an "Accredited Investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as
amended;
(E)
Subscriber
acknowledges that the shares are subject to significant
restrictions on transfer as imposed by state and federal securities
laws, including but not limited to a minimum holding period of at
least six (6) months;
(F)
Subscriber hereby
acknowledges (i) that this offering of Shares has not been reviewed
by the United States Securities and Exchange Commission ("SEC") or
by the securities regulator of any state; (ii) that the Shares are
being issued by the Company pursuant to an exemption from
registration provided by Section 4(2) of the Securities Act of
1933; and (iii) that any certificate evidencing the Shares received
by Subscriber will bear a legend in substantially the following
form:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES LAWS.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER UNLESS IN THE OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER AND THAT SUCH TRANSFER WILL NOT BE IN VIOLATION
OF THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER.
(G)
Subscriber is
acquiring the Shares as principal for Subscriber's own
benefit;
(H)
Subscriber is not
aware of any advertisement of the Shares or any general
solicitation in connection with any offering of the
Shares;
(I)
Subscriber
acknowledges receipt and review of the Company’s filings with
the Securities and Exchange Commission, and of both the Articles of
Incorporation and bylaws of the Company, together with the
opportunity and the Company’s encouragement to seek the
advice and consultation of independent investment, legal and tax
counsel;
(J)
Subscriber
acknowledges and agrees that the Company has previously made
available to Subscriber the opportunity to ask questions of and to
receive answers from representatives of the Company concerning the
Company and the Shares, as well as to conduct whatever due
diligence the Subscriber, in its discretion, deems advisable.
Subscriber is not relying on any information communicated by any
representatives of the Company and is relying solely upon
information obtained during Subscriber’s due diligence
investigation in making a decision to invest in the Shares and the
Company.
REPRESENTATIONS BY THE COMPANY
3.1
The Company
represents and warrants to the Subscriber that:
(A)
The Company is a
corporation duly organized, existing and in good standing under the
laws of the State of Nevada and has the corporate power to conduct
the business which it conducts and proposes to
conduct.
(B)
Upon issue, the
Shares will be duly and validly issued, fully paid and
non-assessable common stock in the capital of the
Company.
TERMS
OF SUBSCRIPTION
4.1
Upon acceptance of
this subscription by the Company, all funds paid hereunder shall be
immediately available to the Company for its use.
4.2
The Company
reserves the right to pay up to a 10% commission to any licensed
broker/dealers that may be engaged on a “best efforts”
basis to assist the Company in selling the Shares to qualified
investors. In addition, the Company reserves the right to issue, as
additional compensation to such licensed broker/dealers, warrants
to purchase common stock of the Company in an amount equal to 10%
of the total Shares sold.
4.3
Subscriber hereby
authorizes and directs the Company to deliver the securities to be
issued to such Subscriber pursuant to this Subscription Agreement
to Subscriber’s address indicated herein.
4.4
Notwithstanding the
place where this Subscription Agreement may be executed by any of
the parties hereto, the parties expressly agree that all the terms
and provisions hereof shall be construed in accordance with and
governed by the laws of the State of Nevada. Exclusive venue for
any dispute arising out of this Subscription Agreement or the
Shares shall be the state or federal courts sited in Washoe County,
Nevada.
4.5
The parties agree
to execute and deliver all such further documents, agreements and
instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of
this Subscription Agreement.
[remainder of this page intentionally blank, signature page to
follow]
ACCREDITED INVESTOR STATUS
5.1
☐
By
checking this box, Subscriber represents and warrants to the
Company that the Subscriber is an "Accredited Investor" as such
term is defined in Rule 501 of Regulation D promulgated under the
United States Securities Act of 1933, as amended (the "Act"). The
Subscriber acknowledges having reviewed and considered the
definition of “Accredited Investor” attached to this
Subscription Agreement.
IN WITNESS WHEREOF,
this Subscription Agreement is executed
as of the ___ day of _____________, 2019.
|
Number
of Shares Subscribed For:
|
|
|
Total
Purchase Price:
|
|
|
Signature of
Subscriber:
|
|
|
Name of
Subscriber:
|
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|
Address
of Subscriber:
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Subscriber’s
SS# or tax ID#:
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ACCEPTED BY: EXACTUS, INC.
Signature of
Authorized
Signatory:
__________________________________
Name of Authorized
Signatory:
_______________
Date of
Acceptance:
_________________
Accredited Investor Definition
The
Subscriber will be an "Accredited Investor" as such term is defined
in Rule 501 of Regulation D promulgated under the United States
Securities Act of 1933, as amended (the "Act") if the Subscriber is
any of the following:
(1) Any
bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of
the Securities Exchange Act of 1934; any insurance company as
defined in section 2(a)(13) of the Act; any investment company
registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that Act; any
Small Business Investment Company licensed by the U.S. Small
Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess
of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in section 3(21)
of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or,
if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) Any
private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any
organization described in section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000;
(4) Any
director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that
issuer;
(5) Any
natural person whose individual net worth, or joint net worth with
that person's spouse, exceeds $1,000,000.
(i)
Except as provided in paragraph (a)(5)(ii) of this section, for
purposes of calculating net worth under this paragraph
(a)(5):
(A) The
person's primary residence shall not be included as an
asset;
(B)
Indebtedness that is secured by the person's primary residence, up
to the estimated fair market value of the primary residence at the
time of the sale of securities, shall not be included as a
liability (except that if the amount of such indebtedness
outstanding at the time of sale of securities exceeds the amount
outstanding 60 days before such time, other than as a result of the
acquisition of the primary residence, the amount of such excess
shall be included as a liability); and
(C)
Indebtedness that is secured by the person's primary residence in
excess of the estimated fair market value of the primary residence
at the time of the sale of securities shall be included as a
liability;
(ii)
Paragraph (a)(5)(i) of this section will not apply to any
calculation of a person's net worth made in connection with a
purchase of securities in accordance with a right to purchase such
securities, provided that:
(A)
Such right was held by the person on July 20, 2010;
(B) The
person qualified as an accredited investor on the basis of net
worth at the time the person acquired such right; and
(C) The
person held securities of the same issuer, other than such right,
on July 20, 2010.
(6) Any
natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in
the current year;
(7) Any
trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in
§230.506(b)(2)(ii); and
(8) Any
entity in which all of the equity owners are accredited
investors.
EXCHANGE
AGREEMENT
THIS
EXCHANGE AGREEMENT (the “Agreement”), dated as of
__________ ___, 20___, is made by and between Exactus, Inc., a
Nevada corporation (the “Company”), and the holder of
the Note (as defined below) signatory hereto (the
“Holder”).
WHEREAS, pursuant
to that certain Securities Purchase Agreement (the “Purchase
Agreement”) dated as of __________ ___, 20___, by and between
______________________________ (the “Former Holder”)
and the Company, the Former Holder, among things, purchased from
the Company a promissory note in the principal amount of
___________________ Dollars ($_____________) (the
“Note”);
WHEREAS, on
__________ ___, 20___, the Holder purchased the Note from the
Former Holder pursuant to the terms of a purchase
agreement;
WHEREAS, the
Company has authorized a new series of convertible preferred stock
designated as Series A Convertible Preferred Stock, $0.001 par
value, the terms of which are set forth in the Certificate of
Designation of Preferences, Rights and Limitations of Series A
Convertible Preferred Stock (the “Certificate of
Designation”) in the form attached hereto as
Exhibit A
(together with any
convertible preferred shares issued in replacement thereof in
accordance with the terms thereof, the “Preferred
Stock”), which Preferred Stock shall be convertible (the
“Conversion Shares”) into the Company’s common
stock, $0.0001 par value per share (the “Common
Stock”), in accordance with the terms of the Certificate of
Designations
WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant
to Section 3(a)(9) of the Securities Act of 1933, as amended (the
“Securities Act”), the Company desires to exchange with
the Holder, and the Holder desires to exchange with the Company,
the Note solely for Preferred Stock.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the Company
and Holder agree as follows:
1.
Terms
of the Exchange
. The Company and Holder agree that the
Holder will exchange the Note, and will relinquish any and all
other rights he may have under the Note in exchange for ___________
shares of the Preferred Stock (the “Exchange
Shares”).
2.
Closing
.
Upon satisfaction of the conditions set forth herein, a closing
shall occur at the principal offices of the Company, or such other
location as the parties shall mutually agree. At closing, Holder
shall deliver the Note to the Company and the Company shall deliver
to such Holder a certificate representing the Exchange Shares, in
the name(s) and amount(s) as requested by the Holder.
Each
party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
4.
Representations
and Warranties of the Holder
. The Holder represents and
warrants, as of the date hereof and as of the closing, to the
Company as follows:
a.
Authorization;
Enforcement
. The Holder has the requisite corporate power
and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Holder and the consummation by it of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Holder and no
further action is required by the Holder. This Agreement has been
(or upon delivery will have been) duly executed by the Holder and,
when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Holder enforceable against
the Holder in accordance with its terms, except: (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
b.
Tax
Advisors
. The Holder has reviewed with its own tax advisors
the U.S. federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement.
With respect to such matters, the Holder relies solely on such
advisors and not on any statements or representations of the
Company or any of its agents, written or oral. The Holder
understands that it (and not the Company) shall be responsible for
its own tax liability that may arise as a result of this investment
or the transactions contemplated by this Agreement.
c.
Information
Regarding Holder
. Holder is an “accredited
investor”, as such term is defined in Rule 501 of Regulation
D promulgated by the United States Securities and Exchange
Commission (the “Commission”) under the Securities Act,
is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of
companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial,
tax and other business matters as to enable the Holder to utilize
the information made available by the Company to evaluate the
merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a
speculative investment. Holder has the authority and is duly and
legally qualified to purchase and own the Exchange Shares. Holder
is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof.
d.
Legend
.
The Holder understands that Exchange Shares have been issued (or
will be issued in the case of the Conversion Shares) pursuant to an
exemption from registration or qualification under the Securities
Act and applicable state securities laws, and except as set forth
below, the Exchange Shares shall bear any legend as required by the
“blue sky” laws of any state and a restrictive legend
in substantially the following form (and a stop-transfer order may
be placed against transfer of such stock
certificates):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF
REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
e.
Removal
of Legends
. Certificates evidencing the Exchange Shares
shall not be required to contain the legend set forth in Section
4(d) above or any other legend (i) while a registration statement
covering the resale of such Exchange Shares is effective under the
Securities Act, (ii) following any sale of such Exchange Shares
pursuant to Rule 144 (as defined herein) (assuming the transferor
is not an affiliate of the Company), (iii) if such Exchange Shares
are eligible to be sold, assigned or transferred under Rule 144 and
the subscriber is not an affiliate of the Company (provided that
the Holder provides the Company with reasonable assurances that
such Exchange Shares are eligible for sale, assignment or transfer
under Rule 144 which shall not include an opinion of the
Holder’s counsel), (iv) in connection with a sale, assignment
or other transfer (other than under Rule 144), provided that the
Holder provides the Company with an opinion of counsel to the
Holder, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Exchange Shares may be made
without registration under the applicable requirements of the
Securities Act or (v) if such legend is not required under
applicable requirements of the Securities Act (including, without
limitation, controlling judicial interpretations and pronouncements
issued by the Commission). If a legend is not required pursuant to
the foregoing, the Company shall no later than three (3) business
days following the delivery by the Holder to the Company or the
transfer agent (with notice to the Company) of a legended
certificate representing such Exchange Shares (endorsed or with
stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer, if applicable),
together with any other deliveries from the Holder as may be
required above in this Section 4(e), as directed by the Holder,
either: (A) provided that the Company’s transfer agent is
participating in the DTC Fast Automated Securities Transfer Program
and such securities are Conversion Shares, credit the aggregate
number of shares of Common Stock to which the Holder shall be
entitled to the Holder’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system
or (B) if the Company’s transfer agent is not participating
in the DTC Fast Automated Securities Transfer Program, issue and
deliver (via reputable overnight courier) to the Holder, a
certificate representing such Exchange Shares that is free from all
restrictive and other legends, registered in the name of the Holder
or its designee. The Company shall be responsible for any transfer
agent fees or DTC fees with respect to any issuance of Exchange
Shares and the removal of any legends with respect to any Exchange
Shares in accordance herewith, including, but not limited to, fees
for the opinions of counsel rendered to the transfer agent in
connection with the removal of any legends.
f.
Restricted
Securities
. The Holder understands that: (i) the Exchange
Shares have not been and are not being registered under the
Securities Act or any state securities laws, and may not be offered
for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) the Holder shall have delivered to the
Company (if requested by the Company) an opinion of counsel to
the
Holder,
in a form reasonably acceptable to the Company, to the effect that
such Exchange Shares to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such
registration, or (C) the Holder provides the Company with
reasonable assurance that such Exchange Shares can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act (or a successor rule thereto)
(collectively, “Rule 144”); and (ii) any sale of the
Exchange Shares made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144, and further, if Rule 144 is
not applicable, any resale of the Exchange Shares under
circumstances in which the seller (or the Person through whom the
sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and
regulations of the SEC promulgated thereunder.
5.
Representations
and Warranties of the Company
. The Company hereby makes the
following representations and warranties to the
Holder:
a.
Authorization;
Enforcement
. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other agreements
entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the
“Exchange Documents”) and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and
the Company’s shareholders, if required, and no further
action is required by the Company or the Board of Directors of the
Company in connection therewith. This Agreement has been (or upon
delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except: (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
b.
Organization
and Qualification
. Each of the Company and its subsidiaries
(the “Subsidiaries”) are entities duly organized and
validly existing and in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power
and authorization to own their properties and to carry on their
business as now being conducted and as presently proposed to be
conducted. Each of the Company and each of its Subsidiaries is duly
qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property
or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, “Material Adverse
Effect” means any material adverse effect on (i) the
business, properties, assets, liabilities, operations (including
results thereof), condition (financial or otherwise) or prospects
of the Company or any Subsidiary, individually or taken as a whole,
(ii) the transactions contemplated hereby or in any of the other
Exchange Documents or (iii) the authority or ability of the Company
to perform any of its obligations under any of the Exchange
Documents. Other than its Subsidiaries, there is no Person (as
defined below) in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest.
“Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and any governmental
entity or any department or agency thereof.
c.
No
Conflict
. The execution, delivery and performance of the
Exchange Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby will
not (i) result in a violation of the Articles of Incorporation (as
defined below) or other organizational documents of the Company or
any of its Subsidiaries, any capital stock of the Company or any of
its Subsidiaries or Bylaws (as defined below) of the Company or any
of its Subsidiaries, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the
rules and regulations of principal market in which the
Company’s securities are listed (the “Principal
Market”) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected except, in the case of clause
(ii) or (iii) above, to the extent such violations that could not
reasonably be expected to have a Material Adverse
Effect.
d.
No
Consents
. Neither the Company nor any Subsidiary is required
to obtain any consent from, authorization or order of, or make any
filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order
for it to execute, deliver or perform any of its respective
obligations under or contemplated by the Exchange Documents, in
each case, in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which
the Company or any Subsidiary is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to
the date of this Agreement, and neither the Company nor any of its
Subsidiaries is aware of any facts or circumstances which might
prevent the Company or any of its Subsidiaries from obtaining or
effecting any of the registration, application or filings
contemplated by the Exchange Documents.
e.
Securities
Law Exemptions
. Assuming the accuracy of the representations
and warranties of the Holder contained herein, the offer and
issuance by the Company of the Exchange Shares is exempt from
registration under the Securities Act. The Company covenants and
represents to the Holder that neither the Company nor any of its
Subsidiaries has received, anticipates receiving, has any agreement
to receive or has been given any promise to receive any
consideration from the Holder or any other Person in connection
with the transactions contemplated by the Exchange
Documents.
f.
Issuance
of Exchange Shares
. The issuance of the Exchange Shares is
duly authorized and upon issuance in accordance with the terms of
the Exchange Documents shall be validly issued, fully paid and
non-assessable and free from all taxes, liens, charges and other
encumbrances with respect to the issue thereof. Upon issuance or
conversion in accordance with the Certificate of Designations, the
Conversion Shares, when issued, will be validly issued, fully paid
and nonassessable and free from all preemptive or similar rights,
taxes, liens, charges and other encumbrances with respect to the
issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock.
g.
Equity
Capitalization
. Except as disclosed in the SEC Documents (as
defined below): (i) none of the Company’s or any
Subsidiary’s capital stock is subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or
permitted by the Company or any Subsidiary; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional capital stock of the Company
or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company
or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing
indebtedness
of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is
or may become bound; (iv) there are no financing statements
securing obligations in any amounts filed in connection with the
Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the
Securities Act; (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Exchange
Shares; (viii) neither the Company nor any Subsidiary has any stock
appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) neither the
Company nor any of its Subsidiaries have any liabilities or
obligations required to be disclosed in the in the Company’s
filings with the Commission (the “SEC Documents”) which
are not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its
Subsidiaries’ respective businesses and which, individually
or in the aggregate, do not or could not have a Material Adverse
Effect. True, correct and complete copies of the Company’s
Articles of Incorporation, as amended and as in effect on the date
hereof (the “Articles of Incorporation”), and the
Company’s bylaws, as amended and as in effect on the date
hereof (the “Bylaws”), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of
common stock and the material rights of the holders thereof in
respect thereto are incorporated in, or have been disclosed in, the
SEC Documents.
(h)
Shell Company
Status
. The Company is not an issuer identified in Rule
144(i)(1) of the Securities Act. The Company is, and has been for a
period of at least 90 days, subject to the reporting requirements
of Section 13 or Section 15(d) of the Exchange Act.
6.
Additional
Acknowledgements
. The Holder and the Company confirm that
the Company has not received any consideration for the transactions
contemplated by this Agreement. Pursuant to Rule 144 promulgated by
the Commission pursuant to the Securities Act and the rules and
regulations promulgated thereunder as such Rule 144 may be amended
from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as
such Rule 144, the holding period of the Exchange Shares (including
the Conversion Shares upon conversion thereof) tacks back to
October 16, 2014, the original issuance date of the Note. The
Company agrees not to take a position contrary to this
paragraph.
a.
Successors
and Assigns
. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and
assigns.
b.
Governing
Law; Jurisdiction; Waiver of Jury Trial
. This Agreement
shall be governed by and construed under the laws of the State of
Nevada without regard to the choice of law principles thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the State of New York
located in The City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or
therewith or with any transaction contemplated hereby or thereby,
and hereby irrevocably waives any objection that such suit, action
or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
c.
Severability
.
If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in
any other jurisdiction.
d.
Counterparts/Execution
.
This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. In the event
that any signature is delivered by facsimile transmission or by an
e-mail which contains an electronic file of an executed signature
page, such signature page shall create a valid and binding
obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such
facsimile or electronic file signature page (as the case may be)
were an original thereof.
e.
Notices
.
Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if
hand-delivered or sent (i) postage prepaid by registered mail,
return receipt requested, or (ii) by facsimile, to the respective
parties as set forth below, or to such other address as either
party may notify the other in writing.
If to the Company,
to:
Exactus,
Inc.
Attention: Chief
Executive Officer
4870
Sadler Road, Suite 300
Glen
Allen, VA 23060
If to
Holder, to the address set forth on the signature page of the
Holder.
f.
Expenses
. Except
as otherwise provided for herein, the parties hereto shall pay
their own costs and expenses in connection herewith.
g.
Entire
Agreement; Amendments
. This Agreement constitutes the entire
agreement between the parties with regard to the subject matter
hereof and thereof, superseding all prior agreements or
understandings, whether written or oral, between or among the
parties. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties,
or, in the case of a waiver, by the party waiving compliance.
Except as expressly stated herein, no delay on the part of any
party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of
any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege
hereunder.
h.
Headings
.
The headings used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this
Agreement.
i.
Reporting
Status
. For a period of six (6) months from the date hereof,
the Company shall timely file all reports required to be filed with
the Commission pursuant to the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and the Company shall
continue to timely file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would
otherwise no longer require or permit such filings..
j.
Pledge
of Exchange Shares
. The Company acknowledges and agrees that
the Exchange Shares may be pledged by the Holder in connection with
a bona fide margin agreement or other loan or financing arrangement
that is secured by the Exchange Shares. The pledge of Exchange
Shares shall not be deemed to be a transfer, sale or assignment of
the Exchange Shares hereunder, and if the Holder effects a pledge
of Exchange Shares it shall not be required to provide the Company
with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement. The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Exchange
Shares may reasonably request in connection with a pledge of the
Exchange Shares to such pledgee by the Holder.
k.
Listing
.
The Company shall use reasonable best efforts to promptly secure
the listing or designation for quotation (as the case may be) of
all of the Conversion Shares upon each national securities exchange
and automated quotation system, if any, upon which the Common Stock
is then listed or designated for quotation (as the case may be)
(subject to official notice of issuance) (but in no event later
than the date of this Agreement) and shall use reasonable best
efforts to maintain such listing or designation for quotation (as
the case may be) of all Conversion Shares from time to time
issuable under the terms of this Agreement on such national
securities exchange or automated quotation system. The Company
shall maintain the Common Stock’s listing or authorization
for quotation (as the case may be) on the Principal Market, The New
York Stock Exchange, the NYSE MKT, the Nasdaq Capital Market, the
Nasdaq Global Market or the Nasdaq Global Select Market or the OTC
Markets OTCQB (each, an “Eligible Market”). Neither the
Company nor any of its Subsidiaries shall take any action which
could be reasonably expected to result in the delisting or
suspension of the Common Stock on an Eligible Market. The Company
shall pay all fees and expenses in connection with satisfying its
obligations under this
Section
7(k).
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
EXACTUS,
INC.
By:__________________________
Name:
_______________________
Title:
________________________
HOLDER:
Name:
Title:
Address
for Notices:
Address
for delivery of Exchange Shares:
EXECUTIVE EMPLOYMENT AGREEMENT
This
EXECUTIVE EMPLOYMENT AGREEMENT (“
Agreement
”) is made and
entered into effective as of the 1
st
day of December
2018, by and between Exactus, Inc. a Nevada corporation
headquartered at 4870 Sadler Road, Suite 300, Glen Allen, VA 23060
(“
Company
”) and Philip J.
Young, an individual (“
Executive
”). As used
herein, the “
Effective Date
” of this
Agreement shall mean December 1, 2018.
W I T N
E S S E T H:
WHEREAS, on
February 29, 2016 the Company and Exactus BioSolutions Corporation,
a Delaware corporation (the “
Predecessor Company
”)
entered into a Share Exchange Agreement (the “
Share Exchange
”) pursuant
to which the Company acquired all of the issued and outstanding
capital stock of the Predecessor Company.
WHEREAS, Executive
was party to an Employment Agreement dated as of December 15, 2015
by and between and Executive and the Predecessor Company (the
“
Predecessor
Employment Agreement
”).
WHEREAS, the
Executive desires to be employed by the Company as its Chief
Executive Officer and the Company wishes to employ the Executive in
such capacity.
WHEREAS, in
consideration for entry into this Agreement and the employment of
Executive pursuant to the terms hereof, Executive and Company agree
to terminate the Predecessor Employment Agreement and Executive
agrees to release Company from any and all obligations under the
Agreement for payment of any amounts that could be due or owing,
including, without limitation, all compensation, bonus, benefits,
car allowances, equity awards, separation and other payments
thereunder, including any and all amount accrued or unpaid
thereunder or which could accrue or become payable thereunder,
other than: (i) all cash compensation and bonuses paid on or before
the Effective Date (but not any accrued and unpaid amounts existing
as of the Effective Date which shall be waived and released in all
respects); (ii) reimbursement of all reasonable and necessary
expenses incurred by Executive on or prior to the Effective date
which shall become obligations pursuant to this Agreement; and
(iii) 225,000 options issued pursuant to the Company’s 2018
Equity Incentive Plan at an exercise price of $0.089 per share,
which shall be fully-vested on the Effective Date (collectively,
the “
Retained
Benefits
”).
WHEREAS, this
Agreement is being entered into between the Company and the
Executive in connection with that certain Exchange Agreements
between the Company and certain other parties signatory thereto and
as a condition thereof (the “
Exchange
Agreements
”).
NOW,
THEREFORE, in consideration of the foregoing and their respective
covenants and agreements contained in this document, the Company
and the Executive hereby agree as follows:
1.
Employment and Duties
. The
Company agrees to employ and the Executive agrees to serve as the
Company’s Chief Executive Officer. The duties and
responsibilities of the Executive shall include the duties and
responsibilities as the Company’s Board of Directors
(“
Board
”) may from time to
time assign to the Executive.
The
Executive shall devote his full time efforts and services to the
business and affairs of the Company and its subsidiaries. Nothing
in this Section 1 shall prohibit the Executive from: (A) serving as
a director or member of any other board, committee thereof of any
other entity or organization; (B) delivering lectures, fulfilling
speaking engagements, and any writing or publication relating to
his area of expertise; (C) serving as a director or trustee of any
governmental, charitable or educational organization; (D) engaging
in additional activities in connection with personal investments
and community affairs, including, without limitation, professional
or charitable or similar organization committees, boards,
memberships or similar associations or affiliations or (E)
performing advisory activities, provided, however, such activities
are not in competition with the business and affairs of the Company
or would tend to cast executive of Company in a negative light in
the reasonable judgment of the Board.
2.
Term
. The term of this
Agreement shall commence on the Effective Date and shall continue
for a period of two (2) years following the Effective Date (such
initial two (2) year term, the “
Initial Term
”) and shall
be automatically renewed for successive one (1) year periods
thereafter unless either party provides the other party with
written notice of his or its intention not to renew this Agreement
at least three (3) months prior to the expiration of the initial
term or any renewal term of this Agreement. “
Employment Period
” shall
mean the initial two (2) year term plus renewals, if
any.
3.
Place of Employment
. The
Executive’s services shall be performed at the address for
the Company set forth above and at such location or locations as
the Board of Directors shall determine, in its sole discretion.
Should the Company require services at a location greater than 25
miles from the Executive’s current residence the Company will
provide for and pay the usual and customary fees associated with
moving the Executive and his household to the required
location.
4.
Base Salary
. The Company agrees
to pay the Executive an initial base salary (“
Base Salary
”) of $150,000
per annum ($12,500 per month). Annual adjustments after the first
year of the Employment Period shall be determined by the Board. The
Base Salary shall be paid in periodic installments in accordance
with the Company’s regular payroll practices.
5.
Bonuses
.
(a) Annual
Bonus. The Executive shall be eligible to receive an annual bonus
the (“
Annual
Bonus
”) as determined by the Compensation Committee or
the Board of Directors of the Company (the “
Compensation Committee
”).
The Annual Bonus shall be paid by the Company to the Executive
promptly after determination that the relevant targets, if any,
have been met, it being understood that the attainment of any
financial targets associated with any bonus shall not be determined
until following the completion of the Company’s annual audit
and public announcement of such results and shall be paid promptly
following the Company’s announcement of earnings. In the
event that the Compensation Committee is unable to act or if there
shall be no such Compensation Committee, then all references herein
to the Compensation Committee (except in the proviso to this
sentence) shall be deemed to be references to the Board. Upon his
termination from employment, the Executive shall be entitled to
receive a pro-rata portion of the Annual Bonus calculated based
upon his final day of employment, regardless of whether he is
employed by the Company through the conclusion of the fiscal
quarter or year, as the case may be, on which the Annual Bonus is
based.
(b)
Equity
Awards
. The Executive shall be eligible for such grants of
awards under a Company incentive plan (or any successor or
replacement plan adopted by the Board and approved by the
stockholders of the Company) (the “
Plan
”) or as the
Compensation Committee or Board may from time to time determine
(the “
Share
Awards
”). Share Awards shall be subject to
the applicable Plan terms and conditions, provided, however, that
Share Awards shall be subject to any additional terms and
conditions as are provided herein or in any award certificate(s),
which shall supersede any conflicting provisions governing Share
Awards provided under the Plan.
6.
Severance
Compensation
. Upon
termination of employment for any reason, the Executive shall be
entitled to: (A) all Base Salary earned through the date of
termination to be paid according to Section 4; (B) any and all
reasonable expenses paid or incurred by the Executive in connection
with and related to the performance of his duties and
responsibilities for the Company during the period ending on the
termination date to be paid according to Section 8; (C) any accrued
but unused vacation time through the termination date in accordance
with Company policy; and (D) any Annual Bonuses earned through the
date of termination to be paid according to Section 5(a); and (E)
all Share Awards earned and vested prior to
termination.
Additionally, if
the Executive’s employment is terminated prior to expiration
of the Employment Period (including due to his death or Disability,
as defined in Section 12(b)) unless the Executive’s
employment is terminated for Cause (as defined in Section 12(c)) or
the Executive terminates his employment without Good Reason (as
defined in Section 12(d) and other than for a Change in Control as
provided in Section 12(d) and Section 12(f)), the Executive shall
be entitled to receive a cash amount equal to such amount as the
Executive would have been entitled to receive as an aggregate Base
Salary for the balance of the Initial Term (the “
Initial Term Severance
Payment
”) (provided that if this Agreement has been
renewed subsequent to the Initial Term and the Executive’s
employment is terminated prior to expiration of the Employment
Period (including due to his death or Disability) unless the
Executive’s employment is terminated for Cause or the
Executive terminates his employment without Good Reason and other
than for a Change in Control, the Executive shall be entitled to
receive a cash payment as determined by the Board (the
“
Renewal Separation
Payment
”) (the Initial Term Severance Payment or the
Renewal Separation Payment, as applicable herein shall may be
referred to as the “
Separation Payment
”),
provided
,
however
that the
Separation Payment shall in no event be less than 12 months of Base
Salary as then in effect, plus 50% of the prior year bonus, and if
no such bonus has been paid, 75% of the Base Salary as then in
effect; provided, that the Executive executes an agreement
releasing Company and its affiliates from any liability associated
with this Agreement and such release is irrevocable at the time the
Separation Payment is first payable under this Section 6 and the
Executive complies with his other obligations under Section 13 of
this Agreement. Subject to the terms hereof, one-half (1/2) of the
Separation Payment shall be paid within thirty (30) days of the
Executive’s termination of employment (“
Initial Payment
”),
provided that the Executive has executed a release; and the balance
of the Separation Payment shall be paid in substantially equal
installments on the Company’s regular payroll dates beginning
with the first payroll date coincident with or immediately
following the Initial Payment and ending with the last payroll date
that occurs in the third calendar year beginning after the
Executive’s termination of employment.
The
Executive may continue coverage with respect to the Company’s
group health plans as permitted by the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”) for himself and
each of his “
Qualified Beneficiaries
”
as defined by COBRA (“
COBRA Coverage
”). The
Company shall reimburse the amount of any COBRA premium paid for
COBRA Coverage timely elected by and for the Executive and any
Qualified Beneficiary of the Executive, and not otherwise
reimbursed, during the period that ends on the earliest of (x) the
date the Executive or the Qualified Beneficiary, as the case may
be, ceases to be eligible for COBRA Coverage, (y) the last day of
the consecutive eighteen (18) month period following the date of
the Executive’s termination of employment and (z) the date
the Executive or the Qualified Beneficiary, as the case may be, is
covered by another group health plan. To reimburse any COBRA
premium payment under this paragraph, the Company must receive
documentation of the COBRA premium payment within ninety (90) days
of its payment.
7.
Clawback Rights
. The Annual
Bonus, and any and all stock based compensation (such as options
and equity awards) (collectively, the “
Clawback Benefits
”) shall
be subject to “
Clawback Rights
” as
follows: during the period that the Executive is employed by the
Company and upon the termination of the Executive’s
employment and for a period of three (3) years thereafter, if there
is a restatement of any financial results directly attributable to
the Executive from which any Clawback Benefits to the Executive
shall have been determined, the Executive agrees to repay any
amounts which were determined by reference to any Company financial
results which were later restated (as defined below), to the extent
the Clawback Benefits amounts paid exceed the Clawback Benefits
amounts that would have been paid, based on the restatement of the
Company’s financial information. All Clawback Benefits
amounts resulting from such restated financial results shall be
retroactively adjusted by the Compensation Committee to take into
account the restated results, and any excess portion of the
Clawback Benefits resulting from such restated results shall be
immediately surrendered to the Company and if not so surrendered
within ninety (90) days of the revised calculation being provided
to the Executive by the Compensation Committee following a publicly
announced restatement, the Company shall have the right to take any
and all action to effectuate such adjustment. At the option of the
Executive, the excess portion of the Clawback Benefits resulting
from such restated results may be repaid by either: (i) cash
payment, or (ii) surrender of common stock to the Company, valued
at the closing market price for the Company’s common stock on
the date of surrender. The calculation of the revised Clawback
Benefits amount shall be determined by the Compensation Committee
in good faith and in accordance with applicable law, rules and
regulations. All determinations by the Compensation Committee with
respect to the Clawback Rights shall be final and binding on the
Company and the Executive. The Clawback Rights shall terminate
following a Change of Control as defined in Section 12(f), subject
to applicable law, rules and regulations. For purposes of this
Section 7, a restatement of financial results that requires a
repayment of a portion of the Clawback Benefits amounts shall mean
a restatement resulting from material non-compliance of the Company
with any financial reporting requirement under the federal
securities laws and shall not include a restatement of financial
results resulting from subsequent changes in accounting
pronouncements or requirements which were not in effect on the date
the financial statements were originally prepared
(“
Restatements
”). The
parties acknowledge it is their intention that the foregoing
Clawback Rights as relates to Restatements conform in all respects
to the provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (“
Dodd-Frank Act
”) and
require recovery of all “incentive-based” compensation,
pursuant to the provisions of the Dodd-Frank Act and any and all
rules and regulations promulgated thereunder from time to time in
effect. Accordingly, the terms and provisions of this Agreement
shall be deemed automatically amended from time to time to assure
compliance with the Dodd-Frank Act and such rules and regulations
as hereafter may be adopted and in effect.
8.
Expenses
. The Executive shall
be entitled to prompt reimbursement by the Company for all
reasonable ordinary and necessary travel, entertainment, and other
expenses incurred by the Executive while employed (in accordance
with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and
responsibilities under this Agreement; provided, that the Executive
shall properly account for such expenses in accordance with Company
policies and procedures.
9.
Other Benefits
. During the term
of this Agreement, the Executive shall be eligible to participate
in incentive, stock purchase, savings, retirement (401(k)), and
welfare benefit plans, including, without limitation, health,
medical, dental, vision, life (including accidental death and
dismemberment) and disability insurance plans (collectively,
“
Benefit
Plans
”), in substantially the same manner and at
substantially the same levels as the Company makes such
opportunities available to the Company’s managerial or
salaried executive employees and/or its senior executive
officers.
10.
Vacation
. During the term of
this Agreement, the Executive shall be entitled to accrue, on a pro
rata basis, seven (7) weeks paid vacation per year. Vacation shall
be taken at such times as are mutually convenient to the Executive
and the Company and no more than seven (14) consecutive days shall
be taken at any one time without Company approval in
advance.
11.
Intentionally
Omitted
.
12.
Termination of
Employment
.
(a)
Death
.
If the Executive dies during the Employment Period, this Agreement
and the Executive’s employment with the Company shall
automatically terminate and the Company’s obligations to the
Executive’s estate and to the Executive’s Qualified
Beneficiaries shall be those set forth in Section 6 regarding
severance compensation.
(b)
Disability
.
In the event that, during the term of this Agreement the Executive
shall be prevented from performing his essential functions
hereunder to the full extent required by the Company by reason of
Disability (as defined below), this Agreement and the
Executive’s employment with the Company shall automatically
terminate. The Company’s obligation to the Executive under
such circumstances shall be those set forth in Section 6 regarding
severance compensation. For purposes of this Agreement,
“
Disability
” shall mean a
physical or mental disability that prevents the performance by the
Executive, with or without reasonable accommodation, of his
essential functions hereunder for an aggregate of ninety (90) days
or longer during any twelve (12) consecutive months. The
determination of the Executive’s Disability shall be made by
an independent physician who is reasonably acceptable to the
Company and the Executive (or his representative), be final and
binding on the parties hereto and be made taking into account such
competent medical evidence as shall be presented to such
independent physician by the Executive and/or the Company or by any
physician or group of physicians or other competent medical experts
employed by the Executive and/or the Company to advise such
independent physician.
(c)
Cause
.
(1) At
any time during the Employment Period, the Company may terminate
this Agreement and the Executive’s employment hereunder for
Cause. For purposes of this Agreement, “
Cause
” shall mean: (a)
the willful and continued failure of the Executive to perform
substantially his duties and responsibilities for the Company
(other than any such failure resulting from the Executive’s
death or Disability) after a written demand by the Board for
substantial performance is delivered to the Executive by the
Company, which specifically identifies the manner in which the
Board believes that the Executive has not substantially performed
his duties and responsibilities, which willful and continued
failure is not cured by the Executive within thirty (30) days
following his receipt of such written demand; (b) the conviction
of, or plea of guilty or
nolo
contendere
to, a felony, or (c) fraud, dishonesty or gross
misconduct which is materially and demonstratively injurious to the
Company. Termination under clauses (b) or (c) of this Section
12(c)(1) shall not be subject to cure.
(2)
For purposes of
this Section 12(c), no act, or failure to act, on the part of the
Executive shall be considered “willful” unless done, or
omitted to be done, by him in bad faith and without reasonable
belief that his action or omission was in, or not opposed to, the
best interest of the Company. Between the time the Executive
receives written demand regarding substantial performance, as set
forth in subparagraph (1) above, and prior to an actual termination
for Cause, the Executive will be entitled to appear (with counsel)
before the full Board to present information regarding his views on
the Cause event. After such hearing, termination for Cause must be
approved by a majority vote of the full Board (other than the
Executive). After providing the written demand regarding
substantial performance, the Board may suspend the Executive with
full pay and benefits until a final determination by the full Board
has been made.
(3) Upon
termination of this Agreement for Cause, the Company shall have no
further obligations or liability to the Executive or his heirs,
administrators or executors with respect to compensation and
benefits thereafter, except for the obligation to pay the Executive
any Base Salary earned through the date of termination to be paid
according to Section 4; any unpaid Annual Bonus to be paid
according to Section 5; reimbursement of any and all reasonable
expenses paid or incurred by the Executive in connection with and
related to the performance of his duties and responsibilities for
the Company during the period ending on the termination date to be
paid according to Section 8; and any accrued but unused vacation
time through the termination date in accordance with Company
policy. The Company shall deduct, from all payments made hereunder,
all applicable taxes, including income tax, FICA and FUTA, and
other appropriate deductions.
(d)
For
Good Reason or a Change of Control or Without
Cause
.
(1) At
any time during the term of this Agreement and subject to the
conditions set forth in Section 12(d)(2) below the Executive may
terminate this Agreement and the Executive’s employment with
the Company for “Good Reason” or for a “Change of
Control” (as defined in Section 12(f)). For purposes of this
Agreement, “
Good
Reason
” shall mean the occurrence of any of the
following events without Executive’s consent: (A) the
assignment to the Executive of duties that are significantly
different from, and/or that result in a substantial diminution of,
the duties that he assumed on the Effective Date (including
reporting to anyone other than solely and directly to the Board);
(B) the assignment to the Executive of a title that is different
from and subordinate to the title Executive Vice President of Sales
and Marketing of the Company, provided, however, for the absence of
doubt following a Change of Control, should the Executive be
required to serve in a diminished capacity in a division or unit of
another entity (including the acquiring entity), such event shall
constitute Good Reason regardless of the title of the Executive in
such acquiring company, division or unit; or (C) material breach by
the Company of this Agreement.
(2) The
Executive shall not be entitled to terminate this Agreement for
Good Reason unless and until he shall have delivered written notice
to the Company within ninety (90) days of the date upon which the
facts giving rise to Good Reason occurred of his intention to
terminate this Agreement and his employment with the Company for
Good Reason, which notice specifies in reasonable detail the
circumstances claimed to provide the basis for such termination for
Good Reason, and the Company shall not have eliminated the
circumstances constituting Good Reason within thirty (30) days of
its receipt from the Executive of such written notice. In the event
the Executive elects to terminate this Agreement for Good Reason in
accordance with Section 12(d)(1), such election must be made within
the one-twenty (120) days following the initial existence of one or
more of the conditions constituting Good Reason as provided in
Section 12(d)(1). In the event the Executive elects to terminate
this Agreement for a Change in Control in accordance with Section
12(d)(1), such election must be made within one hundred eighty
(180) days of the occurrence of the Change of Control.
(3) In
the event that the Executive terminates this Agreement and his
employment with the Company for Good Reason or for a Change of
Control or the Company terminates this Agreement and the
Executive’s employment with the Company without Cause, the
Company shall pay or provide to the Executive (or, following his
death, to the Executive’s heirs, administrators or executors)
the severance compensation set forth in Section 6 above. The
Company shall deduct, from all payments made hereunder, all
applicable taxes, including income tax, FICA and FUTA, and other
appropriate deductions.
(4) The
Executive shall not be required to mitigate the amount of any
payment provided for in this Section 12(d) by seeking other
employment or otherwise, nor shall the amount of any payment
provided for in this Section 12(d) be reduced by any compensation
earned by the Executive as the result of employment by another
employer or business or by profits earned by the Executive from any
other source at any time before and after the termination date. The
Company’s obligation to make any payment pursuant to, and
otherwise to perform its obligations under, this Agreement shall
not be affected by any offset, counterclaim or other right that the
Company may have against the Executive for any reason.
(e)
Without
“Good Reason” by the Executive
. At any time
during the term of this Agreement, the Executive shall be entitled
to terminate this Agreement and the Executive’s employment
with the Company without Good Reason and other than for a Change of
Control by providing prior written notice of at least thirty (30)
days to the Company. Upon termination by the Executive of this
Agreement or the Executive’s employment with the Company
without Good Reason and other than for a Change of Control, the
Company shall have no further obligations or liability to the
Executive or his heirs, administrators or executors with respect to
compensation and benefits thereafter, except for the obligation to
pay the Executive any Base Salary earned through the date of
termination to be paid according to Section 4; any unpaid Annual
Bonus to be paid according to Section 5; reimbursement of any and
all reasonable expenses paid or incurred by the Executive in
connection with and related to the performance of his duties and
responsibilities for the Company during the period ending on the
termination date to be paid according to Section 8; and any accrued
but unused vacation time through the termination date in accordance
with Company policy. The Company shall deduct, from all payments
made hereunder, all applicable taxes, including income tax, FICA
and FUTA, and other appropriate deductions.
(f)
Change
of Control
. For purposes of this Agreement,
“
Change of
Control
” shall mean the occurrence of any one or more
of the following: (i) the accumulation (if over time, in any
consecutive twelve (12) month period), whether directly,
indirectly, beneficially or of record, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) of more than fifty
percent (50%) or more of the shares of the outstanding Common Stock
of the Company, whether by merger, consolidation, sale or other
transfer of shares of Common Stock (other than a merger or
consolidation where the stockholders of the Company prior to the
merger or consolidation are the holders of a majority of the voting
securities of the entity that survives such merger or
consolidation), (ii) a sale of all or substantially all of the
assets of the Company or (iii) during any period of twelve (12)
consecutive months, the 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 (2/3) of
the directors then still in office who either were directors at the
beginning of the twelve (12) month period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board; provided
that the following acquisitions shall not constitute a Change of
Control for the purposes of this Agreement: any acquisition of
Common Stock or securities convertible into Common Stock by any
employee benefit plan (or related trust) sponsored by or maintained
by the Company. Notwithstanding the foregoing, a Change of Control
shall exclude the initial event that causes the Company to become a
public reporting company with the Securities and Exchange
Commission and any event within twelve (12) months following the
Effective Date.
(g) Any
termination of the Executive’s employment by the Company or
by the Executive (other than termination by reason of the
Executive’s death) shall be communicated by written Notice of
Termination to the other party of this Agreement. For purposes of
this Agreement, a “
Notice of Termination
”
shall mean a written 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 the Executive’s employment
under the provision so indicated, provided, however, failure to
provide timely notification shall not affect the employment status
of the Executive.
13.
Confidential
Information
.
(a)
Disclosure
of Confidential Information.
The Executive recognizes,
acknowledges and agrees that he has had and will continue to have
access to secret and confidential information regarding the
Company, its subsidiaries and their respective businesses
(“
Confidential
Information
”), including but not limited to, its
products, methods, formulas, software code, patents, sources of
supply, customer dealings, data, know-how, trade secrets and
business plans, provided such information is not in or does not
hereafter become part of the public domain, or become known to
others through no fault of the Executive. The Executive
acknowledges that such information is of great value to the
Company, is the sole property of the Company, and has been and will
be acquired by him in confidence. In consideration of the
obligations undertaken by the Company herein, the Executive will
not, at any time, during or after his employment hereunder, reveal,
divulge or make known to any person, any information acquired by
the Executive during the course of his employment, which is treated
as confidential by the Company, and not otherwise in the public
domain. The provisions of this Section 13 shall survive the
termination of the Executive’s employment
hereunder.
(b) The
Executive affirms that he does not possess and will not rely upon
the protected trade secrets or confidential or proprietary
information of any prior employer(s) in providing services to the
Company or its subsidiaries.
(c) In
the event that the Executive’s employment with the Company
terminates for any reason, the Executive shall deliver forthwith to
the Company any and all originals and copies, including those in
electronic or digital formats, of Confidential Information;
provided, however, the Executive shall be entitled to retain (i)
papers and other materials of a personal nature, including, but not
limited to, photographs, correspondence, personal diaries,
calendars and rolodexes, personal files and phone books, (ii)
information showing his compensation or relating to reimbursement
of expenses, (iii) information that he reasonably believes may be
needed for tax purposes and (iv) copies of plans, programs and
agreements relating to his employment, or termination thereof, with
the Company.
14.
Non-Competition and
Non-Solicitation.
(a) The
Executive agrees and acknowledges that the Confidential Information
that the Executive has already received and will receive is
valuable to the Company and that its protection and maintenance
constitutes a legitimate business interest of the Company, to be
protected by the non-competition restrictions set forth herein. The
Executive agrees and acknowledges that the non-competition
restrictions set forth herein are reasonable and necessary and do
not impose undue hardship or burdens on the Executive. The
Executive also acknowledges that the Company’s Business (as
defined in Section 14(b)(1) below) is conducted worldwide (the
“
Territory
”), and that the
Territory, scope of prohibited competition, and time duration set
forth in the non-competition restrictions set forth below are
reasonable and necessary to maintain the value of the Confidential
Information of, and to protect the goodwill and other legitimate
business interests of, the Company, its affiliates and/or its
clients or customers. The provisions of this Section 14 shall
survive the termination of the Executive’s employment
hereunder for the time periods specified below.
(b) The
Executive hereby agrees and covenants that he shall not without the
prior written consent of the Company, directly or indirectly, in
any capacity whatsoever, including, without limitation, as an
employee, employer, consultant, principal, partner, shareholder,
officer, director or any other individual or representative
capacity (other than (i) as a holder of less than two (2%) percent
of the outstanding securities of a company whose shares are traded
on any national securities exchange or (ii) as a limited partner,
passive minority interest holder in a venture capital fund, private
equity fund or similar investment entity which holds or may hold an
equity or debt position in portfolio companies that are competitive
with the Company; provided however, that the Executive shall be
precluded from serving as an operating partner, general partner,
manager or governing board designee with respect to such portfolio
companies), or whether on the Executive's own behalf or on behalf
of any other person or entity or otherwise howsoever, during the
Term and thereafter to the extent described below, within the
Territory:
(1) Engage,
own, manage, operate, control, be employed by, consult for,
participate in, or be connected in any manner with the ownership,
management, operation or control of any business in competition
with the Business of the Company, as defined in the next sentence.
For purposes hereof, the Company’s Business shall mean the
electronics distribution business as well as any future related or
unrelated industries or segments in which the Company may engage or
operate in the future.
(2) Recruit,
solicit or hire, or attempt to recruit, solicit or hire, any
employee, or independent contractor of the Company to leave the
employment (or independent contractor relationship) thereof,
whether or not any such employee or independent contractor is party
to an employment agreement, for the purpose of competing with the
Business of the Company;
(3) Attempt
in any manner to solicit or accept from any customer of the
Company, with whom Executive had significant contact during
Executive’s employment by the Company (whether under this
Agreement or otherwise), business of the kind or competitive with
the business done by the Company with such customer or to persuade
or attempt to persuade any such customer to cease to do business or
to reduce the amount of business which such customer has
customarily done or might do with the Company, or if any such
customer elects to move its business to a person other than the
Company, provide any services of the kind or competitive with the
business of the Company for such customer, or have any discussions
regarding any such service with such customer, on behalf of such
other person for the purpose of competing with the Business of the
Company; or
(4) Interfere
with any relationship, contractual or otherwise, between the
Company and any other party, including, without limitation, any
supplier, distributor, co-venturer or joint venturer of the
Company, for the purpose of soliciting such other party to
discontinue or reduce its business with the Company for the purpose
of competing with the Business of the Company.
With
respect to the activities described in Paragraphs (1), (2), (3) and
(4) above, the restrictions of this Section 14(b) shall continue
during the Term and for a period of one (1) year
thereafter.
15.
Section 409A
.
The
provisions of this Agreement are intended to comply with or are
exempt from Section 409A of the Code (“
Section 409A
”) and the
related Treasury Regulations and shall be construed in a manner
consistent with the requirements for avoiding taxes or penalties
under Section 409A. The Company and the Executive agree to work
together in good faith to consider amendments to this Agreement and
to take such reasonable actions necessary, appropriate or desirable
to avoid imposition of any additional tax under Section 409A or
income recognition prior to actual payment to the Executive under
this Agreement.
It is
intended that any expense reimbursement made under this Agreement
shall be exempt from Section 409A. Notwithstanding the foregoing,
if any expense reimbursement made under this Agreement shall be
determined to be “deferred compensation” subject to
Section 409A (“
Deferred Compensation
”),
then (a) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit, (b) the
amount of expenses eligible for reimbursement, or in-kind benefits,
provided during any taxable year shall not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided, in
any other taxable year (provided that this clause (b) shall not be
violated with regard to expenses reimbursed under any arrangement
covered by Section 105(b) of the Code solely because such expenses
are subject to a limit related to the period the arrangement is in
effect) and (c) such payments shall be made on or before the last
day of the taxable year following the taxable year in which the
expense was incurred.
With
respect to the time of payments of any amount under this Agreement
that is Deferred Compensation, references in the Agreement to
“termination of employment” and substantially similar
phrases, including a termination of employment due to the
Executive’s Disability, shall mean “
Separation from Service
”
from the Company within the meaning of Section 409A (determined
after applying the presumptions set forth in Treasury Regulation
Section 1.409A-1(h)(1)). Each installment payable hereunder shall
constitute a separate payment for purposes of Treasury Regulation
Section 1.409A-2(b), including Treasury Regulation Section
1.409A-2(b)(2)(iii). Each payment that is made within the terms of
the “short-term deferral” rule set forth in Treasury
Regulation Section 1.409A-1(b)(4) is intended to meet the
“short-term deferral” rule. Each other payment is
intended to be a payment upon an involuntary termination from
service and payable pursuant to Treasury Regulation Section
1.409A-1(b)(9)(iii), et. seq., to the maximum extent permitted by
that regulation, with any amount that is not exempt from Code
Section 409A being subject to Code Section 409A.
Notwithstanding
anything to the contrary in this Agreement, if the Executive is a
“specified employee” within the meaning of Section 409A
at the time of the Executive’s termination, then only that
portion of the severance and benefits payable to the Executive
pursuant to this Agreement, if any, and any other severance
payments or separation benefits which may be considered Deferred
Compensation (together, the “
Deferred Separation
Benefits
”), which (when considered together) do not
exceed the Section 409A Limit (as defined herein) may be made
within the first six (6) months following the Executive’s
termination of employment in accordance with the payment schedule
applicable to each payment or benefit. Any portion of the Deferred
Separation Benefits in excess of the Section 409A Limit otherwise
due to the Executive on or within the six (6) month period
following the Executive’s termination will accrue during such
six (6) month period and will become payable in one lump sum cash
payment on the date six (6) months and one (1) day following the
date of the Executive’s termination of employment. All
subsequent Deferred Separation Benefits, if any, will be payable in
accordance with the payment schedule applicable to each payment or
benefit. Notwithstanding anything herein to the contrary, if the
Executive dies following termination but prior to the six (6) month
anniversary of the Executive’s termination date, then any
payments delayed in accordance with this paragraph will be payable
in a lump sum as soon as administratively practicable after the
date of the Executive’s death and all other Deferred
Separation Benefits will be payable in accordance with the payment
schedule applicable to each payment or benefit.
For
purposes of this Agreement, “
Section 409A Limit
” shall
mean a sum equal to (x) the amounts payable within the terms of the
“short-term deferral” rule under Treasury Regulation
Section 1.409A-1(b)(4) plus (y) the amount payable as
“separation pay due to involuntary separation from
service” under Treasury Regulation Section
1.409A-1(b)(9)(iii) equal to the lesser of two (2) times: (i) the
Executive’s annualized compensation from the Company based
upon his annual rate of pay during the Executive’s taxable
year preceding his taxable year when his employment terminated, as
determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1); and
(ii) the maximum amount that may be taken into account under a
qualified plan pursuant to Section 401(a)(17) of the Code for the
year in which the Executive’s employment is terminated.
16.
Miscellaneous.
(a) Neither
the Executive nor the Company may assign or delegate any of their
rights or duties under this Agreement without the express written
consent of the other; provided, however, that the Company shall
have the right to delegate its obligation of payment of all sums
due to the Executive hereunder, provided that such delegation shall
not relieve the Company of any of its obligations
hereunder.
(b) During
the term of this Agreement, the Company (i) shall indemnify and
hold harmless the Executive and his heirs and representatives to
the maximum extent provided by the laws of the State of Nevada and
by Company’s bylaws and (ii) shall cover the Executive under
the Company’s directors’ and officers’ liability
insurance on the same basis as it covers other senior executive
officers and directors of the Company.
(c) This
Agreement constitutes and embodies the full and complete
understanding and agreement of the parties with respect to the
Executive’s employment by the Company, supersedes all prior
understandings and agreements, whether oral or written, between the
Executive and the Company, and shall not be amended, modified or
changed except by an instrument in writing executed by the party to
be charged. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement and the
application of such provision to other persons or circumstances
shall be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and
enforceable provision that shall achieve, to the extent possible,
the economic, business and other purposes of the void or
unenforceable provision. No waiver by either party of any provision
or condition to be performed shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or any prior
or subsequent time. The Predecessor Employment Agreement is
terminated in all respects effective as of the Effective Date. All
rights and benefits of Executive under the Predecessor Employment
Agreement are hereby released and of no further force and effect
other than the Retained Benefits.
Executive hereby
knowingly and voluntarily releases and forever discharges the
Company, any related companies, and the former and current
employees, officers, agents, directors, shareholders, investors,
attorneys, affiliates, successors and assigns of any of them (the
“
Released
Parties
”) from all
liabilities, claims, demands, rights of action or causes of action
Executive had, has or may have against any of the Released Parties
through the Effective Date of this Agreement, including but not
limited to any claims or demands based upon or relating to
Executive’s employment with the Company or the cessation of
that employment. This includes, but is not limited to, a
release of any rights or claims Employee may have under Title VII
of the Civil Rights Act of 1964, as amended; the Equal Pay Act; the
Age Discrimination in Employment Act of 1967; the Employee
Retirement Income Security Act, except as provided herein; the
Americans with Disabilities Act; the Family and Medical Leave Act
of 1993; or any other federal, state or local laws or regulations
applicable to the employment relationship. This also
includes, but is not limited to, a release by Executive of any
claims for wrongful discharge, breach of contract, or any other
statutory, common law, tort, contract, or negligence claim that
Executive had, has or may have against any of the Released Parties
through the date of this Agreement. This release covers
both claims that Executive knows about and those claims Executive
may not know about.
Notwithstanding anything herein to the
contrary, the release shall not discharge any obligation of the
Company for indemnification of Executive under the Predecessor
Agreement, this Agreement, the Company’s Articles of
Incorporation or Bylaws, or pursuant to applicable law, other than
such indemnification as may be contrary to public policy as
determined by the Securities and Exchange Commission.
(d) This
Agreement shall inure to the benefit of, be binding upon and
enforceable against, the parties hereto and their respective
successors, heirs, beneficiaries and permitted
assigns.
(e) The
headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) All
notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage
prepaid, or by reputable national overnight delivery service (e.g.,
Federal Express) for overnight delivery to the party at the address
set forth in the preamble to this Agreement, or to such other
address as either party may hereafter give the other party notice
of in accordance with the provisions hereof. Notices shall be
deemed given on the sooner of the date actually received or the
third business day after deposited in the mail or one business day
after deposited with an overnight delivery service for overnight
delivery.
(g) This
Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York, and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the
federal and state courts located in the State of New York, County
of New York, for any disputes arising out of this Agreement, or the
Executive’s employment with the Company. The prevailing party
in any dispute arising out of this Agreement shall be entitled to
his or its reasonable attorney’s fees and costs.
(h) This
Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one of the same instrument. The
parties hereto have executed this Agreement as of the date set
forth above.
(i) The
Executive represents and warrants to the Company, that he has the
full power and authority to enter into this Agreement and to
perform his obligations hereunder and that the execution and
delivery of this Agreement and the performance of his obligations
hereunder will not conflict with any agreement to which the
Executive is a party.
(j) The
Company represents and warrants to the Executive that it has the
full power and authority to enter into this Agreement and to
perform its obligations hereunder and that the execution and
delivery of this Agreement and the performance of its obligations
hereunder will not conflict with any agreement to which the Company
is a party.
[Signature page follows immediately]
IN
WITNESS WHEREOF, the Executive and the Company have caused this
Executive Employment Agreement to be executed as of the date first
above written.
|
|
EXCACTUS, INC.
By:
Name:
_____________________________
Title: _____________________________
Date
Signed: ________________________
|
|
|
PHILIP Y. YOUNG
Executive
___________________________________________
Date
Signed: _________________________
|
EXECUTIVE EMPLOYMENT AGREEMENT
This
EXECUTIVE EMPLOYMENT AGREEMENT (“
Agreement
”) is made and
entered into effective as of the 1
st
day of December
2018, by and between Exactus, Inc. a Nevada corporation
headquartered at 4870 Sadler Road, Suite 300, Glen Allen, VA 23060
(“
Company
”) and Timothy
Ryan, an individual (“
Executive
”). As used
herein, the “
Effective Date
” of this
Agreement shall mean December 1, 2018.
W I T N
E S S E T H:
WHEREAS, on
February 29, 2016 the Company and Exactus BioSolutions Corporation,
a Delaware corporation (the “
Predecessor Company
”)
entered into a Share Exchange Agreement (the “
Share Exchange
”) pursuant
to which the Company acquired all of the issued and outstanding
capital stock of the Predecessor Company.
WHEREAS, Executive
was party to an Employment Agreement dated as of December 15, 2015
by and between and Executive and the Predecessor Company (the
“
Predecessor
Employment Agreement
”).
WHEREAS, the
Executive desires to be employed by the Company as its Executive
Vice President and the Company wishes to employ the Executive in
such capacity.
WHEREAS, in
consideration for entry into this Agreement and the employment of
Executive pursuant to the terms hereof, Executive and Company agree
to terminate the Predecessor Employment Agreement and Executive
agrees to release Company from any and all obligations under the
Agreement for payment of any amounts that could be due or owing,
including, without limitation, all compensation, bonus, benefits,
car allowances, equity awards, separation and other payments
thereunder, including any and all amount accrued or unpaid
thereunder or which could accrue or become payable thereunder,
other than: (i) all cash compensation and bonuses paid on or before
the Effective Date (but not any accrued and unpaid amounts existing
as of the Effective Date which shall be waived and released in all
respects); (ii) reimbursement of all reasonable and necessary
expenses incurred by Executive on or prior to the Effective date
which shall become obligations pursuant to this Agreement; and
(iii) 225,000 options issued pursuant to the Company’s 2018
Equity Incentive Plan at an exercise price of $0.089 per share,
which shall be fully-vested on the Effective Date (collectively,
the “
Retained
Benefits
”).
WHEREAS, this
Agreement is being entered into between the Company and the
Executive in connection with that certain Exchange Agreements
between the Company and certain other parties signatory thereto and
as a condition thereof (the “
Exchange
Agreements
”).
NOW,
THEREFORE, in consideration of the foregoing and their respective
covenants and agreements contained in this document, the Company
and the Executive hereby agree as follows:
1.
Employment and Duties
. The
Company agrees to employ and the Executive agrees to serve as the
Company’s Executive Vice President. The duties and
responsibilities of the Executive shall include the duties and
responsibilities as the Company’s Board of Directors
(“
Board
”) may from time to
time assign to the Executive.
The
Executive shall devote his full time efforts and services to the
business and affairs of the Company and its subsidiaries. Nothing
in this Section 1 shall prohibit the Executive from: (A) serving as
a director or member of any other board, committee thereof of any
other entity or organization; (B) delivering lectures, fulfilling
speaking engagements, and any writing or publication relating to
his area of expertise; (C) serving as a director or trustee of any
governmental, charitable or educational organization; (D) engaging
in additional activities in connection with personal investments
and community affairs, including, without limitation, professional
or charitable or similar organization committees, boards,
memberships or similar associations or affiliations or (E)
performing advisory activities, provided, however, such activities
are not in competition with the business and affairs of the Company
or would tend to cast executive of Company in a negative light in
the reasonable judgment of the Board.
2.
Term
. The term of this
Agreement shall commence on the Effective Date and shall continue
for a period of two (2) years following the Effective Date (such
initial two (2) year term, the “
Initial Term
”) and shall
be automatically renewed for successive one (1) year periods
thereafter unless either party provides the other party with
written notice of his or its intention not to renew this Agreement
at least three (3) months prior to the expiration of the initial
term or any renewal term of this Agreement. “
Employment Period
” shall
mean the initial two (2) year term plus renewals, if
any.
3.
Place of Employment
. The
Executive’s services shall be performed at the address for
the Company set forth above and at such location or locations as
the Board of Directors shall determine, in its sole discretion.
Should the Company require services at a location greater than 25
miles from the Executive’s current residence the Company will
provide for and pay the usual and customary fees associated with
moving the Executive and his household to the required
location.
4.
Base Salary
. The Company agrees
to pay the Executive an initial base salary (“
Base Salary
”) of $120,000
per annum ($10,000 per month). Annual adjustments after the first
year of the Employment Period shall be determined by the Board. The
Base Salary shall be paid in periodic installments in accordance
with the Company’s regular payroll practices.
5.
Bonuses
.
(a) Annual
Bonus. The Executive shall be eligible to receive an annual bonus
the (“
Annual
Bonus
”) as determined by the Compensation Committee or
the Board of Directors of the Company (the “
Compensation Committee
”).
The Annual Bonus shall be paid by the Company to the Executive
promptly after determination that the relevant targets, if any,
have been met, it being understood that the attainment of any
financial targets associated with any bonus shall not be determined
until following the completion of the Company’s annual audit
and public announcement of such results and shall be paid promptly
following the Company’s announcement of earnings. In the
event that the Compensation Committee is unable to act or if there
shall be no such Compensation Committee, then all references herein
to the Compensation Committee (except in the proviso to this
sentence) shall be deemed to be references to the Board. Upon his
termination from employment, the Executive shall be entitled to
receive a pro-rata portion of the Annual Bonus calculated based
upon his final day of employment, regardless of whether he is
employed by the Company through the conclusion of the fiscal
quarter or year, as the case may be, on which the Annual Bonus is
based.
(b)
Equity
Awards
. The Executive shall be eligible for such grants of
awards under a Company incentive plan (or any successor or
replacement plan adopted by the Board and approved by the
stockholders of the Company) (the “
Plan
”) or as the
Compensation Committee or Board may from time to time determine
(the “
Share
Awards
”). Share Awards shall be subject to
the applicable Plan terms and conditions, provided, however, that
Share Awards shall be subject to any additional terms and
conditions as are provided herein or in any award certificate(s),
which shall supersede any conflicting provisions governing Share
Awards provided under the Plan.
6.
Severance
Compensation
. Upon
termination of employment for any reason, the Executive shall be
entitled to: (A) all Base Salary earned through the date of
termination to be paid according to Section 4; (B) any and all
reasonable expenses paid or incurred by the Executive in connection
with and related to the performance of his duties and
responsibilities for the Company during the period ending on the
termination date to be paid according to Section 8; (C) any accrued
but unused vacation time through the termination date in accordance
with Company policy; and (D) any Annual Bonuses earned through the
date of termination to be paid according to Section 5(a); and (E)
all Share Awards earned and vested prior to
termination.
Additionally, if
the Executive’s employment is terminated prior to expiration
of the Employment Period (including due to his death or Disability,
as defined in Section 12(b)) unless the Executive’s
employment is terminated for Cause (as defined in Section 12(c)) or
the Executive terminates his employment without Good Reason (as
defined in Section 12(d) and other than for a Change in Control as
provided in Section 12(d) and Section 12(f)), the Executive shall
be entitled to receive a cash amount equal to such amount as the
Executive would have been entitled to receive as an aggregate Base
Salary for the balance of the Initial Term (the “
Initial Term Severance
Payment
”) (provided that if this Agreement has been
renewed subsequent to the Initial Term and the Executive’s
employment is terminated prior to expiration of the Employment
Period (including due to his death or Disability) unless the
Executive’s employment is terminated for Cause or the
Executive terminates his employment without Good Reason and other
than for a Change in Control, the Executive shall be entitled to
receive a cash payment as determined by the Board (the
“
Renewal Separation
Payment
”) (the Initial Term Severance Payment or the
Renewal Separation Payment, as applicable herein shall may be
referred to as the “
Separation Payment
”),
provided
,
however
that the
Separation Payment shall in no event be less than 12 months of Base
Salary as then in effect, plus 50% of the prior year bonus, and if
no such bonus has been paid, 75% of the Base Salary as then in
effect; provided, that the Executive executes an agreement
releasing Company and its affiliates from any liability associated
with this Agreement and such release is irrevocable at the time the
Separation Payment is first payable under this Section 6 and the
Executive complies with his other obligations under Section 13 of
this Agreement. Subject to the terms hereof, one-half (1/2) of the
Separation Payment shall be paid within thirty (30) days of the
Executive’s termination of employment (“
Initial Payment
”),
provided that the Executive has executed a release; and the balance
of the Separation Payment shall be paid in substantially equal
installments on the Company’s regular payroll dates beginning
with the first payroll date coincident with or immediately
following the Initial Payment and ending with the last payroll date
that occurs in the third calendar year beginning after the
Executive’s termination of employment.
The
Executive may continue coverage with respect to the Company’s
group health plans as permitted by the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”) for himself and
each of his “
Qualified Beneficiaries
”
as defined by COBRA (“
COBRA Coverage
”). The
Company shall reimburse the amount of any COBRA premium paid for
COBRA Coverage timely elected by and for the Executive and any
Qualified Beneficiary of the Executive, and not otherwise
reimbursed, during the period that ends on the earliest of (x) the
date the Executive or the Qualified Beneficiary, as the case may
be, ceases to be eligible for COBRA Coverage, (y) the last day of
the consecutive eighteen (18) month period following the date of
the Executive’s termination of employment and (z) the date
the Executive or the Qualified Beneficiary, as the case may be, is
covered by another group health plan. To reimburse any COBRA
premium payment under this paragraph, the Company must receive
documentation of the COBRA premium payment within ninety (90) days
of its payment.
7.
Clawback Rights
. The Annual
Bonus, and any and all stock based compensation (such as options
and equity awards) (collectively, the “
Clawback Benefits
”) shall
be subject to “
Clawback Rights
” as
follows: during the period that the Executive is employed by the
Company and upon the termination of the Executive’s
employment and for a period of three (3) years thereafter, if there
is a restatement of any financial results directly attributable to
the Executive from which any Clawback Benefits to the Executive
shall have been determined, the Executive agrees to repay any
amounts which were determined by reference to any Company financial
results which were later restated (as defined below), to the extent
the Clawback Benefits amounts paid exceed the Clawback Benefits
amounts that would have been paid, based on the restatement of the
Company’s financial information. All Clawback Benefits
amounts resulting from such restated financial results shall be
retroactively adjusted by the Compensation Committee to take into
account the restated results, and any excess portion of the
Clawback Benefits resulting from such restated results shall be
immediately surrendered to the Company and if not so surrendered
within ninety (90) days of the revised calculation being provided
to the Executive by the Compensation Committee following a publicly
announced restatement, the Company shall have the right to take any
and all action to effectuate such adjustment. At the option of the
Executive, the excess portion of the Clawback Benefits resulting
from such restated results may be repaid by either: (i) cash
payment, or (ii) surrender of common stock to the Company, valued
at the closing market price for the Company’s common stock on
the date of surrender. The calculation of the revised Clawback
Benefits amount shall be determined by the Compensation Committee
in good faith and in accordance with applicable law, rules and
regulations. All determinations by the Compensation Committee with
respect to the Clawback Rights shall be final and binding on the
Company and the Executive. The Clawback Rights shall terminate
following a Change of Control as defined in Section 12(f), subject
to applicable law, rules and regulations. For purposes of this
Section 7, a restatement of financial results that requires a
repayment of a portion of the Clawback Benefits amounts shall mean
a restatement resulting from material non-compliance of the Company
with any financial reporting requirement under the federal
securities laws and shall not include a restatement of financial
results resulting from subsequent changes in accounting
pronouncements or requirements which were not in effect on the date
the financial statements were originally prepared
(“
Restatements
”). The
parties acknowledge it is their intention that the foregoing
Clawback Rights as relates to Restatements conform in all respects
to the provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (“
Dodd-Frank Act
”) and
require recovery of all “incentive-based” compensation,
pursuant to the provisions of the Dodd-Frank Act and any and all
rules and regulations promulgated thereunder from time to time in
effect. Accordingly, the terms and provisions of this Agreement
shall be deemed automatically amended from time to time to assure
compliance with the Dodd-Frank Act and such rules and regulations
as hereafter may be adopted and in effect.
8.
Expenses
. The Executive shall
be entitled to prompt reimbursement by the Company for all
reasonable ordinary and necessary travel, entertainment, and other
expenses incurred by the Executive while employed (in accordance
with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and
responsibilities under this Agreement; provided, that the Executive
shall properly account for such expenses in accordance with Company
policies and procedures.
9.
Other Benefits
. During the term
of this Agreement, the Executive shall be eligible to participate
in incentive, stock purchase, savings, retirement (401(k)), and
welfare benefit plans, including, without limitation, health,
medical, dental, vision, life (including accidental death and
dismemberment) and disability insurance plans (collectively,
“
Benefit
Plans
”), in substantially the same manner and at
substantially the same levels as the Company makes such
opportunities available to the Company’s managerial or
salaried executive employees and/or its senior executive
officers.
10.
Vacation
. During the term of
this Agreement, the Executive shall be entitled to accrue, on a pro
rata basis, seven (7) weeks paid vacation per year. Vacation shall
be taken at such times as are mutually convenient to the Executive
and the Company and no more than seven (14) consecutive days shall
be taken at any one time without Company approval in
advance.
11.
Intentionally
Omitted
.
12.
Termination of
Employment
.
(a)
Death
.
If the Executive dies during the Employment Period, this Agreement
and the Executive’s employment with the Company shall
automatically terminate and the Company’s obligations to the
Executive’s estate and to the Executive’s Qualified
Beneficiaries shall be those set forth in Section 6 regarding
severance compensation.
(b)
Disability
.
In the event that, during the term of this Agreement the Executive
shall be prevented from performing his essential functions
hereunder to the full extent required by the Company by reason of
Disability (as defined below), this Agreement and the
Executive’s employment with the Company shall automatically
terminate. The Company’s obligation to the Executive under
such circumstances shall be those set forth in Section 6 regarding
severance compensation. For purposes of this Agreement,
“
Disability
” shall mean a
physical or mental disability that prevents the performance by the
Executive, with or without reasonable accommodation, of his
essential functions hereunder for an aggregate of ninety (90) days
or longer during any twelve (12) consecutive months. The
determination of the Executive’s Disability shall be made by
an independent physician who is reasonably acceptable to the
Company and the Executive (or his representative), be final and
binding on the parties hereto and be made taking into account such
competent medical evidence as shall be presented to such
independent physician by the Executive and/or the Company or by any
physician or group of physicians or other competent medical experts
employed by the Executive and/or the Company to advise such
independent physician.
(c)
Cause
.
(1) At
any time during the Employment Period, the Company may terminate
this Agreement and the Executive’s employment hereunder for
Cause. For purposes of this Agreement, “
Cause
” shall mean: (a)
the willful and continued failure of the Executive to perform
substantially his duties and responsibilities for the Company
(other than any such failure resulting from the Executive’s
death or Disability) after a written demand by the Board for
substantial performance is delivered to the Executive by the
Company, which specifically identifies the manner in which the
Board believes that the Executive has not substantially performed
his duties and responsibilities, which willful and continued
failure is not cured by the Executive within thirty (30) days
following his receipt of such written demand; (b) the conviction
of, or plea of guilty or
nolo
contendere
to, a felony, or (c) fraud, dishonesty or gross
misconduct which is materially and demonstratively injurious to the
Company. Termination under clauses (b) or (c) of this Section
12(c)(1) shall not be subject to cure.
(2)
For purposes of
this Section 12(c), no act, or failure to act, on the part of the
Executive shall be considered “willful” unless done, or
omitted to be done, by him in bad faith and without reasonable
belief that his action or omission was in, or not opposed to, the
best interest of the Company. Between the time the Executive
receives written demand regarding substantial performance, as set
forth in subparagraph (1) above, and prior to an actual termination
for Cause, the Executive will be entitled to appear (with counsel)
before the full Board to present information regarding his views on
the Cause event. After such hearing, termination for Cause must be
approved by a majority vote of the full Board (other than the
Executive). After providing the written demand regarding
substantial performance, the Board may suspend the Executive with
full pay and benefits until a final determination by the full Board
has been made.
(3) Upon
termination of this Agreement for Cause, the Company shall have no
further obligations or liability to the Executive or his heirs,
administrators or executors with respect to compensation and
benefits thereafter, except for the obligation to pay the Executive
any Base Salary earned through the date of termination to be paid
according to Section 4; any unpaid Annual Bonus to be paid
according to Section 5; reimbursement of any and all reasonable
expenses paid or incurred by the Executive in connection with and
related to the performance of his duties and responsibilities for
the Company during the period ending on the termination date to be
paid according to Section 8; and any accrued but unused vacation
time through the termination date in accordance with Company
policy. The Company shall deduct, from all payments made hereunder,
all applicable taxes, including income tax, FICA and FUTA, and
other appropriate deductions.
(d)
For
Good Reason or a Change of Control or Without
Cause
.
(1) At
any time during the term of this Agreement and subject to the
conditions set forth in Section 12(d)(2) below the Executive may
terminate this Agreement and the Executive’s employment with
the Company for “Good Reason” or for a “Change of
Control” (as defined in Section 12(f)). For purposes of this
Agreement, “
Good
Reason
” shall mean the occurrence of any of the
following events without Executive’s consent: (A) the
assignment to the Executive of duties that are significantly
different from, and/or that result in a substantial diminution of,
the duties that he assumed on the Effective Date (including
reporting to anyone other than solely and directly to the Board);
(B) the assignment to the Executive of a title that is different
from and subordinate to the title Executive Vice President of Sales
and Marketing of the Company, provided, however, for the absence of
doubt following a Change of Control, should the Executive be
required to serve in a diminished capacity in a division or unit of
another entity (including the acquiring entity), such event shall
constitute Good Reason regardless of the title of the Executive in
such acquiring company, division or unit; or (C) material breach by
the Company of this Agreement.
(2) The
Executive shall not be entitled to terminate this Agreement for
Good Reason unless and until he shall have delivered written notice
to the Company within ninety (90) days of the date upon which the
facts giving rise to Good Reason occurred of his intention to
terminate this Agreement and his employment with the Company for
Good Reason, which notice specifies in reasonable detail the
circumstances claimed to provide the basis for such termination for
Good Reason, and the Company shall not have eliminated the
circumstances constituting Good Reason within thirty (30) days of
its receipt from the Executive of such written notice. In the event
the Executive elects to terminate this Agreement for Good Reason in
accordance with Section 12(d)(1), such election must be made within
the one-twenty (120) days following the initial existence of one or
more of the conditions constituting Good Reason as provided in
Section 12(d)(1). In the event the Executive elects to terminate
this Agreement for a Change in Control in accordance with Section
12(d)(1), such election must be made within one hundred eighty
(180) days of the occurrence of the Change of Control.
(3) In
the event that the Executive terminates this Agreement and his
employment with the Company for Good Reason or for a Change of
Control or the Company terminates this Agreement and the
Executive’s employment with the Company without Cause, the
Company shall pay or provide to the Executive (or, following his
death, to the Executive’s heirs, administrators or executors)
the severance compensation set forth in Section 6 above. The
Company shall deduct, from all payments made hereunder, all
applicable taxes, including income tax, FICA and FUTA, and other
appropriate deductions.
(4) The
Executive shall not be required to mitigate the amount of any
payment provided for in this Section 12(d) by seeking other
employment or otherwise, nor shall the amount of any payment
provided for in this Section 12(d) be reduced by any compensation
earned by the Executive as the result of employment by another
employer or business or by profits earned by the Executive from any
other source at any time before and after the termination date. The
Company’s obligation to make any payment pursuant to, and
otherwise to perform its obligations under, this Agreement shall
not be affected by any offset, counterclaim or other right that the
Company may have against the Executive for any reason.
(e)
Without
“Good Reason” by the Executive
. At any time
during the term of this Agreement, the Executive shall be entitled
to terminate this Agreement and the Executive’s employment
with the Company without Good Reason and other than for a Change of
Control by providing prior written notice of at least thirty (30)
days to the Company. Upon termination by the Executive of this
Agreement or the Executive’s employment with the Company
without Good Reason and other than for a Change of Control, the
Company shall have no further obligations or liability to the
Executive or his heirs, administrators or executors with respect to
compensation and benefits thereafter, except for the obligation to
pay the Executive any Base Salary earned through the date of
termination to be paid according to Section 4; any unpaid Annual
Bonus to be paid according to Section 5; reimbursement of any and
all reasonable expenses paid or incurred by the Executive in
connection with and related to the performance of his duties and
responsibilities for the Company during the period ending on the
termination date to be paid according to Section 8; and any accrued
but unused vacation time through the termination date in accordance
with Company policy. The Company shall deduct, from all payments
made hereunder, all applicable taxes, including income tax, FICA
and FUTA, and other appropriate deductions.
(f)
Change
of Control
. For purposes of this Agreement,
“
Change of
Control
” shall mean the occurrence of any one or more
of the following: (i) the accumulation (if over time, in any
consecutive twelve (12) month period), whether directly,
indirectly, beneficially or of record, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) of more than fifty
percent (50%) or more of the shares of the outstanding Common Stock
of the Company, whether by merger, consolidation, sale or other
transfer of shares of Common Stock (other than a merger or
consolidation where the stockholders of the Company prior to the
merger or consolidation are the holders of a majority of the voting
securities of the entity that survives such merger or
consolidation), (ii) a sale of all or substantially all of the
assets of the Company or (iii) during any period of twelve (12)
consecutive months, the 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 (2/3) of
the directors then still in office who either were directors at the
beginning of the twelve (12) month period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board; provided
that the following acquisitions shall not constitute a Change of
Control for the purposes of this Agreement: any acquisition of
Common Stock or securities convertible into Common Stock by any
employee benefit plan (or related trust) sponsored by or maintained
by the Company. Notwithstanding the foregoing, a Change of Control
shall exclude the initial event that causes the Company to become a
public reporting company with the Securities and Exchange
Commission and any event within twelve (12) months following the
Effective Date.
(g) Any
termination of the Executive’s employment by the Company or
by the Executive (other than termination by reason of the
Executive’s death) shall be communicated by written Notice of
Termination to the other party of this Agreement. For purposes of
this Agreement, a “
Notice of Termination
”
shall mean a written 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 the Executive’s employment
under the provision so indicated, provided, however, failure to
provide timely notification shall not affect the employment status
of the Executive.
13.
Confidential
Information
.
(a)
Disclosure
of Confidential Information.
The Executive recognizes,
acknowledges and agrees that he has had and will continue to have
access to secret and confidential information regarding the
Company, its subsidiaries and their respective businesses
(“
Confidential
Information
”), including but not limited to, its
products, methods, formulas, software code, patents, sources of
supply, customer dealings, data, know-how, trade secrets and
business plans, provided such information is not in or does not
hereafter become part of the public domain, or become known to
others through no fault of the Executive. The Executive
acknowledges that such information is of great value to the
Company, is the sole property of the Company, and has been and will
be acquired by him in confidence. In consideration of the
obligations undertaken by the Company herein, the Executive will
not, at any time, during or after his employment hereunder, reveal,
divulge or make known to any person, any information acquired by
the Executive during the course of his employment, which is treated
as confidential by the Company, and not otherwise in the public
domain. The provisions of this Section 13 shall survive the
termination of the Executive’s employment
hereunder.
(b) The
Executive affirms that he does not possess and will not rely upon
the protected trade secrets or confidential or proprietary
information of any prior employer(s) in providing services to the
Company or its subsidiaries.
(c) In
the event that the Executive’s employment with the Company
terminates for any reason, the Executive shall deliver forthwith to
the Company any and all originals and copies, including those in
electronic or digital formats, of Confidential Information;
provided, however, the Executive shall be entitled to retain (i)
papers and other materials of a personal nature, including, but not
limited to, photographs, correspondence, personal diaries,
calendars and rolodexes, personal files and phone books, (ii)
information showing his compensation or relating to reimbursement
of expenses, (iii) information that he reasonably believes may be
needed for tax purposes and (iv) copies of plans, programs and
agreements relating to his employment, or termination thereof, with
the Company.
14.
Non-Competition and
Non-Solicitation.
(a) The
Executive agrees and acknowledges that the Confidential Information
that the Executive has already received and will receive is
valuable to the Company and that its protection and maintenance
constitutes a legitimate business interest of the Company, to be
protected by the non-competition restrictions set forth herein. The
Executive agrees and acknowledges that the non-competition
restrictions set forth herein are reasonable and necessary and do
not impose undue hardship or burdens on the Executive. The
Executive also acknowledges that the Company’s Business (as
defined in Section 14(b)(1) below) is conducted worldwide (the
“
Territory
”), and that the
Territory, scope of prohibited competition, and time duration set
forth in the non-competition restrictions set forth below are
reasonable and necessary to maintain the value of the Confidential
Information of, and to protect the goodwill and other legitimate
business interests of, the Company, its affiliates and/or its
clients or customers. The provisions of this Section 14 shall
survive the termination of the Executive’s employment
hereunder for the time periods specified below.
(b) The
Executive hereby agrees and covenants that he shall not without the
prior written consent of the Company, directly or indirectly, in
any capacity whatsoever, including, without limitation, as an
employee, employer, consultant, principal, partner, shareholder,
officer, director or any other individual or representative
capacity (other than (i) as a holder of less than two (2%) percent
of the outstanding securities of a company whose shares are traded
on any national securities exchange or (ii) as a limited partner,
passive minority interest holder in a venture capital fund, private
equity fund or similar investment entity which holds or may hold an
equity or debt position in portfolio companies that are competitive
with the Company; provided however, that the Executive shall be
precluded from serving as an operating partner, general partner,
manager or governing board designee with respect to such portfolio
companies), or whether on the Executive's own behalf or on behalf
of any other person or entity or otherwise howsoever, during the
Term and thereafter to the extent described below, within the
Territory:
(1) Engage,
own, manage, operate, control, be employed by, consult for,
participate in, or be connected in any manner with the ownership,
management, operation or control of any business in competition
with the Business of the Company, as defined in the next sentence.
For purposes hereof, the Company’s Business shall mean the
electronics distribution business as well as any future related or
unrelated industries or segments in which the Company may engage or
operate in the future.
(2) Recruit,
solicit or hire, or attempt to recruit, solicit or hire, any
employee, or independent contractor of the Company to leave the
employment (or independent contractor relationship) thereof,
whether or not any such employee or independent contractor is party
to an employment agreement, for the purpose of competing with the
Business of the Company;
(3) Attempt
in any manner to solicit or accept from any customer of the
Company, with whom Executive had significant contact during
Executive’s employment by the Company (whether under this
Agreement or otherwise), business of the kind or competitive with
the business done by the Company with such customer or to persuade
or attempt to persuade any such customer to cease to do business or
to reduce the amount of business which such customer has
customarily done or might do with the Company, or if any such
customer elects to move its business to a person other than the
Company, provide any services of the kind or competitive with the
business of the Company for such customer, or have any discussions
regarding any such service with such customer, on behalf of such
other person for the purpose of competing with the Business of the
Company; or
(4) Interfere
with any relationship, contractual or otherwise, between the
Company and any other party, including, without limitation, any
supplier, distributor, co-venturer or joint venturer of the
Company, for the purpose of soliciting such other party to
discontinue or reduce its business with the Company for the purpose
of competing with the Business of the Company.
With
respect to the activities described in Paragraphs (1), (2), (3) and
(4) above, the restrictions of this Section 14(b) shall continue
during the Term and for a period of one (1) year
thereafter.
15.
Section 409A
.
The
provisions of this Agreement are intended to comply with or are
exempt from Section 409A of the Code (“
Section 409A
”) and the
related Treasury Regulations and shall be construed in a manner
consistent with the requirements for avoiding taxes or penalties
under Section 409A. The Company and the Executive agree to work
together in good faith to consider amendments to this Agreement and
to take such reasonable actions necessary, appropriate or desirable
to avoid imposition of any additional tax under Section 409A or
income recognition prior to actual payment to the Executive under
this Agreement.
It is
intended that any expense reimbursement made under this Agreement
shall be exempt from Section 409A. Notwithstanding the foregoing,
if any expense reimbursement made under this Agreement shall be
determined to be “deferred compensation” subject to
Section 409A (“
Deferred Compensation
”),
then (a) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit, (b) the
amount of expenses eligible for reimbursement, or in-kind benefits,
provided during any taxable year shall not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided, in
any other taxable year (provided that this clause (b) shall not be
violated with regard to expenses reimbursed under any arrangement
covered by Section 105(b) of the Code solely because such expenses
are subject to a limit related to the period the arrangement is in
effect) and (c) such payments shall be made on or before the last
day of the taxable year following the taxable year in which the
expense was incurred.
With
respect to the time of payments of any amount under this Agreement
that is Deferred Compensation, references in the Agreement to
“termination of employment” and substantially similar
phrases, including a termination of employment due to the
Executive’s Disability, shall mean “
Separation from Service
”
from the Company within the meaning of Section 409A (determined
after applying the presumptions set forth in Treasury Regulation
Section 1.409A-1(h)(1)). Each installment payable hereunder shall
constitute a separate payment for purposes of Treasury Regulation
Section 1.409A-2(b), including Treasury Regulation Section
1.409A-2(b)(2)(iii). Each payment that is made within the terms of
the “short-term deferral” rule set forth in Treasury
Regulation Section 1.409A-1(b)(4) is intended to meet the
“short-term deferral” rule. Each other payment is
intended to be a payment upon an involuntary termination from
service and payable pursuant to Treasury Regulation Section
1.409A-1(b)(9)(iii), et. seq., to the maximum extent permitted by
that regulation, with any amount that is not exempt from Code
Section 409A being subject to Code Section 409A.
Notwithstanding
anything to the contrary in this Agreement, if the Executive is a
“specified employee” within the meaning of Section 409A
at the time of the Executive’s termination, then only that
portion of the severance and benefits payable to the Executive
pursuant to this Agreement, if any, and any other severance
payments or separation benefits which may be considered Deferred
Compensation (together, the “
Deferred Separation
Benefits
”), which (when considered together) do not
exceed the Section 409A Limit (as defined herein) may be made
within the first six (6) months following the Executive’s
termination of employment in accordance with the payment schedule
applicable to each payment or benefit. Any portion of the Deferred
Separation Benefits in excess of the Section 409A Limit otherwise
due to the Executive on or within the six (6) month period
following the Executive’s termination will accrue during such
six (6) month period and will become payable in one lump sum cash
payment on the date six (6) months and one (1) day following the
date of the Executive’s termination of employment. All
subsequent Deferred Separation Benefits, if any, will be payable in
accordance with the payment schedule applicable to each payment or
benefit. Notwithstanding anything herein to the contrary, if the
Executive dies following termination but prior to the six (6) month
anniversary of the Executive’s termination date, then any
payments delayed in accordance with this paragraph will be payable
in a lump sum as soon as administratively practicable after the
date of the Executive’s death and all other Deferred
Separation Benefits will be payable in accordance with the payment
schedule applicable to each payment or benefit.
For
purposes of this Agreement, “
Section 409A Limit
” shall
mean a sum equal to (x) the amounts payable within the terms of the
“short-term deferral” rule under Treasury Regulation
Section 1.409A-1(b)(4) plus (y) the amount payable as
“separation pay due to involuntary separation from
service” under Treasury Regulation Section
1.409A-1(b)(9)(iii) equal to the lesser of two (2) times: (i) the
Executive’s annualized compensation from the Company based
upon his annual rate of pay during the Executive’s taxable
year preceding his taxable year when his employment terminated, as
determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1); and
(ii) the maximum amount that may be taken into account under a
qualified plan pursuant to Section 401(a)(17) of the Code for the
year in which the Executive’s employment is terminated.
16.
Miscellaneous.
(a) Neither
the Executive nor the Company may assign or delegate any of their
rights or duties under this Agreement without the express written
consent of the other; provided, however, that the Company shall
have the right to delegate its obligation of payment of all sums
due to the Executive hereunder, provided that such delegation shall
not relieve the Company of any of its obligations
hereunder.
(b) During
the term of this Agreement, the Company (i) shall indemnify and
hold harmless the Executive and his heirs and representatives to
the maximum extent provided by the laws of the State of Nevada and
by Company’s bylaws and (ii) shall cover the Executive under
the Company’s directors’ and officers’ liability
insurance on the same basis as it covers other senior executive
officers and directors of the Company.
(c) This
Agreement constitutes and embodies the full and complete
understanding and agreement of the parties with respect to the
Executive’s employment by the Company, supersedes all prior
understandings and agreements, whether oral or written, between the
Executive and the Company, and shall not be amended, modified or
changed except by an instrument in writing executed by the party to
be charged. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement and the
application of such provision to other persons or circumstances
shall be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and
enforceable provision that shall achieve, to the extent possible,
the economic, business and other purposes of the void or
unenforceable provision. No waiver by either party of any provision
or condition to be performed shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or any prior
or subsequent time. The Predecessor Employment Agreement is
terminated in all respects effective as of the Effective Date. All
rights and benefits of Executive under the Predecessor Employment
Agreement are hereby released and of no further force and effect
other than the Retained Benefits.
Executive hereby
knowingly and voluntarily releases and forever discharges the
Company, any related companies, and the former and current
employees, officers, agents, directors, shareholders, investors,
attorneys, affiliates, successors and assigns of any of them (the
“
Released
Parties
”) from all
liabilities, claims, demands, rights of action or causes of action
Executive had, has or may have against any of the Released Parties
through the Effective Date of this Agreement, including but not
limited to any claims or demands based upon or relating to
Executive’s employment with the Company or the cessation of
that employment. This includes, but is not limited to, a
release of any rights or claims Employee may have under Title VII
of the Civil Rights Act of 1964, as amended; the Equal Pay Act; the
Age Discrimination in Employment Act of 1967; the Employee
Retirement Income Security Act, except as provided herein; the
Americans with Disabilities Act; the Family and Medical Leave Act
of 1993; or any other federal, state or local laws or regulations
applicable to the employment relationship. This also
includes, but is not limited to, a release by Executive of any
claims for wrongful discharge, breach of contract, or any other
statutory, common law, tort, contract, or negligence claim that
Executive had, has or may have against any of the Released Parties
through the date of this Agreement. This release covers
both claims that Executive knows about and those claims Executive
may not know about.
Notwithstanding anything herein to the
contrary, the release shall not discharge any obligation of the
Company for indemnification of Executive under the Predecessor
Agreement, this Agreement, the Company’s Articles of
Incorporation or Bylaws, or pursuant to applicable law, other than
such indemnification as may be contrary to public policy as
determined by the Securities and Exchange Commission.
(d) This
Agreement shall inure to the benefit of, be binding upon and
enforceable against, the parties hereto and their respective
successors, heirs, beneficiaries and permitted
assigns.
(e) The
headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) All
notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage
prepaid, or by reputable national overnight delivery service (e.g.,
Federal Express) for overnight delivery to the party at the address
set forth in the preamble to this Agreement, or to such other
address as either party may hereafter give the other party notice
of in accordance with the provisions hereof. Notices shall be
deemed given on the sooner of the date actually received or the
third business day after deposited in the mail or one business day
after deposited with an overnight delivery service for overnight
delivery.
(g) This
Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York, and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the
federal and state courts located in the State of New York, County
of New York, for any disputes arising out of this Agreement, or the
Executive’s employment with the Company. The prevailing party
in any dispute arising out of this Agreement shall be entitled to
his or its reasonable attorney’s fees and costs.
(h) This
Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one of the same instrument. The
parties hereto have executed this Agreement as of the date set
forth above.
(i) The
Executive represents and warrants to the Company, that he has the
full power and authority to enter into this Agreement and to
perform his obligations hereunder and that the execution and
delivery of this Agreement and the performance of his obligations
hereunder will not conflict with any agreement to which the
Executive is a party.
(j) The
Company represents and warrants to the Executive that it has the
full power and authority to enter into this Agreement and to
perform its obligations hereunder and that the execution and
delivery of this Agreement and the performance of its obligations
hereunder will not conflict with any agreement to which the Company
is a party.
[Signature page follows immediately]
IN
WITNESS WHEREOF, the Executive and the Company have caused this
Executive Employment Agreement to be executed as of the date first
above written.
|
|
EXCACTUS, INC.
By:
Name:
_____________________________
Title: _____________________________
Date
Signed: ________________________
|
|
|
TIMOTHY RYAN
Executive
___________________________________________
Date
Signed: _________________________
|
EXECUTIVE EMPLOYMENT AGREEMENT
This
EXECUTIVE EMPLOYMENT AGREEMENT (“
Agreement
”) is made and
entered into effective as of the 1
st
day of December
2018, by and between Exactus, Inc. a Nevada corporation
headquartered at 4870 Sadler Road, Suite 300, Glen Allen, VA 23060
(“
Company
”) and Kelley A.
Wendt, an individual (“
Executive
”). As used
herein, the “
Effective Date
” of this
Agreement shall mean December 1, 2018.
W I T N
E S S E T H:
WHEREAS, Executive
is party to an Employment Agreement dated as of March 16, 2017 by
and between and Executive and the Company (the “
Predecessor Employment
Agreement
”).
WHEREAS, in
consideration for entry into this Agreement and the employment of
Executive pursuant to the terms hereof, Executive and Company agree
to terminate the Predecessor Employment Agreement and Executive
agrees to release Company from any and all obligations under the
Agreement for payment of any amounts that could be due or owing,
including, without limitation, all compensation, bonus, benefits,
car allowances, equity awards, separation and other payments
thereunder, including any and all amount accrued or unpaid
thereunder or which could accrue or become payable thereunder,
other than: (i) all cash compensation and bonuses paid on or before
the Effective Date (but not any accrued and unpaid amounts existing
as of the Effective Date which shall be waived and released in all
respects); (ii) reimbursement of all reasonable and necessary
expenses incurred by Executive on or prior to the Effective date
which shall become obligations pursuant to this Agreement; and
(iii) 225,000 options issued pursuant to the Company’s 2018
Equity Incentive Plan at an exercise price of $0.089 per share,
which shall be fully-vested on the Effective Date (collectively,
the “
Retained
Benefits
”).
WHEREAS, this
Agreement is being entered into between the Company and the
Executive in connection with that certain Exchange Agreements
between the Company and certain other parties signatory thereto and
as a condition thereof (the “
Exchange
Agreements
”).
NOW,
THEREFORE, in consideration of the foregoing and their respective
covenants and agreements contained in this document, the Company
and the Executive hereby agree as follows:
1.
Employment and Duties
. The
Company agrees to employ and the Executive agrees to serve as the
Company’s Chief Financial Officer. The duties and
responsibilities of the Executive shall include the duties and
responsibilities as the Company’s Board of Directors
(“
Board
”) may from time to
time assign to the Executive.
The
Executive shall devote his full time efforts and services to the
business and affairs of the Company and its subsidiaries. Nothing
in this Section 1 shall prohibit the Executive from: (A) serving as
a director or member of any other board, committee thereof of any
other entity or organization; (B) delivering lectures, fulfilling
speaking engagements, and any writing or publication relating to
his area of expertise; (C) serving as a director or trustee of any
governmental, charitable or educational organization; (D) engaging
in additional activities in connection with personal investments
and community affairs, including, without limitation, professional
or charitable or similar organization committees, boards,
memberships or similar associations or affiliations or (E)
performing advisory activities, provided, however, such activities
are not in competition with the business and affairs of the Company
or would tend to cast executive of Company in a negative light in
the reasonable judgment of the Board.
2.
Term
. The term of this
Agreement shall commence on the Effective Date and shall continue
for a period of two (2) years following the Effective Date (such
initial two (2) year term, the “
Initial Term
”) and shall
be automatically renewed for successive one (1) year periods
thereafter unless either party provides the other party with
written notice of his or its intention not to renew this Agreement
at least three (3) months prior to the expiration of the initial
term or any renewal term of this Agreement. “
Employment Period
” shall
mean the initial two (2) year term plus renewals, if
any.
3.
Place of Employment
. The
Executive’s services shall be performed at the address for
the Company set forth above and at such location or locations as
the Board of Directors shall determine, in its sole discretion.
Should the Company require services at a location greater than 25
miles from the Executive’s current residence the Company will
provide for and pay the usual and customary fees associated with
moving the Executive and his household to the required
location.
4.
Base Salary
. The Company agrees
to pay the Executive an initial base salary (“
Base Salary
”) of $120,000
per annum ($10,000 per month). Annual adjustments after the first
year of the Employment Period shall be determined by the Board. The
Base Salary shall be paid in periodic installments in accordance
with the Company’s regular payroll practices.
5.
Bonuses
.
(a) Annual
Bonus. The Executive shall be eligible to receive an annual bonus
the (“
Annual
Bonus
”) as determined by the Compensation Committee or
the Board of Directors of the Company (the “
Compensation Committee
”).
The Annual Bonus shall be paid by the Company to the Executive
promptly after determination that the relevant targets, if any,
have been met, it being understood that the attainment of any
financial targets associated with any bonus shall not be determined
until following the completion of the Company’s annual audit
and public announcement of such results and shall be paid promptly
following the Company’s announcement of earnings. In the
event that the Compensation Committee is unable to act or if there
shall be no such Compensation Committee, then all references herein
to the Compensation Committee (except in the proviso to this
sentence) shall be deemed to be references to the Board. Upon his
termination from employment, the Executive shall be entitled to
receive a pro-rata portion of the Annual Bonus calculated based
upon his final day of employment, regardless of whether he is
employed by the Company through the conclusion of the fiscal
quarter or year, as the case may be, on which the Annual Bonus is
based.
(b)
Equity
Awards
. The Executive shall be eligible for such grants of
awards under a Company incentive plan (or any successor or
replacement plan adopted by the Board and approved by the
stockholders of the Company) (the “
Plan
”) or as the
Compensation Committee or Board may from time to time determine
(the “
Share
Awards
”). Share Awards shall be subject to
the applicable Plan terms and conditions, provided, however, that
Share Awards shall be subject to any additional terms and
conditions as are provided herein or in any award certificate(s),
which shall supersede any conflicting provisions governing Share
Awards provided under the Plan.
6.
Severance
Compensation
. Upon
termination of employment for any reason, the Executive shall be
entitled to: (A) all Base Salary earned through the date of
termination to be paid according to Section 4; (B) any and all
reasonable expenses paid or incurred by the Executive in connection
with and related to the performance of his duties and
responsibilities for the Company during the period ending on the
termination date to be paid according to Section 8; (C) any accrued
but unused vacation time through the termination date in accordance
with Company policy; and (D) any Annual Bonuses earned through the
date of termination to be paid according to Section 5(a); and (E)
all Share Awards earned and vested prior to
termination.
Additionally, if
the Executive’s employment is terminated prior to expiration
of the Employment Period (including due to his death or Disability,
as defined in Section 12(b)) unless the Executive’s
employment is terminated for Cause (as defined in Section 12(c)) or
the Executive terminates his employment without Good Reason (as
defined in Section 12(d) and other than for a Change in Control as
provided in Section 12(d) and Section 12(f)), the Executive shall
be entitled to receive a cash amount equal to such amount as the
Executive would have been entitled to receive as an aggregate Base
Salary for the balance of the Initial Term (the “
Initial Term Severance
Payment
”) (provided that if this Agreement has been
renewed subsequent to the Initial Term and the Executive’s
employment is terminated prior to expiration of the Employment
Period (including due to his death or Disability) unless the
Executive’s employment is terminated for Cause or the
Executive terminates his employment without Good Reason and other
than for a Change in Control, the Executive shall be entitled to
receive a cash payment as determined by the Board (the
“
Renewal Separation
Payment
”) (the Initial Term Severance Payment or the
Renewal Separation Payment, as applicable herein shall may be
referred to as the “
Separation Payment
”),
provided
,
however
that the
Separation Payment shall in no event be less than 12 months of Base
Salary as then in effect, plus 50% of the prior year bonus, and if
no such bonus has been paid, 75% of the Base Salary as then in
effect; provided, that the Executive executes an agreement
releasing Company and its affiliates from any liability associated
with this Agreement and such release is irrevocable at the time the
Separation Payment is first payable under this Section 6 and the
Executive complies with his other obligations under Section 13 of
this Agreement. Subject to the terms hereof, one-half (1/2) of the
Separation Payment shall be paid within thirty (30) days of the
Executive’s termination of employment (“
Initial Payment
”),
provided that the Executive has executed a release; and the balance
of the Separation Payment shall be paid in substantially equal
installments on the Company’s regular payroll dates beginning
with the first payroll date coincident with or immediately
following the Initial Payment and ending with the last payroll date
that occurs in the third calendar year beginning after the
Executive’s termination of employment.
The
Executive may continue coverage with respect to the Company’s
group health plans as permitted by the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”) for himself and
each of his “
Qualified Beneficiaries
”
as defined by COBRA (“
COBRA Coverage
”). The
Company shall reimburse the amount of any COBRA premium paid for
COBRA Coverage timely elected by and for the Executive and any
Qualified Beneficiary of the Executive, and not otherwise
reimbursed, during the period that ends on the earliest of (x) the
date the Executive or the Qualified Beneficiary, as the case may
be, ceases to be eligible for COBRA Coverage, (y) the last day of
the consecutive eighteen (18) month period following the date of
the Executive’s termination of employment and (z) the date
the Executive or the Qualified Beneficiary, as the case may be, is
covered by another group health plan. To reimburse any COBRA
premium payment under this paragraph, the Company must receive
documentation of the COBRA premium payment within ninety (90) days
of its payment.
7.
Clawback Rights
. The Annual
Bonus, and any and all stock based compensation (such as options
and equity awards) (collectively, the “
Clawback Benefits
”) shall
be subject to “
Clawback Rights
” as
follows: during the period that the Executive is employed by the
Company and upon the termination of the Executive’s
employment and for a period of three (3) years thereafter, if there
is a restatement of any financial results directly attributable to
the Executive from which any Clawback Benefits to the Executive
shall have been determined, the Executive agrees to repay any
amounts which were determined by reference to any Company financial
results which were later restated (as defined below), to the extent
the Clawback Benefits amounts paid exceed the Clawback Benefits
amounts that would have been paid, based on the restatement of the
Company’s financial information. All Clawback Benefits
amounts resulting from such restated financial results shall be
retroactively adjusted by the Compensation Committee to take into
account the restated results, and any excess portion of the
Clawback Benefits resulting from such restated results shall be
immediately surrendered to the Company and if not so surrendered
within ninety (90) days of the revised calculation being provided
to the Executive by the Compensation Committee following a publicly
announced restatement, the Company shall have the right to take any
and all action to effectuate such adjustment. At the option of the
Executive, the excess portion of the Clawback Benefits resulting
from such restated results may be repaid by either: (i) cash
payment, or (ii) surrender of common stock to the Company, valued
at the closing market price for the Company’s common stock on
the date of surrender. The calculation of the revised Clawback
Benefits amount shall be determined by the Compensation Committee
in good faith and in accordance with applicable law, rules and
regulations. All determinations by the Compensation Committee with
respect to the Clawback Rights shall be final and binding on the
Company and the Executive. The Clawback Rights shall terminate
following a Change of Control as defined in Section 12(f), subject
to applicable law, rules and regulations. For purposes of this
Section 7, a restatement of financial results that requires a
repayment of a portion of the Clawback Benefits amounts shall mean
a restatement resulting from material non-compliance of the Company
with any financial reporting requirement under the federal
securities laws and shall not include a restatement of financial
results resulting from subsequent changes in accounting
pronouncements or requirements which were not in effect on the date
the financial statements were originally prepared
(“
Restatements
”). The
parties acknowledge it is their intention that the foregoing
Clawback Rights as relates to Restatements conform in all respects
to the provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (“
Dodd-Frank Act
”) and
require recovery of all “incentive-based” compensation,
pursuant to the provisions of the Dodd-Frank Act and any and all
rules and regulations promulgated thereunder from time to time in
effect. Accordingly, the terms and provisions of this Agreement
shall be deemed automatically amended from time to time to assure
compliance with the Dodd-Frank Act and such rules and regulations
as hereafter may be adopted and in effect.
8.
Expenses
. The Executive shall
be entitled to prompt reimbursement by the Company for all
reasonable ordinary and necessary travel, entertainment, and other
expenses incurred by the Executive while employed (in accordance
with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and
responsibilities under this Agreement; provided, that the Executive
shall properly account for such expenses in accordance with Company
policies and procedures.
9.
Other Benefits
. During the term
of this Agreement, the Executive shall be eligible to participate
in incentive, stock purchase, savings, retirement (401(k)), and
welfare benefit plans, including, without limitation, health,
medical, dental, vision, life (including accidental death and
dismemberment) and disability insurance plans (collectively,
“
Benefit
Plans
”), in substantially the same manner and at
substantially the same levels as the Company makes such
opportunities available to the Company’s managerial or
salaried executive employees and/or its senior executive
officers.
10.
Vacation
. During the term of
this Agreement, the Executive shall be entitled to accrue, on a pro
rata basis, seven (7) weeks paid vacation per year. Vacation shall
be taken at such times as are mutually convenient to the Executive
and the Company and no more than seven (14) consecutive days shall
be taken at any one time without Company approval in
advance.
11.
Intentionally
Omitted
.
12.
Termination of
Employment
.
(a)
Death
.
If the Executive dies during the Employment Period, this Agreement
and the Executive’s employment with the Company shall
automatically terminate and the Company’s obligations to the
Executive’s estate and to the Executive’s Qualified
Beneficiaries shall be those set forth in Section 6 regarding
severance compensation.
(b)
Disability
.
In the event that, during the term of this Agreement the Executive
shall be prevented from performing his essential functions
hereunder to the full extent required by the Company by reason of
Disability (as defined below), this Agreement and the
Executive’s employment with the Company shall automatically
terminate. The Company’s obligation to the Executive under
such circumstances shall be those set forth in Section 6 regarding
severance compensation. For purposes of this Agreement,
“
Disability
” shall mean a
physical or mental disability that prevents the performance by the
Executive, with or without reasonable accommodation, of his
essential functions hereunder for an aggregate of ninety (90) days
or longer during any twelve (12) consecutive months. The
determination of the Executive’s Disability shall be made by
an independent physician who is reasonably acceptable to the
Company and the Executive (or his representative), be final and
binding on the parties hereto and be made taking into account such
competent medical evidence as shall be presented to such
independent physician by the Executive and/or the Company or by any
physician or group of physicians or other competent medical experts
employed by the Executive and/or the Company to advise such
independent physician.
(c)
Cause
.
(1) At
any time during the Employment Period, the Company may terminate
this Agreement and the Executive’s employment hereunder for
Cause. For purposes of this Agreement, “
Cause
” shall mean: (a)
the willful and continued failure of the Executive to perform
substantially his duties and responsibilities for the Company
(other than any such failure resulting from the Executive’s
death or Disability) after a written demand by the Board for
substantial performance is delivered to the Executive by the
Company, which specifically identifies the manner in which the
Board believes that the Executive has not substantially performed
his duties and responsibilities, which willful and continued
failure is not cured by the Executive within thirty (30) days
following his receipt of such written demand; (b) the conviction
of, or plea of guilty or
nolo
contendere
to, a felony, or (c) fraud, dishonesty or gross
misconduct which is materially and demonstratively injurious to the
Company. Termination under clauses (b) or (c) of this Section
12(c)(1) shall not be subject to cure.
(2)
For purposes of
this Section 12(c), no act, or failure to act, on the part of the
Executive shall be considered “willful” unless done, or
omitted to be done, by him in bad faith and without reasonable
belief that his action or omission was in, or not opposed to, the
best interest of the Company. Between the time the Executive
receives written demand regarding substantial performance, as set
forth in subparagraph (1) above, and prior to an actual termination
for Cause, the Executive will be entitled to appear (with counsel)
before the full Board to present information regarding his views on
the Cause event. After such hearing, termination for Cause must be
approved by a majority vote of the full Board (other than the
Executive). After providing the written demand regarding
substantial performance, the Board may suspend the Executive with
full pay and benefits until a final determination by the full Board
has been made.
(3) Upon
termination of this Agreement for Cause, the Company shall have no
further obligations or liability to the Executive or his heirs,
administrators or executors with respect to compensation and
benefits thereafter, except for the obligation to pay the Executive
any Base Salary earned through the date of termination to be paid
according to Section 4; any unpaid Annual Bonus to be paid
according to Section 5; reimbursement of any and all reasonable
expenses paid or incurred by the Executive in connection with and
related to the performance of his duties and responsibilities for
the Company during the period ending on the termination date to be
paid according to Section 8; and any accrued but unused vacation
time through the termination date in accordance with Company
policy. The Company shall deduct, from all payments made hereunder,
all applicable taxes, including income tax, FICA and FUTA, and
other appropriate deductions.
(d)
For
Good Reason or a Change of Control or Without
Cause
.
(1) At
any time during the term of this Agreement and subject to the
conditions set forth in Section 12(d)(2) below the Executive may
terminate this Agreement and the Executive’s employment with
the Company for “Good Reason” or for a “Change of
Control” (as defined in Section 12(f)). For purposes of this
Agreement, “
Good
Reason
” shall mean the occurrence of any of the
following events without Executive’s consent: (A) the
assignment to the Executive of duties that are significantly
different from, and/or that result in a substantial diminution of,
the duties that he assumed on the Effective Date (including
reporting to anyone other than solely and directly to the Board);
(B) the assignment to the Executive of a title that is different
from and subordinate to the title Executive Vice President of Sales
and Marketing of the Company, provided, however, for the absence of
doubt following a Change of Control, should the Executive be
required to serve in a diminished capacity in a division or unit of
another entity (including the acquiring entity), such event shall
constitute Good Reason regardless of the title of the Executive in
such acquiring company, division or unit; or (C) material breach by
the Company of this Agreement.
(2) The
Executive shall not be entitled to terminate this Agreement for
Good Reason unless and until he shall have delivered written notice
to the Company within ninety (90) days of the date upon which the
facts giving rise to Good Reason occurred of his intention to
terminate this Agreement and his employment with the Company for
Good Reason, which notice specifies in reasonable detail the
circumstances claimed to provide the basis for such termination for
Good Reason, and the Company shall not have eliminated the
circumstances constituting Good Reason within thirty (30) days of
its receipt from the Executive of such written notice. In the event
the Executive elects to terminate this Agreement for Good Reason in
accordance with Section 12(d)(1), such election must be made within
the one-twenty (120) days following the initial existence of one or
more of the conditions constituting Good Reason as provided in
Section 12(d)(1). In the event the Executive elects to terminate
this Agreement for a Change in Control in accordance with Section
12(d)(1), such election must be made within one hundred eighty
(180) days of the occurrence of the Change of Control.
(3) In
the event that the Executive terminates this Agreement and his
employment with the Company for Good Reason or for a Change of
Control or the Company terminates this Agreement and the
Executive’s employment with the Company without Cause, the
Company shall pay or provide to the Executive (or, following his
death, to the Executive’s heirs, administrators or executors)
the severance compensation set forth in Section 6 above. The
Company shall deduct, from all payments made hereunder, all
applicable taxes, including income tax, FICA and FUTA, and other
appropriate deductions.
(4) The
Executive shall not be required to mitigate the amount of any
payment provided for in this Section 12(d) by seeking other
employment or otherwise, nor shall the amount of any payment
provided for in this Section 12(d) be reduced by any compensation
earned by the Executive as the result of employment by another
employer or business or by profits earned by the Executive from any
other source at any time before and after the termination date. The
Company’s obligation to make any payment pursuant to, and
otherwise to perform its obligations under, this Agreement shall
not be affected by any offset, counterclaim or other right that the
Company may have against the Executive for any reason.
(e)
Without
“Good Reason” by the Executive
. At any time
during the term of this Agreement, the Executive shall be entitled
to terminate this Agreement and the Executive’s employment
with the Company without Good Reason and other than for a Change of
Control by providing prior written notice of at least thirty (30)
days to the Company. Upon termination by the Executive of this
Agreement or the Executive’s employment with the Company
without Good Reason and other than for a Change of Control, the
Company shall have no further obligations or liability to the
Executive or his heirs, administrators or executors with respect to
compensation and benefits thereafter, except for the obligation to
pay the Executive any Base Salary earned through the date of
termination to be paid according to Section 4; any unpaid Annual
Bonus to be paid according to Section 5; reimbursement of any and
all reasonable expenses paid or incurred by the Executive in
connection with and related to the performance of his duties and
responsibilities for the Company during the period ending on the
termination date to be paid according to Section 8; and any accrued
but unused vacation time through the termination date in accordance
with Company policy. The Company shall deduct, from all payments
made hereunder, all applicable taxes, including income tax, FICA
and FUTA, and other appropriate deductions.
(f)
Change
of Control
. For purposes of this Agreement,
“
Change of
Control
” shall mean the occurrence of any one or more
of the following: (i) the accumulation (if over time, in any
consecutive twelve (12) month period), whether directly,
indirectly, beneficially or of record, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) of more than fifty
percent (50%) or more of the shares of the outstanding Common Stock
of the Company, whether by merger, consolidation, sale or other
transfer of shares of Common Stock (other than a merger or
consolidation where the stockholders of the Company prior to the
merger or consolidation are the holders of a majority of the voting
securities of the entity that survives such merger or
consolidation), (ii) a sale of all or substantially all of the
assets of the Company or (iii) during any period of twelve (12)
consecutive months, the 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 (2/3) of
the directors then still in office who either were directors at the
beginning of the twelve (12) month period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board; provided
that the following acquisitions shall not constitute a Change of
Control for the purposes of this Agreement: any acquisition of
Common Stock or securities convertible into Common Stock by any
employee benefit plan (or related trust) sponsored by or maintained
by the Company. Notwithstanding the foregoing, a Change of Control
shall exclude the initial event that causes the Company to become a
public reporting company with the Securities and Exchange
Commission and any event within twelve (12) months following the
Effective Date.
(g) Any
termination of the Executive’s employment by the Company or
by the Executive (other than termination by reason of the
Executive’s death) shall be communicated by written Notice of
Termination to the other party of this Agreement. For purposes of
this Agreement, a “
Notice of Termination
”
shall mean a written 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 the Executive’s employment
under the provision so indicated, provided, however, failure to
provide timely notification shall not affect the employment status
of the Executive.
13.
Confidential
Information
.
(a)
Disclosure
of Confidential Information.
The Executive recognizes,
acknowledges and agrees that he has had and will continue to have
access to secret and confidential information regarding the
Company, its subsidiaries and their respective businesses
(“
Confidential
Information
”), including but not limited to, its
products, methods, formulas, software code, patents, sources of
supply, customer dealings, data, know-how, trade secrets and
business plans, provided such information is not in or does not
hereafter become part of the public domain, or become known to
others through no fault of the Executive. The Executive
acknowledges that such information is of great value to the
Company, is the sole property of the Company, and has been and will
be acquired by him in confidence. In consideration of the
obligations undertaken by the Company herein, the Executive will
not, at any time, during or after his employment hereunder, reveal,
divulge or make known to any person, any information acquired by
the Executive during the course of his employment, which is treated
as confidential by the Company, and not otherwise in the public
domain. The provisions of this Section 13 shall survive the
termination of the Executive’s employment
hereunder.
(b) The
Executive affirms that he does not possess and will not rely upon
the protected trade secrets or confidential or proprietary
information of any prior employer(s) in providing services to the
Company or its subsidiaries.
(c) In
the event that the Executive’s employment with the Company
terminates for any reason, the Executive shall deliver forthwith to
the Company any and all originals and copies, including those in
electronic or digital formats, of Confidential Information;
provided, however, the Executive shall be entitled to retain (i)
papers and other materials of a personal nature, including, but not
limited to, photographs, correspondence, personal diaries,
calendars and rolodexes, personal files and phone books, (ii)
information showing his compensation or relating to reimbursement
of expenses, (iii) information that he reasonably believes may be
needed for tax purposes and (iv) copies of plans, programs and
agreements relating to his employment, or termination thereof, with
the Company.
14.
Non-Competition and
Non-Solicitation.
(a) The
Executive agrees and acknowledges that the Confidential Information
that the Executive has already received and will receive is
valuable to the Company and that its protection and maintenance
constitutes a legitimate business interest of the Company, to be
protected by the non-competition restrictions set forth herein. The
Executive agrees and acknowledges that the non-competition
restrictions set forth herein are reasonable and necessary and do
not impose undue hardship or burdens on the Executive. The
Executive also acknowledges that the Company’s Business (as
defined in Section 14(b)(1) below) is conducted worldwide (the
“
Territory
”), and that the
Territory, scope of prohibited competition, and time duration set
forth in the non-competition restrictions set forth below are
reasonable and necessary to maintain the value of the Confidential
Information of, and to protect the goodwill and other legitimate
business interests of, the Company, its affiliates and/or its
clients or customers. The provisions of this Section 14 shall
survive the termination of the Executive’s employment
hereunder for the time periods specified below.
(b) The
Executive hereby agrees and covenants that he shall not without the
prior written consent of the Company, directly or indirectly, in
any capacity whatsoever, including, without limitation, as an
employee, employer, consultant, principal, partner, shareholder,
officer, director or any other individual or representative
capacity (other than (i) as a holder of less than two (2%) percent
of the outstanding securities of a company whose shares are traded
on any national securities exchange or (ii) as a limited partner,
passive minority interest holder in a venture capital fund, private
equity fund or similar investment entity which holds or may hold an
equity or debt position in portfolio companies that are competitive
with the Company; provided however, that the Executive shall be
precluded from serving as an operating partner, general partner,
manager or governing board designee with respect to such portfolio
companies), or whether on the Executive's own behalf or on behalf
of any other person or entity or otherwise howsoever, during the
Term and thereafter to the extent described below, within the
Territory:
(1) Engage,
own, manage, operate, control, be employed by, consult for,
participate in, or be connected in any manner with the ownership,
management, operation or control of any business in competition
with the Business of the Company, as defined in the next sentence.
For purposes hereof, the Company’s Business shall mean the
electronics distribution business as well as any future related or
unrelated industries or segments in which the Company may engage or
operate in the future.
(2) Recruit,
solicit or hire, or attempt to recruit, solicit or hire, any
employee, or independent contractor of the Company to leave the
employment (or independent contractor relationship) thereof,
whether or not any such employee or independent contractor is party
to an employment agreement, for the purpose of competing with the
Business of the Company;
(3) Attempt
in any manner to solicit or accept from any customer of the
Company, with whom Executive had significant contact during
Executive’s employment by the Company (whether under this
Agreement or otherwise), business of the kind or competitive with
the business done by the Company with such customer or to persuade
or attempt to persuade any such customer to cease to do business or
to reduce the amount of business which such customer has
customarily done or might do with the Company, or if any such
customer elects to move its business to a person other than the
Company, provide any services of the kind or competitive with the
business of the Company for such customer, or have any discussions
regarding any such service with such customer, on behalf of such
other person for the purpose of competing with the Business of the
Company; or
(4) Interfere
with any relationship, contractual or otherwise, between the
Company and any other party, including, without limitation, any
supplier, distributor, co-venturer or joint venturer of the
Company, for the purpose of soliciting such other party to
discontinue or reduce its business with the Company for the purpose
of competing with the Business of the Company.
With
respect to the activities described in Paragraphs (1), (2), (3) and
(4) above, the restrictions of this Section 14(b) shall continue
during the Term and for a period of one (1) year
thereafter.
15.
Section 409A
.
The
provisions of this Agreement are intended to comply with or are
exempt from Section 409A of the Code (“
Section 409A
”) and the
related Treasury Regulations and shall be construed in a manner
consistent with the requirements for avoiding taxes or penalties
under Section 409A. The Company and the Executive agree to work
together in good faith to consider amendments to this Agreement and
to take such reasonable actions necessary, appropriate or desirable
to avoid imposition of any additional tax under Section 409A or
income recognition prior to actual payment to the Executive under
this Agreement.
It is
intended that any expense reimbursement made under this Agreement
shall be exempt from Section 409A. Notwithstanding the foregoing,
if any expense reimbursement made under this Agreement shall be
determined to be “deferred compensation” subject to
Section 409A (“
Deferred Compensation
”),
then (a) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit, (b) the
amount of expenses eligible for reimbursement, or in-kind benefits,
provided during any taxable year shall not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided, in
any other taxable year (provided that this clause (b) shall not be
violated with regard to expenses reimbursed under any arrangement
covered by Section 105(b) of the Code solely because such expenses
are subject to a limit related to the period the arrangement is in
effect) and (c) such payments shall be made on or before the last
day of the taxable year following the taxable year in which the
expense was incurred.
With
respect to the time of payments of any amount under this Agreement
that is Deferred Compensation, references in the Agreement to
“termination of employment” and substantially similar
phrases, including a termination of employment due to the
Executive’s Disability, shall mean “
Separation from Service
”
from the Company within the meaning of Section 409A (determined
after applying the presumptions set forth in Treasury Regulation
Section 1.409A-1(h)(1)). Each installment payable hereunder shall
constitute a separate payment for purposes of Treasury Regulation
Section 1.409A-2(b), including Treasury Regulation Section
1.409A-2(b)(2)(iii). Each payment that is made within the terms of
the “short-term deferral” rule set forth in Treasury
Regulation Section 1.409A-1(b)(4) is intended to meet the
“short-term deferral” rule. Each other payment is
intended to be a payment upon an involuntary termination from
service and payable pursuant to Treasury Regulation Section
1.409A-1(b)(9)(iii), et. seq., to the maximum extent permitted by
that regulation, with any amount that is not exempt from Code
Section 409A being subject to Code Section 409A.
Notwithstanding
anything to the contrary in this Agreement, if the Executive is a
“specified employee” within the meaning of Section 409A
at the time of the Executive’s termination, then only that
portion of the severance and benefits payable to the Executive
pursuant to this Agreement, if any, and any other severance
payments or separation benefits which may be considered Deferred
Compensation (together, the “
Deferred Separation
Benefits
”), which (when considered together) do not
exceed the Section 409A Limit (as defined herein) may be made
within the first six (6) months following the Executive’s
termination of employment in accordance with the payment schedule
applicable to each payment or benefit. Any portion of the Deferred
Separation Benefits in excess of the Section 409A Limit otherwise
due to the Executive on or within the six (6) month period
following the Executive’s termination will accrue during such
six (6) month period and will become payable in one lump sum cash
payment on the date six (6) months and one (1) day following the
date of the Executive’s termination of employment. All
subsequent Deferred Separation Benefits, if any, will be payable in
accordance with the payment schedule applicable to each payment or
benefit. Notwithstanding anything herein to the contrary, if the
Executive dies following termination but prior to the six (6) month
anniversary of the Executive’s termination date, then any
payments delayed in accordance with this paragraph will be payable
in a lump sum as soon as administratively practicable after the
date of the Executive’s death and all other Deferred
Separation Benefits will be payable in accordance with the payment
schedule applicable to each payment or benefit.
For
purposes of this Agreement, “
Section 409A Limit
” shall
mean a sum equal to (x) the amounts payable within the terms of the
“short-term deferral” rule under Treasury Regulation
Section 1.409A-1(b)(4) plus (y) the amount payable as
“separation pay due to involuntary separation from
service” under Treasury Regulation Section
1.409A-1(b)(9)(iii) equal to the lesser of two (2) times: (i) the
Executive’s annualized compensation from the Company based
upon his annual rate of pay during the Executive’s taxable
year preceding his taxable year when his employment terminated, as
determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1); and
(ii) the maximum amount that may be taken into account under a
qualified plan pursuant to Section 401(a)(17) of the Code for the
year in which the Executive’s employment is terminated.
16.
Miscellaneous.
(a) Neither
the Executive nor the Company may assign or delegate any of their
rights or duties under this Agreement without the express written
consent of the other; provided, however, that the Company shall
have the right to delegate its obligation of payment of all sums
due to the Executive hereunder, provided that such delegation shall
not relieve the Company of any of its obligations
hereunder.
(b) During
the term of this Agreement, the Company (i) shall indemnify and
hold harmless the Executive and his heirs and representatives to
the maximum extent provided by the laws of the State of Nevada and
by Company’s bylaws and (ii) shall cover the Executive under
the Company’s directors’ and officers’ liability
insurance on the same basis as it covers other senior executive
officers and directors of the Company.
(c) This
Agreement constitutes and embodies the full and complete
understanding and agreement of the parties with respect to the
Executive’s employment by the Company, supersedes all prior
understandings and agreements, whether oral or written, between the
Executive and the Company, and shall not be amended, modified or
changed except by an instrument in writing executed by the party to
be charged. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement and the
application of such provision to other persons or circumstances
shall be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and
enforceable provision that shall achieve, to the extent possible,
the economic, business and other purposes of the void or
unenforceable provision. No waiver by either party of any provision
or condition to be performed shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or any prior
or subsequent time. The Predecessor Employment Agreement is
terminated in all respects effective as of the Effective Date. All
rights and benefits of Executive under the Predecessor Employment
Agreement are hereby released and of no further force and effect
other than the Retained Benefits.
Executive hereby
knowingly and voluntarily releases and forever discharges the
Company, any related companies, and the former and current
employees, officers, agents, directors, shareholders, investors,
attorneys, affiliates, successors and assigns of any of them (the
“
Released
Parties
”) from all
liabilities, claims, demands, rights of action or causes of action
Executive had, has or may have against any of the Released Parties
through the Effective Date of this Agreement, including but not
limited to any claims or demands based upon or relating to
Executive’s employment with the Company or the cessation of
that employment. This includes, but is not limited to, a
release of any rights or claims Employee may have under Title VII
of the Civil Rights Act of 1964, as amended; the Equal Pay Act; the
Age Discrimination in Employment Act of 1967; the Employee
Retirement Income Security Act, except as provided herein; the
Americans with Disabilities Act; the Family and Medical Leave Act
of 1993; or any other federal, state or local laws or regulations
applicable to the employment relationship. This also
includes, but is not limited to, a release by Executive of any
claims for wrongful discharge, breach of contract, or any other
statutory, common law, tort, contract, or negligence claim that
Executive had, has or may have against any of the Released Parties
through the date of this Agreement. This release covers
both claims that Executive knows about and those claims Executive
may not know about.
Notwithstanding anything herein to the
contrary, the release shall not discharge any obligation of the
Company for indemnification of Executive under the Predecessor
Agreement, this Agreement, the Company’s Articles of
Incorporation or Bylaws, or pursuant to applicable law, other than
such indemnification as may be contrary to public policy as
determined by the Securities and Exchange Commission.
(d) This
Agreement shall inure to the benefit of, be binding upon and
enforceable against, the parties hereto and their respective
successors, heirs, beneficiaries and permitted
assigns.
(e) The
headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) All
notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage
prepaid, or by reputable national overnight delivery service (e.g.,
Federal Express) for overnight delivery to the party at the address
set forth in the preamble to this Agreement, or to such other
address as either party may hereafter give the other party notice
of in accordance with the provisions hereof. Notices shall be
deemed given on the sooner of the date actually received or the
third business day after deposited in the mail or one business day
after deposited with an overnight delivery service for overnight
delivery.
(g) This
Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York, and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the
federal and state courts located in the State of New York, County
of New York, for any disputes arising out of this Agreement, or the
Executive’s employment with the Company. The prevailing party
in any dispute arising out of this Agreement shall be entitled to
his or its reasonable attorney’s fees and costs.
(h) This
Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one of the same instrument. The
parties hereto have executed this Agreement as of the date set
forth above.
(i) The
Executive represents and warrants to the Company, that he has the
full power and authority to enter into this Agreement and to
perform his obligations hereunder and that the execution and
delivery of this Agreement and the performance of his obligations
hereunder will not conflict with any agreement to which the
Executive is a party.
(j) The
Company represents and warrants to the Executive that it has the
full power and authority to enter into this Agreement and to
perform its obligations hereunder and that the execution and
delivery of this Agreement and the performance of its obligations
hereunder will not conflict with any agreement to which the Company
is a party.
[Signature page follows immediately]
IN
WITNESS WHEREOF, the Executive and the Company have caused this
Executive Employment Agreement to be executed as of the date first
above written.
|
|
EXCACTUS, INC.
By:
Name:
_____________________________
Title: _____________________________
Date
Signed: ________________________
|
|
|
KELLEY A. WENDT
Executive
___________________________________________
Date
Signed: _________________________
|
EXACTUS, INC
2019 EQUITY INCENTIVE PLAN
1.1
The purpose of this 2019 Equity
Incentive Plan (this “
Plan
”) of Exactus, Inc., a
Delaware corporation (the “
Corporation
”), is to promote the
success of the Corporation and to increase stockholder value by
providing an additional means through the grant of awards to
attract, motivate, retain and reward selected employees and other
eligible persons.
2.1
The Administrator (as such term is
defined in Section 3.1) may grant awards under this Plan only to
those persons that the Administrator determines to be Eligible
Persons. An “
Eligible
Person
” is any person who is either: (a) an officer
(whether or not a director) or employee of the Corporation or one
of its Subsidiaries; (b) a director of the Corporation or one of
its Subsidiaries; or (c) a consultant who renders bona fide
services (other than services in connection with the offering or
sale of securities of the Corporation or one of its Subsidiaries in
a capital-raising transaction or as a market maker or promoter of
securities of the Corporation or one of its Subsidiaries) to the
Corporation or one of its Subsidiaries and who is selected to
participate in this Plan by the Administrator;
provided, however,
that a person who is
otherwise an Eligible Person under clause (c) above may participate
in this Plan only if such participation would not adversely affect
either the Corporation’s eligibility to use Form S-8 to
register under the Securities Act of 1933, as amended (the
“
Securities
Act
”), the offering and sale of shares issuable under
this Plan by the Corporation, or the Corporation’s compliance
with any other applicable laws. An Eligible Person who has been
granted an award (a “
participant
”) may, if otherwise
eligible, be granted additional awards if the Administrator shall
so determine. As used herein, “
Subsidiary
” means any corporation
or other entity a majority of whose outstanding voting stock or
voting power is beneficially owned directly or indirectly by the
Corporation; and “
Board
” means the Board of
Directors of the Corporation.
3.1
The
Administrator
. This Plan shall be administered by and all
awards under this Plan shall be authorized by the Administrator.
The “
Administrator
” means the Board or
one or more committees appointed by the Board or another committee
(within its delegated authority) to administer all or certain
aspects of this Plan. Any such committee shall be comprised solely
of one or more directors or such number of directors as may be
required under applicable law. A committee may delegate some or all
of its authority to another committee so constituted. The Board or
a committee comprised solely of directors may also delegate, to the
extent permitted by Section 157(c) of the Delaware General
Corporation Law or any applicable law, to one or more officers of
the Corporation, its powers under this Plan (a) to designate
Eligible Persons who will receive grants of awards under this Plan,
and (b) to determine the number of shares subject to, and the other
terms and conditions of, such awards. The Board may delegate
different levels of authority to different committees with
administrative and grant authority under this Plan. Unless
otherwise provided in the bylaws of the Corporation or the
applicable charter of any Administrator: (a) a majority of the
members of the acting Administrator shall constitute a quorum, and
(b) the affirmative vote of a majority of the members present
assuming the presence of a quorum or the unanimous written consent
of the members of the Administrator shall constitute due
authorization of an action by the acting
Administrator.
With
respect to awards intended to satisfy the requirements for
performance-based compensation under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “
Code
”) , this Plan shall be
administered by a committee consisting solely of two or more
outside directors (as this requirement is applied under Section
162(m) of the Code);
provided,
however,
that the failure to satisfy such requirement shall
not affect the validity of the action of any committee otherwise
duly authorized and acting in the matter. Award grants, and
transactions in or involving awards, intended to be exempt under
Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the “
Exchange
Act
”) , must be duly and timely authorized by the
Board or a committee consisting solely of two or more non-employee
directors (as this requirement is applied under Rule 16b-3
promulgated under the Exchange Act). To the extent required by any
applicable stock exchange, this Plan shall be administered by a
committee composed entirely of independent directors (within the
meaning of the applicable stock exchange). Awards granted to
non-employee directors shall not be subject to the discretion of
any officer or employee of the Corporation and shall be
administered exclusively by a committee consisting solely of
independent directors.
3.2
Powers
of the Administrator
. Subject to the express provisions of
this Plan, the Administrator is authorized and empowered to do all
things necessary or desirable in connection with the authorization
of awards and the administration of this Plan (in the case of a
committee or delegation to one or more officers, within the
authority delegated to that committee or person(s)), including,
without limitation, the authority to:
(a)
determine eligibility and, from among those persons determined to
be eligible, the particular Eligible Persons who will receive
awards under this Plan;
(b)
grant awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the number of securities
to be offered or awarded to any of such persons, determine the
other specific terms and conditions of such awards consistent with
the express limits of this Plan, establish the installments (if
any) in which such awards shall become exercisable or shall vest
(which may include, without limitation, performance and/or
time-based schedules), or determine that no delayed exercisability
or vesting is required, establish any applicable performance
targets, and establish the events of termination or reversion of
such awards;
(c)
approve the forms of award agreements (which need not be identical
either as to type of award or among participants);
(d)
construe and interpret this Plan and any agreements defining the
rights and obligations of the Corporation, its Subsidiaries, and
participants under this Plan, further define the terms used in this
Plan, and prescribe, amend and rescind rules and regulations
relating to the administration of this Plan or the awards granted
under this Plan;
(e)
cancel, modify, or waive the Corporation’s rights with
respect to, or modify, discontinue, suspend, or terminate any or
all outstanding awards, subject to any required consent under
Section 8.6.5;
(f)
accelerate or extend the vesting or exercisability or extend the
term of any or all such outstanding awards (in the case of options
or stock appreciation rights, within the maximum ten-year term of
such awards) in such circumstances as the Administrator may deem
appropriate (including, without limitation, in connection with a
termination of employment or services or other events of a personal
nature) subject to any required consent under Section
8.6.5;
(g)
adjust the number of shares of Common Stock subject to any award,
adjust the price of any or all outstanding awards or otherwise
change previously imposed terms and conditions, in such
circumstances as the Administrator may deem appropriate, in each
case subject to compliance with applicable stock exchange
requirements, Sections 4 and 8.6 and the applicable requirements of
Code Section 162(m) and treasury regulations thereunder with
respect to awards that are intended to satisfy the requirements for
performance-based compensation under Section 162(m), and provided
that in no case (except due to an adjustment contemplated by
Section 7 or any repricing that may be approved by stockholders)
shall such an adjustment constitute a repricing (by amendment,
cancellation and regrant, exchange or other means) of the per share
exercise or base price of any stock option or stock appreciation
right or other award granted under this Plan, and further provided
that any adjustment or change in terms made pursuant to this
Section 3.2(g) shall be made in a manner that, in the good faith
determination of the Administrator will not likely result in the
imposition of additional taxes or interest under Section 409A of
the Code;
(h)
determine the date of grant of an award, which may be a designated
date after but not before the date of the Administrator’s
action (unless otherwise designated by the Administrator, the date
of grant of an award shall be the date upon which the Administrator
took the action granting an award);
(i)
determine whether, and the extent to which, adjustments are
required pursuant to Section 7 hereof and authorize the
termination, conversion, substitution, acceleration or succession
of awards upon the occurrence of an event of the type described in
Section 7;
(j) acquire
or settle (subject to Sections 7 and 8.6) rights under awards in
cash, stock of equivalent value, or other consideration;
and
(k)
determine the Fair Market Value (as defined in Section 5.6) of the
Common Stock or awards under this Plan from time to time and/or the
manner in which such value will be determined.
3.3
Binding
Determinations.
Any action taken by, or inaction of, the
Corporation, any Subsidiary, or the Administrator relating or
pursuant to this Plan and within its authority hereunder or under
applicable law shall be within the absolute discretion of that
entity or body and shall be conclusive and binding upon all
persons. Neither the Board, the Administrator, nor any Board
committee, nor any member thereof or person acting at the direction
thereof, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with
this Plan (or any award made under this Plan), and all such persons
shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage or expense
(including, without limitation, legal fees) arising or resulting
therefrom to the fullest extent permitted by law and/or under any
directors and officers liability insurance coverage that may be in
effect from time to time.
3.4
Reliance
on Experts.
In making any determination or in taking or not
taking any action under this Plan, the Administrator may obtain and
may rely upon the advice of experts, including professional
advisors to the Corporation. The Administrator shall not be liable
for any such action or determination taken or made or omitted in
good faith based upon such advice.
3.5
Delegation
of Non-Discretionary Functions.
In addition to the ability
to delegate certain grant authority to officers of the Corporation
as set forth in Section 3.1, the Administrator may also delegate
ministerial, non-discretionary functions to individuals who are
officers or employees of the Corporation or any of its Subsidiaries
or to third parties.
|
4.
|
SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE
LIMIT
|
4.1
Shares
Available.
Subject to the provisions of Section 7.1, the
capital stock available for issuance under this Plan shall be
shares of the Corporation’s authorized but unissued Common
Stock. For purposes of this Plan, “
Common Stock
” shall mean the
common stock of the Corporation and such other securities or
property as may become the subject of awards under this Plan, or
may become subject to such awards, pursuant to an adjustment made
under Section 7.1.
4.2
Share
Limit.
The maximum number of shares of Common Stock that may
be delivered pursuant to awards granted to Eligible Persons under
this Plan may not exceed fifteen percent (15%) of the total of: (a)
the issued and outstanding shares of the Corporation’s Common
Stock, and (b) all shares common stock issuable upon conversion or
exercise of any outstanding securities of the Corporation which are
convertible or exercisable into shares of Common Stock under the
terms thereof, as determined on the date this Plan is adopted by
the Corporation’s Board of Directors (the “
Share Limit
”). The Share Limit
will be increased effective the first day of each of the
Corporation’s fiscal quarters, by an amount equal to the
lesser of:
(1) The
number of shares which is equal to 15% of the total of: (a) the
issued and outstanding shares of the Corporation’s Common
Stock, and (b) all shares common stock issuable upon conversion or
exercise of any outstanding securities of the Corporation which are
convertible or exercisable into shares of Common Stock under the
terms thereof; and
(2) any
lesser number of shares of Common Stock as may determined by the
board of directors of the Corporation.
The
foregoing Share Limit is subject to adjustment as contemplated by
Section 4.3, Section 7.1, and Section 8.10.
4.3
Awards
Settled in Cash, Reissue of Awards and Shares.
The
Administrator may adopt reasonable counting procedures to ensure
appropriate counting, avoid double counting (as, for example, in
the case of tandem or substitute awards) and make adjustments in
accordance with this Section 4.3. Shares shall be counted against
those reserved to the extent such shares have been delivered and
are no longer subject to a substantial risk of forfeiture.
Accordingly, (i) to the extent that an award under the Plan, in
whole or in part, is canceled, expired, forfeited, settled in cash,
settled by delivery of fewer shares than the number of shares
underlying the award, or otherwise terminated without delivery of
shares to the participant, the shares retained by or returned to
the Corporation will not be deemed to have been delivered under the
Plan and will be deemed to remain or to become available under this
Plan; and (ii) shares that are withheld from such an award or
separately surrendered by the participant in payment of the
exercise price or taxes relating to such an award shall be deemed
to constitute shares not delivered and will be deemed to remain or
to become available under the Plan. The foregoing adjustments to
the Share Limit of this Plan are subject to any applicable
limitations under Section 162(m) of the Code with respect to awards
intended as performance-based compensation thereunder.
4.4
Reservation of Shares; No
Fractional Shares.
The Corporation shall at all times
reserve a number of shares of Common Stock sufficient to cover the
Corporation’s obligations and contingent obligations to
deliver shares with respect to awards then outstanding under this
Plan (exclusive of any dividend equivalent obligations to the
extent the Corporation has the right to settle such rights in
cash). No fractional shares shall be delivered under this Plan. The
Administrator may pay cash in lieu of any fractional shares in
settlements of awards under this Plan.
5.1
Type and Form of
Awards.
The Administrator shall determine the type or types
of award(s) to be made to each selected Eligible Person. Awards may
be granted singly, in combination or in tandem. Awards also may be
made in combination or in tandem with, in replacement of, as
alternatives to, or as the payment form for grants or rights under
any other employee or compensation plan of the Corporation or one
of its Subsidiaries. The types of awards that may be granted under
this Plan are:
5.1.1
Stock Options.
A
stock option is the grant of a right to purchase a specified number
of shares of Common Stock during a specified period as determined
by the Administrator. An option may be intended as an incentive
stock option within the meaning of Section 422 of the Code (an
“
ISO
”) or a
nonqualified stock option (an option not intended to be an ISO).
The award agreement for an option will indicate if the option is
intended as an ISO; otherwise it will be deemed to be a
nonqualified stock option. The maximum term of each option (ISO or
nonqualified) shall be ten (10) years. The per share exercise price
for each option shall be not less than 100% of the Fair Market
Value of a share of Common Stock on the date of grant of the
option. When an option is exercised, the exercise price for the
shares to be purchased shall be paid in full in cash or such other
method permitted by the Administrator consistent with Section
5.5.
5.1.2
Additional Rules Applicable
to ISOs.
To the extent that the aggregate Fair Market Value
(determined at the time of grant of the applicable option) of stock
with respect to which ISOs first become exercisable by a
participant in any calendar year exceeds $100,000, taking into
account both Common Stock subject to ISOs under this Plan and stock
subject to ISOs under all other plans of the Corporation or one of
its Subsidiaries (or any parent or predecessor corporation to the
extent required by and within the meaning of Section 422 of the
Code and the regulations promulgated thereunder), such options
shall be treated as nonqualified stock options. In reducing the
number of options treated as ISOs to meet the $100,000 limit, the
most recently granted options shall be reduced first. To the extent
a reduction of simultaneously granted options is necessary to meet
the $100,000 limit, the Administrator may, in the manner and to the
extent permitted by law, designate which shares of Common Stock are
to be treated as shares acquired pursuant to the exercise of an
ISO. ISOs may only be granted to employees of the Corporation or
one of its subsidiaries (for this purpose, the term
“subsidiary” is used as defined in Section 424(f) of
the Code, which generally requires an unbroken chain of ownership
of at least 50% of the total combined voting power of all classes
of stock of each subsidiary in the chain beginning with the
Corporation and ending with the subsidiary in question). There
shall be imposed in any award agreement relating to ISOs such other
terms and conditions as from time to time are required in order
that the option be an “incentive stock option” as that
term is defined in Section 422 of the Code. No ISO may be granted
to any person who, at the time the option is granted, owns (or is
deemed to own under Section 424(d) of the Code) shares of
outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation,
unless the exercise price of such option is at least 110% of the
Fair Market Value of the stock subject to the option and such
option by its terms is not exercisable after the expiration of five
years from the date such option is granted.
5.1.3
Stock Appreciation
Rights.
A stock appreciation right or “
SAR
” is a right to receive a
payment, in cash and/or Common Stock, equal to the number of shares
of Common Stock being exercised multiplied by the excess of (i) the
Fair Market Value of a share of Common Stock on the date the SAR is
exercised, over (ii) the Fair Market Value of a share of Common
Stock on the date the SAR was granted as specified in the
applicable award agreement (the “
base price
”). The maximum term of
a SAR shall be ten (10) years.
5.1.4
Restricted
Shares
.
(a)
Restrictions
. Restricted
shares are shares of Common Stock subject to such restrictions on
transferability, risk of forfeiture and other restrictions, if any,
as the Administrator may impose, which restrictions may lapse
separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or
otherwise, as the Administrator may determine at the date of grant
or thereafter. Except to the extent restricted under the terms of
this Plan and the applicable award agreement relating to the
restricted stock, a participant granted restricted stock shall have
all of the rights of a shareholder, including the right to vote the
restricted stock and the right to receive dividends thereon
(subject to any mandatory reinvestment or other requirement imposed
by the Administrator).
(b)
Certificates for Shares
.
Restricted shares granted under this Plan may be evidenced in such
manner as the Administrator shall determine. If certificates
representing restricted stock are registered in the name of the
participant, the Administrator may require that such certificates
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such restricted stock, that the
Corporation retain physical possession of the certificates, and
that the participant deliver a stock power to the Corporation,
endorsed in blank, relating to the restricted stock. The
Administrator may require that restricted shares are held in escrow
until all restrictions lapse
(c)
Dividends and Splits
. As a
condition to the grant of an award of restricted stock, subject to
applicable law, the Administrator may require or permit a
participant to elect that any cash dividends paid on a share of
restricted stock be automatically reinvested in additional shares
of restricted stock or applied to the purchase of additional awards
under this Plan. Unless otherwise determined by the Administrator,
stock distributed in connection with a stock split or stock
dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent
as the restricted stock with respect to which such stock or other
property has been distributed.
5.1.5
Restricted Share Units
.
(a)
Grant of Restricted Share
Units
. A restricted share unit,
or “
RSU
”,
represents the right to receive from the Corporation on the
respective scheduled vesting or payment date for such RSU, one
Common Share. An award of RSUs may be subject to the attainment of
specified performance goals or targets, forfeitability provisions
and such other terms and conditions as the Administrator may
determine, subject to the provisions of this Plan. At the time an
award of RSUs is made, the Administrator shall establish a period
of time during which the restricted share units shall vest and the
timing for settlement of the RSU.
(b)
Dividend Equivalent
Accounts
. Subject to the terms and conditions of the Plan
and the applicable award agreement, as well as any procedures
established by the Administrator, prior to the expiration of the
applicable vesting period of an RSU, the Administrator may
determine to pay dividend equivalent rights with respect to RSUs,
in which case, the Corporation shall establish an account for the
participant and reflect in that account any securities, cash or
other property comprising any dividend or property distribution
with respect to the shares of Common Stock underlying each RSU.
Each amount or other property credited to any such account shall be
subject to the same vesting conditions as the RSU to which it
relates. The participant shall have the right to be paid the
amounts or other property credited to such account upon vesting of
the subject RSU.
(c)
Rights as a
Shareholder
. Subject to the
restrictions imposed under the terms and conditions of this Plan
and the applicable award agreement, each participant receiving RSUs
shall have no rights as a shareholder with respect to such RSUs
until such time as shares of Common Stock are issued to the
participant. No shares of Common Stock shall be issued at the time
a RSU is granted, and the Company will not be required to set aside
a fund for the payment of any such award. Except as otherwise
provided in the applicable award agreement, shares of Common Stock
issuable under an RSU shall be treated as issued on the first date
that the holder of the RSU is no longer subject to a substantial
risk of forfeiture as determined for purposes of Section 409A of
the Code, and the holder shall be the owner of such shares of
Common Stock on such date. An award agreement may provide that
issuance of shares of Common Stock under an RSU may be deferred
beyond the first date that the RSU is no longer subject to a
substantial risk of forfeiture, provided that such deferral is
structured in a manner that is intended to comply with the
requirements of Section 409A of the Code.
5.1.6
Cash
Awards
.
The
Administrator may, from time to time, subject to the provisions of
the Plan and such other terms and conditions as it may determine,
grant cash bonuses (including without limitation, discretionary
awards, awards based on objective or subjective performance
criteria, awards subject to other vesting criteria or awards
granted consistent with Section 5.2 below). Cash awards shall be
awarded in such amount and at such times during the term of the
Plan as the Administrator shall determine.
5.1.7
Other
Awards.
The other types of awards that may be granted under
this Plan include: (a) stock bonuses, performance stock,
performance units, dividend equivalents, or similar rights to
purchase or acquire shares, whether at a fixed or variable price or
ratio related to the Common Stock (subject to the requirements of
Section 5.1.1 and in compliance with applicable laws), upon the
passage of time, the occurrence of one or more events, or the
satisfaction of performance criteria or other conditions, or any
combination thereof; or (b) any similar securities with a value
derived from the value of or related to the Common Stock and/or
returns thereon.
5.2
Section
162(m) Performance-Based Awards
.
Without limiting the generality of the
foregoing, any of the types of awards listed in Sections 5.1.4
through 5.1.7 above may be, and options and SARs granted with an
exercise or base price not less than the Fair Market Value of a
share of Common Stock at the date of grant (“
Qualifying Options
” and
“
Qualifying SARs
,” respectively) typically will be, granted as awards
intended to satisfy the requirements for “performance-based
compensation” within the meaning of Section 162(m) of the
Code (“
Performance-Based
Awards
”) . The grant, vesting, exercisability or
payment of Performance-Based Awards may depend (or, in the case of
Qualifying Options or Qualifying SARs, may also depend) on the
degree of achievement of one or more performance goals relative to
a pre-established targeted level or levels using the Business
Criteria provided for below for the Corporation on a consolidated
basis or for one or more of the Corporation’s subsidiaries,
segments, divisions or business units, or any combination of the
foregoing. Such criteria may be evaluated on an absolute basis or
relative to prior periods, industry peers, or stock market indices.
Any Qualifying Option or Qualifying SAR shall be subject to the
requirements of Section 5.2.1 and 5.2.3 in order for such award to
satisfy the requirements for “performance-based
compensation” under Section 162(m) of the Code. Any other
Performance-Based Award shall be subject to all of the following
provisions of this Section 5.2.
5.2.1
Class;
Administrator.
The eligible class of persons for
Performance-Based Awards under this Section 5.2 shall be officers
and employees of the Corporation or one of its Subsidiaries. The
Administrator approving Performance-Based Awards or making any
certification required pursuant to Section 5.2.4 must be
constituted as provided in Section 3.1 for awards that are intended
as performance-based compensation under Section 162(m) of the
Code.
5.2.2
Performance
Goals.
The specific performance goals for Performance-Based
Awards (other than Qualifying Options and Qualifying SARs) shall
be, on an absolute or relative basis, established based on such
business criteria as selected by the Administrator in its sole
discretion (“
Business
Criteria
”) , including the following: (1) earnings per
share, (2) cash flow (which means cash and cash equivalents derived
from either (i) net cash flow from operations or (ii) net cash flow
from operations, financing and investing activities), (3) total
stockholder return, (4) price per share of Common Stock, (5) gross
revenue, (6) revenue growth, (7) operating income (before or after
taxes), (8) net earnings (before or after interest, taxes,
depreciation and/or amortization), (9) return on equity, (10)
capital employed, or on assets or on net investment, (11) cost
containment or reduction, (12) cash cost per ounce of production,
(13) operating margin, (14) debt reduction, (15) resource amounts,
(16) production or production growth, (17) resource replacement or
resource growth, (18) successful completion of financings, or (19)
any combination of the foregoing. To qualify awards as
performance-based under Section 162(m), the applicable Business
Criterion (or Business Criteria, as the case may be) and specific
performance goal or goals (“
targets
”) must be established and
approved by the Administrator during the first 90 days of the
performance period (and, in the case of performance periods of less
than one year, in no event after 25% or more of the performance
period has elapsed) and while performance relating to such
target(s) remains substantially uncertain within the meaning of
Section 162(m) of the Code. Performance targets shall be adjusted
to mitigate the unbudgeted impact of material, unusual or
nonrecurring gains and losses, accounting changes or other
extraordinary events not foreseen at the time the targets were set
unless the Administrator provides otherwise at the time of
establishing the targets; provided that the Administrator may not
make any adjustment to the extent it would adversely affect the
qualification of any compensation payable under such performance
targets as “performance-based compensation” under
Section 162(m) of Code. The applicable performance measurement
period may not be less than 3 months nor more than 10
years.
5.2.3
Form
of Payment.
Grants or awards intended to qualify under this
Section 5.2 may be paid in cash or shares of Common Stock or any
combination thereof.
5.2.4
Certification
of Payment.
Before any Performance-Based Award under this
Section 5.2 (other than Qualifying Options and Qualifying SARs) is
paid and to the extent required to qualify the award as
performance-based compensation within the meaning of Section 162(m)
of the Code, the Administrator must certify in writing that the
performance target(s) and any other material terms of the
Performance-Based Award were in fact timely satisfied.
5.2.5
Reservation
of Discretion
.
The
Administrator will have the discretion to determine the
restrictions or other limitations of the individual awards granted
under this Section 5.2 including the authority to reduce awards,
payouts or vesting or to pay no awards, in its sole discretion, if
the Administrator preserves such authority at the time of grant by
language to this effect in its authorizing resolutions or
otherwise.
5.2.6
Expiration
of Grant Authority
.
As required pursuant to Section 162(m) of the Code and the
regulations promulgated thereunder, the Administrator’s
authority to grant new awards that are intended to qualify as
performance-based compensation within the meaning of Section 162(m)
of the Code (other than Qualifying Options and Qualifying SARs)
shall terminate upon the first meeting of the Corporation’s
stockholders that occurs in the fifth year following the year in
which the Corporation’s stockholders first approve this Plan
(the “
162(m)
Term
”) .
5.2.7
Compensation
Limitations
.
The
maximum aggregate number of shares of Common Stock that may be
issued to any Eligible Person during the term of this Plan pursuant
to Qualifying Options and Qualifying SARs may not exceed the Share
Limit. The maximum aggregate number of shares of Common Stock that
may be issued to any Eligible Person pursuant to Performance-Based
Awards granted during the 162(m) Term (other than cash awards
granted pursuant to Section 5.1.6 and Qualifying Options or
Qualifying SARs) may not exceed the Share Limit. The maximum amount
that may be paid to any Eligible Person pursuant to
Performance-Based Awards granted pursuant to Sections 5.1.6 (cash
awards) during the 162(m) Term may not exceed
$1,000,000.
5.3
Award
Agreements.
Each award shall be evidenced by a written or
electronic award agreement in the form approved by the
Administrator and, if required by the Administrator, executed by
the recipient of the award. The Administrator may authorize any
officer of the Corporation (other than the particular award
recipient) to execute any or all award agreements on behalf of the
Corporation (electronically or otherwise). The award agreement
shall set forth the material terms and conditions of the award as
established by the Administrator consistent with the express
limitations of this Plan.
5.4
Deferrals
and Settlements.
Payment of awards may be in the form of
cash, Common Stock, other awards or combinations thereof as the
Administrator shall determine, and with such restrictions as it may
impose. The Administrator may also require or permit participants
to elect to defer the issuance of shares of Common Stock or the
settlement of awards in cash under such rules and procedures as it
may establish under this Plan. The Administrator may also provide
that deferred settlements include the payment or crediting of
interest or other earnings on the deferral amounts, or the payment
or crediting of dividend equivalents where the deferred amounts are
denominated in shares. All mandatory or elective deferrals of the
issuance of shares of Common Stock or the settlement of cash awards
shall be structured in a manner that is intended to comply with the
requirements of Section 409A of the Code.
5.5
Consideration
for Common Stock or Awards.
The purchase price for any award
granted under this Plan or the Common Stock to be delivered
pursuant to an award, as applicable, may be paid by means of any
lawful consideration as determined by the Administrator and subject
to compliance with applicable laws, including, without limitation,
one or a combination of the following methods:
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services
rendered by the recipient of such award;
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cash,
check payable to the order of the Corporation, or electronic funds
transfer;
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notice
and third party payment in such manner as may be authorized by the
Administrator;
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the
delivery of previously owned shares of Common Stock that are fully
vested and unencumbered;
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by a
reduction in the number of shares otherwise deliverable pursuant to
the award; or
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subject
to such procedures as the Administrator may adopt, pursuant to a
“cashless exercise” with a third party who provides
financing for the purposes of (or who otherwise facilitates) the
purchase or exercise of awards.
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In the
event that the Administrator allows a participant to exercise an
award by delivering shares of Common Stock previously owned by such
participant and unless otherwise expressly provided by the
Administrator, any shares delivered which were initially acquired
by the participant from the Corporation (upon exercise of a stock
option or otherwise) must have been owned by the participant at
least six months as of the date of delivery (or such other period
as may be required by the Administrator in order to avoid adverse
accounting treatment). Shares of Common Stock used to satisfy the
exercise price of an option shall be valued at their Fair Market
Value on the date of exercise. The Corporation will not be
obligated to deliver any shares unless and until it receives full
payment of the exercise or purchase price therefor and any related
withholding obligations under Section 8.5 and any other conditions
to exercise or purchase, as established from time to time by the
Administrator, have been satisfied. Unless otherwise expressly
provided in the applicable award agreement, the Administrator may
at any time eliminate or limit a participant’s ability to pay
the purchase or exercise price of any award by any method other
than cash payment to the Corporation.
5.6
Definition
of Fair Market Value.
For purposes of this Plan
“
Fair Market
Value
” shall mean, unless otherwise determined or
provided by the Administrator in the circumstances, the closing
price for a share of Common Stock on the trading day immediately
before the grant date, as furnished by the NASDAQ Stock Market or
other principal stock exchange on which the Common Stock is then
listed for the date in question, or if the Common Stock is no
longer listed on a principal stock exchange, then by the
Over-the-Counter Bulletin Board or OTC Markets. If the Common Stock
is no longer listed on the NASDAQ Capital Market or listed on a
principal stock exchange or is no longer actively traded on the
Over-the-Counter Bulletin Board or OTC Markets as of the applicable
date, the Fair Market Value of the Common Stock shall be the value
as reasonably determined by the Administrator for purposes of the
award in the circumstances.
5.7
Transfer
Restrictions.
5.7.1
Limitations
on Exercise and Transfer.
Unless otherwise expressly
provided in (or pursuant to) this Section 5.7, by applicable law
and by the award agreement, as the same may be amended, (a) all
awards are non-transferable and shall not be subject in any manner
to sale, transfer, anticipation, alienation, assignment, pledge,
encumbrance or charge; (b) awards shall be exercised only by the
participant; and (c) amounts payable or shares issuable pursuant to
any award shall be delivered only to (or for the account of) the
participant.
5.7.2
Exceptions.
The Administrator may permit awards to be exercised by and paid to,
or otherwise transferred to, other persons or entities pursuant to
such conditions and procedures, including limitations on subsequent
transfers, as the Administrator may, in its sole discretion,
establish in writing (provided that any such transfers of ISOs
shall be limited to the extent permitted under the federal tax laws
governing ISOs). Any permitted transfer shall be subject to
compliance with applicable federal and state securities
laws.
5.7.3
Further
Exceptions to Limits on Transfer.
The exercise and transfer
restrictions in Section 5.7.1 shall not apply to:
(a)
transfers to the Corporation,
(b) the
designation of a beneficiary to receive benefits in the event of
the participant’s death or, if the participant has died,
transfers to or exercise by the participant’s beneficiary,
or, in the absence of a validly designated beneficiary, transfers
by will or the laws of descent and distribution,
(c) subject to any applicable
limitations on ISOs, transfers to a family member (or former family
member) pursuant to a domestic relations order if approved or
ratified by the Administrator,
(d)
subject to any applicable limitations on ISOs, if the participant
has suffered a disability, permitted transfers or exercises on
behalf of the participant by his or her legal representative,
or
(e) the
authorization by the Administrator of “cashless
exercise” procedures with third parties who provide financing
for the purpose of (or who otherwise facilitate) the exercise of
awards consistent with applicable laws and the express
authorization of the Administrator.
5.8
International
Awards.
One or more awards may be granted to Eligible
Persons who provide services to the Corporation or one of its
Subsidiaries outside of the United States. Any awards granted to
such persons may, if deemed necessary or advisable by the
Administrator, be granted pursuant to the terms and conditions of
any applicable sub-plans, if any, appended to this Plan and
approved by the Administrator.
5.9
Vesting
.
Subject to Sections 5.1.2 and 5.10 hereof, awards shall vest at
such time or times and subject to such terms and conditions as
shall be determined by the Administrator at the time of grant;
provided, however
, that in
the absence of any award vesting periods designated by the
Administrator at the time of grant in the applicable award
agreement, awards shall vest as to one-third of the total number of
shares subject to the award on each of the first, second and third
anniversaries of the date of grant.
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6.
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EFFECT OF TERMINATION OF SERVICE ON AWARDS
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6.1
Termination
of Employment.
6.1.1
The
Administrator shall establish the effect of a termination of
employment or service on the rights and benefits under each award
under this Plan and in so doing may make distinctions based upon,
inter alia, the cause of termination and type of award. If the
participant is not an employee of the Corporation or one of its
Subsidiaries and provides other services to the Corporation or one
of its Subsidiaries, the Administrator shall be the sole judge for
purposes of this Plan (unless a contract or the award agreement
otherwise provides) of whether the participant continues to render
services to the Corporation or one of its Subsidiaries and the
date, if any, upon which such services shall be deemed to have
terminated.
6.1.2
For
awards of stock options or SARs, unless the award agreement
provides otherwise, the exercise period of such options or SARs
shall expire: (1) three months after the last day that the
participant is employed by or provides services to the Corporation
or a Subsidiary (provided; however, that in the event of the
participant’s death during this period, those persons
entitled to exercise the option or SAR pursuant to the laws of
descent and distribution shall have one year following the date of
death within which to exercise such option or SAR); (2) in the case
of a participant whose termination of employment is due to death or
disability (as defined in the applicable award agreement), 12
months after the last day that the participant is employed by or
provides services to the Corporation or a Subsidiary; and (3)
immediately upon a participant’s termination for
“cause”. The Administrator will, in its absolute
discretion, determine the effect of all matters and questions
relating to a termination of employment, including, but not by way
of limitation, the question of whether a leave of absence
constitutes a termination of employment and whether a
participant’s termination is for
“cause.”
If not
defined in the applicable award agreement, “
Cause
” shall mean:
(i)
conviction of a felony or a crime involving fraud or moral
turpitude; or
(ii)
theft, material act of dishonesty or fraud, intentional
falsification of any employment or Company records, or commission
of any criminal act which impairs participant’s ability to
perform appropriate employment duties for the Corporation;
or
(iii)
intentional or reckless conduct or gross negligence materially
harmful to the Company or the successor to the Corporation after a
Change in Control, including violation of a non-competition or
confidentiality agreement; or
(iv)
willful failure to follow lawful instructions of the person or body
to which participant reports; or
(v)
gross negligence or willful misconduct in the performance of
participant’s assigned duties. Cause shall
not
include mere unsatisfactory
performance in the achievement of participant’s job
objectives.
6.1.3
For
awards of restricted shares, unless the award agreement provides
otherwise, restricted shares that are subject to restrictions at
the time that a participant whose employment or service is
terminated shall be forfeited and reacquired by the Corporation;
provided that,
the
Administrator may provide, by rule or regulation or in any award
agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to restricted shares
shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Administrator may in other
cases waive in whole or in part the forfeiture of restricted
shares. Similar rules shall apply in respect of RSUs.
6.2
Events
Not Deemed Terminations of Service.
Unless the express
policy of the Corporation or one of its Subsidiaries, or the
Administrator, otherwise provides, the employment relationship
shall not be considered terminated in the case of (a) sick leave,
(b) military leave, or (c) any other leave of absence authorized by
the Corporation or one of its Subsidiaries, or the Administrator;
provided that unless reemployment upon the expiration of such leave
is guaranteed by contract or law, such leave is for a period of not
more than 3 months. In the case of any employee of the Corporation
or one of its Subsidiaries on an approved leave of absence,
continued vesting of the award while on leave from the employ of
the Corporation or one of its Subsidiaries may be suspended until
the employee returns to service, unless the Administrator otherwise
provides or applicable law otherwise requires. In no event shall an
award be exercised after the expiration of the term set forth in
the award agreement.
6.3
Effect
of Change of Subsidiary Status.
For purposes of this Plan
and any award, if an entity ceases to be a Subsidiary of the
Corporation, a termination of employment or service shall be deemed
to have occurred with respect to each Eligible Person in respect of
such Subsidiary who does not continue as an Eligible Person in
respect of another entity within the Corporation or another
Subsidiary that continues as such after giving effect to the
transaction or other event giving rise to the change in
status.
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7.
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ADJUSTMENTS; ACCELERATION
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7.1
Adjustments
.
Upon or in contemplation of any of the following events described
in this Section 7.1,: any reclassification, recapitalization, stock
split (including a stock split in the form of a stock dividend) or
reverse stock split (“
stock
split
”) ; any merger, arrangement, combination,
consolidation, or other reorganization; any spin-off, split-up, or
similar extraordinary dividend distribution in respect of the
Common Stock (whether in the form of securities or property); any
exchange of Common Stock or other securities of the Corporation, or
any similar, unusual or extraordinary corporate transaction in
respect of the Common Stock; then the Administrator shall in such
manner, to such extent and at such time as it deems appropriate and
equitable in the circumstances (but subject to compliance with
applicable laws and stock exchange requirements) proportionately
adjust any or all of (1) the number and type of shares of Common
Stock (or other securities) that thereafter may be made the subject
of awards (including the number of shares provided for in this
Plan), (2) the number, amount and type of shares of Common Stock
(or other securities or property) subject to any or all outstanding
awards, (3) the grant, purchase, or exercise price (which term
includes the base price of any SAR or similar right) of any or all
outstanding awards, (4) the securities, cash or other property
deliverable upon exercise or payment of any outstanding awards, and
(5) the 162(m) compensation limitations set forth in Section 5.2.7
and (subject to Section 8.8.3(a)) the performance standards
applicable to any outstanding awards (provided that no adjustment
shall be allowed to the extent inconsistent with the requirements
of Code section 162(m)). Any adjustment made pursuant to this
Section 7.1 shall be made in a manner that, in the good faith
determination of the Administrator, will not likely result in the
imposition of additional taxes or interest under Section 409A of
the Code. With respect to any award of an ISO, the Administrator
may make such an adjustment that causes the option to cease to
qualify as an ISO without the consent of the affected
participant.
7.2
Change
in Control
. Upon a Change in Control, each then-outstanding
option and SAR shall automatically become fully vested, all
restricted shares then outstanding shall automatically fully vest
free of restrictions, and each other award granted under this Plan
that is then outstanding shall automatically become vested and
payable to the holder of such award
unless
the
Administrator has made appropriate provision for the substitution,
assumption, exchange or other continuation of the award pursuant to
the Change in Control. Notwithstanding the foregoing, the
Administrator, in its sole and absolute discretion, may choose (in
an award agreement or otherwise) to provide for full or partial
accelerated vesting of any award upon a Change In Control (or upon
any other event or other circumstance related to the Change in
Control, such as an involuntary termination of employment occurring
after such Change in Control, as the Administrator may determine),
irrespective of whether such any such award has been substituted,
assumed, exchanged or otherwise continued pursuant to the Change in
Control.
For
purposes of this Plan, “
Change in Control
” shall be deemed
to have occurred if:
(i) a
tender offer (or series of related offers) shall be made and
consummated for the ownership of 50% or more of the outstanding
voting securities of the Corporation, unless as a result of such
tender offer more than 50% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the
aggregate by the stockholders of the Corporation (as of the time
immediately prior to the commencement of such offer), any employee
benefit plan of the Corporation or its Subsidiaries, and their
affiliates;
(ii)
the Corporation shall be merged or consolidated with another
entity, unless as a result of such merger or consolidation more
than 50% of the outstanding voting securities of the surviving or
resulting entity shall be owned in the aggregate by the
stockholders of the Corporation (as of the time immediately prior
to such transaction), any employee benefit plan of the Corporation
or its Subsidiaries, and their affiliates;
(iii)
the Corporation shall sell substantially all of its assets to
another entity that is not wholly owned by the Corporation, unless
as a result of such sale more than 50% of such assets shall be
owned in the aggregate by the stockholders of the Corporation (as
of the time immediately prior to such transaction), any employee
benefit plan of the Corporation or its Subsidiaries and their
affiliates; or
(iv) a
Person (as defined below) shall acquire 50% or more of the
outstanding voting securities of the Corporation (whether directly,
indirectly, beneficially or of record), unless as a result of such
acquisition more than 50% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the
aggregate by the stockholders of the Corporation (as of the time
immediately prior to the first acquisition of such securities by
such Person), any employee benefit plan of the Corporation or its
Subsidiaries, and their affiliates.
For
purposes of this Section 5(c), ownership of voting securities shall
take into account and shall include ownership as determined by
applying the provisions of Rule 13d-3(d)(I)(i) (as in effect on the
date hereof) under the Exchange Act. In addition, for such
purposes, “Person” shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) thereof;
provided
,
however
, that a Person shall
not include (A) the Company or any of its Subsidiaries; (B) a
trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any of its Subsidiaries; (C) an
underwriter temporarily holding securities pursuant to an offering
of such securities; or (D) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportion as their ownership of stock of the
Company.
Notwithstanding the
foregoing, (1) the Administrator may waive the requirement
described in paragraph (iv) above that a Person must acquire more
than 50% of the outstanding voting securities of the Corporation
for a Change in Control to have occurred if the Administrator
determines that the percentage acquired by a person is significant
(as determined by the Administrator in its discretion) and that
waiving such condition is appropriate in light of all facts and
circumstances, and (2) no compensation that has been deferred for
purposes of Section 409A of the Code shall be payable as a result
of a Change in Control unless the Change in Control qualifies as a
change in ownership or effective control of the Corporation within
the meaning of Section 409A of the Code.
7.3
Early
Termination of Awards
. Any award that has been accelerated
as required or permitted by Section 7.2 upon a Change in Control
(or would have been so accelerated but for Section 7.4 or 7.5)
shall terminate upon such event, subject to any provision that has
been expressly made by the Administrator, through a plan of
reorganization or otherwise, for the survival, substitution,
assumption, exchange or other continuation of such award and
provided that, in the case of options and SARs that will not
survive, be substituted for, assumed, exchanged, or otherwise
continued in the transaction, the holder of such award shall be
given reasonable advance notice of the impending termination and a
reasonable opportunity to exercise his or her outstanding options
and SARs in accordance with their terms before the termination of
such awards (except that in no case shall more than ten days’
notice of accelerated vesting and the impending termination be
required and any acceleration may be made contingent upon the
actual occurrence of the event).
The
Administrator may make provision for payment in cash or property
(or both) in respect of awards terminated pursuant to this section
as a result of the Change in Control and may adopt such valuation
methodologies for outstanding awards as it deems reasonable and, in
the case of options, SARs or similar rights, and without limiting
other methodologies, may base such settlement solely upon the
excess if any of the per share amount payable upon or in respect of
such event over the exercise or base price of the
award.
7.4
Other
Acceleration Rules
. Any acceleration of awards pursuant to
this Section 7 shall comply with applicable legal and stock
exchange requirements and, if necessary to accomplish the purposes
of the acceleration or if the circumstances require, may be deemed
by the Administrator to occur a limited period of time not greater
than 30 days before the event. Without limiting the generality of
the foregoing, the Administrator may deem an acceleration to occur
immediately prior to the applicable event and/or reinstate the
original terms of an award if an event giving rise to the
acceleration does not occur. Notwithstanding any other provision of
the Plan to the contrary, the Administrator may override the
provisions of Section 7.2, 7.3, and/or 7.5 by express provision in
the award agreement or otherwise. The portion of any ISO
accelerated pursuant to Section 7.2 or any other action permitted
hereunder shall remain exercisable as an ISO only to the extent the
applicable $100,000 limitation on ISOs is not exceeded. To the
extent exceeded, the accelerated portion of the option shall be
exercisable as a nonqualified stock option under the
Code.
7.5
Possible
Rescission of Acceleration
. If the vesting of an award has
been accelerated expressly in anticipation of an event and the
Administrator later determines that the event will not occur, the
Administrator may rescind the effect of the acceleration as to any
then outstanding and unexercised or otherwise unvested awards;
provided, that
, in the
case of any compensation that has been deferred for purposes of
Section 409A of the Code, the Administrator determines that such
rescission will not likely result in the imposition of additional
tax or interest under Code Section 409A.
8.1
Compliance
with Laws.
This Plan, the granting and vesting of awards
under this Plan, the offer, issuance and delivery of shares of
Common Stock, the acceptance of promissory notes and/or the payment
of money under this Plan or under awards are subject to compliance
with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law,
federal margin requirements) and to such approvals by any
applicable stock exchange listing, regulatory or governmental
authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. The person
acquiring any securities under this Plan will, if requested by the
Corporation or one of its Subsidiaries, provide such assurances and
representations to the Corporation or one of its Subsidiaries as
the Administrator may deem necessary or desirable to assure
compliance with all applicable legal and accounting
requirements.
8.2
Future
Awards/Other Rights.
No person shall have any claim or
rights to be granted an award (or additional awards, as the case
may be) under this Plan, subject to any express contractual rights
(set forth in a document other than this Plan) to the
contrary.
8.3
No
Employment/Service Contract.
Nothing contained in this Plan
(or in any other documents under this Plan or in any award) shall
confer upon any Eligible Person or other participant any right to
continue in the employ or other service of the Corporation or one
of its Subsidiaries, constitute any contract or agreement of
employment or other service or affect an employee’s status as
an employee at will, nor shall interfere in any way with the right
of the Corporation or one of its Subsidiaries to change a
person’s compensation or other benefits, or to terminate his
or her employment or other service, with or without cause. Nothing
in this Section 8.3, however, is intended to adversely affect any
express independent right of such person under a separate
employment or service contract other than an award
agreement.
8.4
Plan
Not Funded.
Awards payable under this Plan shall be payable
in shares or from the general assets of the Corporation, and no
special or separate reserve, fund or deposit shall be made to
assure payment of such awards. No participant, beneficiary or other
person shall have any right, title or interest in any fund or in
any specific asset (including shares of Common Stock, except as
expressly otherwise provided) of the Corporation or one of its
Subsidiaries by reason of any award hereunder. Neither the
provisions of this Plan (or of any related documents), nor the
creation or adoption of this Plan, nor any action taken pursuant to
the provisions of this Plan shall create, or be construed to
create, a trust of any kind or a fiduciary relationship between the
Corporation or one of its Subsidiaries and any participant,
beneficiary or other person. To the extent that a participant,
beneficiary or other person acquires a right to receive payment
pursuant to any award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the
Corporation.
8.5
Tax
Withholding.
Upon any exercise, vesting, or payment of any
award, the Corporation or one of its Subsidiaries shall have the
right at its option to:
(a)
require the participant (or the participant’s personal
representative or beneficiary, as the case may be) to pay or
provide for payment of at least the minimum amount of any taxes
which the Corporation or one of its Subsidiaries may be required to
withhold with respect to such award event or payment;
or
(b)
deduct from any amount otherwise payable in cash to the participant
(or the participant’s personal representative or beneficiary,
as the case may be) the minimum amount of any taxes which the
Corporation or one of its Subsidiaries may be required to withhold
with respect to such cash payment.
In any
case where a tax is required to be withheld in connection with the
delivery of shares of Common Stock under this Plan, the
Administrator may in its sole discretion (subject to Section 8.1)
grant (either at the time of the award or thereafter) to the
participant the right to elect, pursuant to such rules and subject
to such conditions as the Administrator may establish, to have the
Corporation reduce the number of shares to be delivered by (or
otherwise reacquire) the appropriate number of shares, valued in a
consistent manner at their Fair Market Value or at the sales price
in accordance with authorized procedures for cashless exercises,
necessary to satisfy the minimum applicable withholding obligation
on exercise, vesting or payment. In no event shall the shares
withheld exceed the minimum whole number of shares required for tax
withholding under applicable law.
8.6
Effective
Date, Termination and Suspension, Amendments.
8.6.1
Effective
Date and Termination.
This Plan was approved by the Board
and became effective on August 3, 2016. Unless earlier terminated
by the Board, this Plan shall terminate at the close of business on
August 3, 2026. After the termination of this Plan either upon such
stated expiration date or its earlier termination by the Board, no
additional awards may be granted under this Plan, but previously
granted awards (and the authority of the Administrator with respect
thereto, including the authority to amend such awards) shall remain
outstanding in accordance with their applicable terms and
conditions and the terms and conditions of this Plan.
8.6.2
Board
Authorization.
The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole or
in part. No awards may be granted during any period that the Board
suspends this Plan.
8.6.3
Stockholder
Approval.
To the extent then required by applicable law or
any applicable stock exchange or required under Sections 162, 422
or 424 of the Code to preserve the intended tax consequences of
this Plan, or deemed necessary or advisable by the Board, this Plan
and any amendment to this Plan shall be subject to stockholder
approval.
8.6.4
Amendments
to Awards.
Without limiting any other express authority of
the Administrator under (but subject to) the express limits of this
Plan, the Administrator by agreement or resolution may waive
conditions of or limitations on awards to participants that the
Administrator in the prior exercise of its discretion has imposed,
without the consent of a participant, and (subject to the
requirements of Sections 3.2 and 8.6.5) may make other changes to
the terms and conditions of awards. Any amendment or other action
that would constitute a repricing of an award is subject to the
limitations set forth in Section 3.2(g).
8.6.5
Limitations
on Amendments to Plan and Awards.
No amendment, suspension
or termination of this Plan or change of or affecting any
outstanding award shall, without written consent of the
participant, affect in any manner materially adverse to the
participant any rights or benefits of the participant or
obligations of the Corporation under any award granted under this
Plan prior to the effective date of such change. Changes,
settlements and other actions contemplated by Section 7 shall not
be deemed to constitute changes or amendments for purposes of this
Section 8.6.
8.7
Privileges
of Stock Ownership.
Except as otherwise expressly authorized
by the Administrator or this Plan, a participant shall not be
entitled to any privilege of stock ownership as to any shares of
Common Stock not actually delivered to and held of record by the
participant. No adjustment will be made for dividends or other
rights as a stockholder for which a record date is prior to such
date of delivery.
8.8
Governing
Law; Construction; Severability.
8.8.1
Choice
of Law.
This Plan, the awards, all documents evidencing
awards and all other related documents shall be governed by, and
construed in accordance with the laws of the State of
Delaware.
8.8.2
Severability.
If a court of competent jurisdiction holds any provision invalid
and unenforceable, the remaining provisions of this Plan shall
continue in effect.
8.8.3
Plan
Construction.
(a)
Rule 16b-3.
It is the
intent of the Corporation that the awards and transactions
permitted by awards be interpreted in a manner that, in the case of
participants who are or may be subject to Section 16 of the
Exchange Act, qualify, to the maximum extent compatible with the
express terms of the award, for exemption from matching liability
under Rule 16b-3 promulgated under the Exchange Act.
Notwithstanding the foregoing, the Corporation shall have no
liability to any participant for Section 16 consequences of awards
or events under awards if an award or event does not so
qualify.
(b)
Section 162(m).
Awards
under Sections 5.1.4 through 5.1.7 to persons described in Section
5.2 that are either granted or become vested, exercisable or
payable based on attainment of one or more performance goals
related to the Business Criteria, as well as Qualifying Options and
Qualifying SARs granted to persons described in Section 5.2, that
are approved by a committee composed solely of two or more outside
directors (as this requirement is applied under Section 162(m) of
the Code) shall be deemed to be intended as performance-based
compensation within the meaning of Section 162(m) of the Code
unless such committee provides otherwise at the time of grant of
the award. It is the further intent of the Corporation that (to the
extent the Corporation or one of its Subsidiaries or awards under
this Plan may be or become subject to limitations on deductibility
under Section 162(m) of the Code) any such awards and any other
Performance-Based Awards under Section 5.2 that are granted to or
held by a person subject to Section 162(m) will qualify as
performance-based compensation or otherwise be exempt from
deductibility limitations under Section 162(m).
(c)
Code Section 409A
Compliance.
The Board intends that, except as may be
otherwise determined by the Administrator, any awards under the
Plan are either exempt from or satisfy the requirements of Section
409A of the Code and related regulations and Treasury
pronouncements (“
Section
409A
”) to avoid the imposition of any taxes, including
additional income or penalty taxes, thereunder. If the
Administrator determines that an award, award agreement,
acceleration, adjustment to the terms of an award, payment,
distribution, deferral election, transaction or any other action or
arrangement contemplated by the provisions of the Plan would, if
undertaken, cause a participant’s award to become subject to
Section 409A, unless the Administrator expressly determines
otherwise, such award, award agreement, payment, acceleration,
adjustment, distribution, deferral election, transaction or other
action or arrangement shall not be undertaken and the related
provisions of the Plan and/or award agreement will be deemed
modified or, if necessary, rescinded in order to comply with the
requirements of Section 409A to the extent determined by the
Administrator without the content or notice to the participant.
Notwithstanding the foregoing, neither the Company nor the
Administrator shall have any obligation to take any action to
prevent the assessment of any excise tax or penalty on any
participant under Section 409A and neither the Company nor the
Administrator will have any liability to any participant for such
tax or penalty.
(d)
No Guarantee of Favorable Tax
Treatment.
Although the Company intends that awards under
the Plan will be exempt from, or will comply with, the requirements
of Section 409A of the Code, the Company does not warrant that any
award under the Plan will qualify for favorable tax treatment under
Section 409A of the Code or any other provision of federal, state,
local or foreign law. The Company shall not be liable to any
participant for any tax, interest or penalties the participant
might owe as a result of the grant, holding, vesting, exercise or
payment of any award under the Plan
8.9
Captions.
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision
thereof.
8.10
Stock-Based
Awards in Substitution for Stock Options or Awards Granted by Other
Corporation.
Awards may be granted to Eligible Persons in
substitution for or in connection with an assumption of employee
stock options, SARs, restricted stock or other stock-based awards
granted by other entities to persons who are or who will become
Eligible Persons in respect of the Corporation or one of its
Subsidiaries, in connection with a distribution, arrangement,
business combination, merger or other reorganization by or with the
granting entity or an affiliated entity, or the acquisition by the
Corporation or one of its Subsidiaries, directly or indirectly, of
all or a substantial part of the stock or assets of the employing
entity. The awards so granted need not comply with other specific
terms of this Plan, provided the awards reflect only adjustments
giving effect to the assumption or substitution consistent with the
conversion applicable to the Common Stock in the transaction and
any change in the issuer of the security. Any shares that are
delivered and any awards that are granted by, or become obligations
of, the Corporation, as a result of the assumption by the
Corporation of, or in substitution for, outstanding awards
previously granted by an acquired company (or previously granted by
a predecessor employer (or direct or indirect parent thereof) in
the case of persons that become employed by the Corporation or one
of its Subsidiaries in connection with a business or asset
acquisition or similar transaction) shall not be counted against
the Share Limit or other limits on the number of shares available
for issuance under this Plan, except as may otherwise be provided
by the Administrator at the time of such assumption or substitution
or as may be required to comply with the requirements of any
applicable stock exchange.
8.11
Non-Exclusivity
of Plan.
Nothing in this Plan shall limit or be deemed to
limit the authority of the Board or the Administrator to grant
awards or authorize any other compensation, with or without
reference to the Common Stock, under any other plan or
authority.
8.12
No
Corporate Action Restriction.
The existence of this Plan,
the award agreements and the awards granted hereunder shall not
limit, affect or restrict in any way the right or power of the
Board or the stockholders of the Corporation to make or authorize:
(a) any adjustment, recapitalization, reorganization or other
change in the capital structure or business of the Corporation or
any Subsidiary, (b) any merger, arrangement, business combination,
amalgamation, consolidation or change in the ownership of the
Corporation or any Subsidiary, (c) any issue of bonds, debentures,
capital, preferred or prior preference stock ahead of or affecting
the capital stock (or the rights thereof) of the Corporation or any
Subsidiary, (d) any dissolution or liquidation of the Corporation
or any Subsidiary, (e) any sale or transfer of all or any part of
the assets or business of the Corporation or any Subsidiary, or (f)
any other corporate act or proceeding by the Corporation or any
Subsidiary. No participant, beneficiary or any other person shall
have any claim under any award or award agreement against any
member of the Board or the Administrator, or the Corporation or any
employees, officers or agents of the Corporation or any Subsidiary,
as a result of any such action.
8.13
Other
Corporation Benefit and Compensation Programs.
Payments and
other benefits received by a participant under an award made
pursuant to this Plan shall not be deemed a part of a
participant’s compensation for purposes of the determination
of benefits under any other employee welfare or benefit plans or
arrangements, if any, provided by the Corporation or any
Subsidiary, except where the Administrator expressly otherwise
provides or authorizes in writing or except as otherwise
specifically set forth in the terms and conditions of such other
employee welfare or benefit plan or arrangement. Awards under this
Plan may be made in addition to, in combination with, as
alternatives to or in payment of grants, awards or commitments
under any other plans or arrangements of the Corporation or its
Subsidiaries.
8.14
Prohibition
on Repricing
.
Subject
to Section 4, the Administrator shall not, without the approval of
the stockholders of the Corporation (i) reduce the exercise price,
or cancel and reissue options so as to in effect reduce the
exercise price or (ii) change the manner of determining the
exercise price so that the exercise price is less than the fair
market value per share of Common Stock.
As
adopted by the Board of Directors of Exactus, Inc. on December __,
2018.
[Date
of Award]
[Name]
[Street]
[City,
State]
Dear
[Name]:
RE:
Employee Stock
Option Award Agreement (“Agreement”)
Exactus, Inc. (the
“Company”) has designated you to be a recipient of a
Non-Qualified Stock Option to purchase shares of the common stock
of the Company, (“Common Stock”), subject to the
employment-based vesting restrictions and other terms set forth in
this Agreement and in the Exactus, Inc. 2016 Equity Incentive Plan
(the “Plan”). Capitalized terms not otherwise defined
herein shall have the meaning set forth in the Plan.
The
grant of this Non-Qualified Stock Option is made pursuant to the
Plan. The Plan is administered by the Administrator (as defined in
the Plan). The terms of the Plan are incorporated into this
Agreement and in the case of any conflict between the Plan and this
Agreement, the terms of the Plan shall control. A copy of the Plan
will be provided to you upon request.
1.
Grant
.
In consideration of your agreements contained herein, the Company
hereby grants to you a Non-Qualified Stock Option to purchase from
the Company [______] shares of Common Stock at $[____] per share
(the “NSO”). The exercise price of the NSO is equal to
the closing price of the Common Stock on the OTCQB exchange on
[_____________] (the “Grant Date”) or, if the Common
Stock was not so traded on such date, the reported
“closing” price of a shares of Common Stock on the most
recent preceding day on which the Common Stock was so
traded.
2.
Vesting
.
The grant of the NSO is subject to the following terms and
conditions:
(a) The
NSO with respect to the number of shares set forth below shall
vest, and shall be exercisable, upon your continued employment with
the Company (or any Related Company) through the following Vesting
Dates:
|
Vesting Date
|
Number of shares of Common Stock for which NSO shall become vested
and exercisable on Vesting Date
|
|
December
31, 2017
|
[50%
total shares]
|
|
The
first day of each month during the period beginning on January 1,
2018 and ending December 1, 2020.
|
[1/36
th
of remaining 50% of total shares]
|
(b) Upon
a Change in Control of the Company (as defined in the Plan) the NSO
shall become 100% vested and exercisable to the extent not already
vested and exercisable.
(c) If
you die or become Disabled (as determined by the Committee) while
you are employed by the Company (or any Related Company) and your
employment with the Company (or any Related Company) is terminated
as a result of such death or Disability and you are not otherwise
100% vested in the NSO, the NSO shall be vested with respect to a
number of shares of Common Stock (including the number of shares
with respect to which the NSO is already vested under this
Agreement) equal to the total number of shares listed above in
Section 1 multiplied by a fraction (not to exceed 1), the numerator
of which is the number of full months elapsed from the Grant Date
until the date of your death or Disability, and the denominator of
which is the number of months between the Grant Date and the final
Vesting Date listed in the table in Section 2(a).
(d) Notwithstanding
the foregoing, you must be employed by the Company (or any Related
Company) on the relevant Vesting Date for the NSO to vest. If your
employment with the Company (or any Related Company) terminates for
any reason, any rights you may have under the NSO and this
Agreement with regard to any unvested portion of the NSO and the
shares covered by such unvested portion of the NSO shall be null
and void.
(a) Except
as otherwise stated in this Agreement and in the Plan, the vested
portion of the NSO may be exercised, in whole or in part, from the
respective Vesting Date described above until the earliest of (i)
ten years and one day following the Grant Date, or (ii) the end of
the applicable period set forth in subsection (b) below. Any
portion of the NSO that is not exercised prior to its expiration
shall be forfeited.
(b) Except
as otherwise stated in this section, the NSO may be exercised only
while you are employed by the Company (or any Related Company). The
exercisability of the NSO after you have ceased to be employed by
the Company (or any Related Company) is subject to the following
terms and conditions:
(i)
If your employment
by the Company (or any Related Company) is terminated by you or the
Company (or any Related Company) for any reason other than your
death or Disability, you may exercise any or all of the NSO that is
then fully vested and exercisable within three months after your
employment by the Company (or any Related Company)
terminates.
(ii)
If you become
Disabled while employed by the Company (or any Related Company),
you may exercise any or all of the NSO that is then fully vested
and exercisable within one year after your employment by the
Company (or any Related Company) terminates on account of
Disability. The Committee shall, in its discretion, determine
whether you are Disabled.
(iii)
If you die while
you are employed by the Company (or any Related Company), the
person to whom your rights under the NSO shall have passed by will
or by the laws of distribution may exercise any or all of the NSO
that is then fully vested and exercisable within one year after
your death.
4.
Payment Under NSO
. You may
exercise the vested portion of the NSO in whole or in part, but
only with respect to whole shares of Common Stock. You may make
payment of the NSO price in cash, in shares of Common Stock that
you already own, in any combination of cash and shares of Common
Stock, or by net exercise. If you deliver shares of Common Stock to
make any such payment or make payment by net exercise, the shares
shall be valued at the Fair Market Value (as defined in the Plan)
thereof on the date you exercise the NSO.
5.
Transferability
of NSO
. The NSO is not transferable by you (other than by
will or by the laws of descent and distribution) and, except as
otherwise stated in this Agreement, may be exercised during your
lifetime only by you.
6.
Fractional Shares
. A fractional
share of Common Stock will not be issued and any fractional shares
may be disregarded by the Company.
7.
Adjustments
.
If the number of outstanding shares of Company Stock is increased
or decreased as a result of a stock dividend, stock split or
combination of shares, recapitalization, merger in which the
Company is the surviving corporation, or other change in the
Company's capitalization without the receipt of consideration by
the Company, the number and kind of shares with respect to which
you have an unexercised NSO and the exercise price shall be
proportionately adjusted by the Committee, whose determination
shall be binding.
8.
Exercise
.
To exercise the NSO, you must deliver to the Corporate Secretary of
the Company written notice stating the number of shares you have
elected to purchase and arrange for payment to the Company as
described in Section 4 above. Notwithstanding the provisions of
Section 9, such notice may be sent to the Corporate Secretary via
e-mail.
9.
Notice
.
Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Corporate Secretary at 4870
Sadler Road, Glen Allen, Virginia 23060. Any notice to be given to
you shall be addressed to you at the address set forth above or
your last known address at the time notice is sent. Notices shall
be deemed to have been duly given if mailed first class, postage
prepaid, addressed as above.
10.
Applicable
Withholding Taxes
. By your acceptance of this Agreement, you
agree to pay to the Company the amount that must be withheld under
federal, state and local income and employment tax laws or to make
arrangements satisfactory to the Company for the payment of such
taxes.
11.
Applicable
Securities Laws
. You may be required to execute a customary
written indication of your investment intent and such other
agreements the Company deems necessary or appropriate to comply
with applicable securities laws. The Company may delay delivery of
the shares purchased pursuant to the exercise of the NSO until you
have executed such indication or agreements.
12.
Acceptance of NSO
. This
Agreement deals only with the NSO you have been granted and not its
exercise. Your acceptance of the NSO, which shall be deemed to take
place when you sign this Agreement, places no obligation or
commitment on you to exercise the NSO. By signing this Agreement,
you indicate your acceptance of the NSO and your agreement to the
terms and conditions set forth in this Agreement, which, together
with the terms of the Plan, shall become the Company’s stock
option agreement with you. You also hereby acknowledge that a copy
of the Plan has been made available and agree to all of the terms
and conditions of the Plan, as it may be amended from time to time.
Unless the Company otherwise agrees in writing, the NSO reflected
in this Agreement will not be exercisable as an Option if you do
not accept this Agreement within thirty days of the Grant
Date.
13.
Binding Effect
. This Agreement
shall be binding upon and inure to the benefit of your legatees,
distributees, and personal representatives and the successors of
the Company (or any Related Company. Any references herein to the
Company (or any Related Company) shall include any successor
company to either.
[SIGNATURE PAGE
FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Stock Option Award
Agreement to be signed, as of this _____ date of _______________,
___________.
EXACTUS,
INC.
By:__________________________________
Name:
Agreed
and Accepted:
________________________________
[Name
of Grant Recipient]
________________________________
[Date]
Exhibit 10.9
NEITHER
THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER),
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
Principal
Amount:
$229,899.63
Issue Date: January 11, 2019
Purchase
Price: $206,909.67
Original
Issue Discount: $22,989.96
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED
,
EXACTUS, INC.
, a Nevada corporation
(hereinafter called the “Borrower”), hereby promises to
pay to the order of
Harvey
Kesner
, or registered assigns (the “Holder”) the
principal sum of $229,899.63 (the “Principal Amount”),
together with interest at the rate of eight percent (8%) per annum,
at maturity or upon acceleration or otherwise, as set forth herein
(the “Note”). The consideration to the Borrower for
this Note is $206,909.67 (the “Consideration”). At the
closing, the outstanding principal amount under this Note shall be
$229,899.63, consisting of the Consideration plus the OID (as
defined herein). The maturity date shall be twelve (12) months from
the Issue Date (the “Maturity Date”), and is the date
upon which the principal sum, as well as any accrued and unpaid
interest and other fees shall be due and payable. This Note may not
be prepaid in whole or in part except as otherwise explicitly set
forth herein. Any amount of principal or interest on this Note,
which is not paid by the Maturity Date, shall bear interest at the
rate of the lesser of (i) eighteen percent (18%) per annum and (ii)
the maximum amount permitted by applicable law from the due date
thereof until the same is paid (“Default Interest”).
Interest shall commence accruing on the date that the Note is fully
paid and shall be computed on the basis of a 365-day year and the
actual number of days elapsed. All payments due hereunder (to the
extent not converted into the Borrower’s common stock (the
“Common Stock”) in accordance with the terms hereof)
shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in accordance
with the provisions of this Note. Whenever any amount expressed to
be due by the terms of this Note is due on any day which is not a
business day, the same shall instead be due on the next succeeding
day which is a business day and, in the case of any interest
payment date which is not the date on which this Note is paid in
full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on
such date. As used in this Note, the term “business
day” shall mean any day other than a Saturday, Sunday or a
day on which commercial banks in the city of New York, New York are
authorized or required by law or executive order to remain
closed.
This
Note carries an original issue discount of $22,989.96 (the
“OID”), to cover the Holder’s legal fees,
accounting fees, due diligence fees, monitoring, and/or other
transactional costs incurred in connection with the purchase and
sale of the Note, which is included in the principal balance of
this Note. Thus, the purchase price of this Note shall be
$206,909.67, computed as follows: the Principal Amount minus the
OID.
This
Note is free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of shareholders of the Borrower and
will not impose personal liability upon the holder
thereof.
The
following additional terms shall also apply to this
Note:
ARTICLE
I. CONVERSION RIGHTS
1.1
Conversion
Right
. The Holder shall have the right at any time on or
after the 170th calendar day after the Issue Date to convert all or
any part of the outstanding and unpaid principal amount and accrued
and unpaid interest of this Note into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the Issue
Date, or any shares of capital stock or other securities of the
Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price (the “Conversion
Price”) determined as provided herein (a
“Conversion”);
provided
,
however
, that in no event shall
the Holder be entitled to convert any portion of this Note in
excess of that portion of this Note upon conversion of which the
sum of (1) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the
unconverted portion of the Notes or the unexercised or unconverted
portion of any other security of the Borrower subject to a
limitation on conversion or exercise analogous to the limitations
contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with
respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such
proviso,
provided
,
further
,
however
, that the
limitations on conversion may be waived (up to a maximum of 9.99%)
by the Holder upon, at the election of the Holder, not less than 61
days’ prior notice to the Borrower, and the provisions of the
conversion limitation shall continue to apply until such 61st day
(or such later date, as determined by the Holder, as may be
specified in such notice of waiver). The number of shares of Common
Stock to be issued upon each conversion of this Note shall be
determined by dividing the Conversion Amount (as defined below) by
the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto
as Exhibit A (the “Notice of Conversion”), delivered to
the Borrower by the Holder in accordance with Section 1.4 below;
provided that the Notice of Conversion is submitted by facsimile or
e-mail (or by other means resulting in, or reasonably expected to
result in, notice) to the Borrower before
6:00 p.m., New
York, New York time on such conversion date (the “Conversion
Date”). The term “Conversion Amount” means, with
respect to any conversion of this Note, the sum of (1) the
principal amount of this Note to be converted in such conversion
plus
(2) at the
Holder’s option, accrued and unpaid interest, if any, on such
principal amount at the interest rates provided in this Note to the
Conversion Date,
plus
(3) at the Holder’s
option, Default Interest, if any, on the amounts referred to in the
immediately preceding clauses (1) and/or (2)
plus
(4) at the Holder’s
option, any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof.
1.2
Conversion
Price
.
(a)
Calculation
of Conversion Price
. The Conversion Price shall the lesser
of (i) $0.25 and (ii) the Variable Conversion Price (as defined
herein) (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower
relating to the Borrower’s securities or the securities of
any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar
events)(also subject to adjustment as further described herein).
The "Variable Conversion Price" shall mean 60% multiplied by the
Market Price (as defined herein) (representing a discount rate of
40%). “Market Price” means the average of the three (3)
lowest Trading Prices (as defined below) for the Common Stock
during the twenty (20) Trading Day period ending on the last
complete Trading Day prior to the Conversion Date. “Trading
Price” or “Trading Prices” means, for any
security as of any date, the lowest traded price on the Over-the-
Counter Pink Marketplace, OTCQB, or applicable trading market (the
“OTCQB”) as reported by a reliable reporting service
(“Reporting Service”) designated by the Holder (i.e.
www.Nasdaq.com) or, if the OTCQB is not the principal trading
market for such security, on the principal securities exchange or
trading market where such security is listed or traded or, if the
lowest intraday trading price of such security is not available in
any of the foregoing manners, the lowest intraday price of any
market makers for such security that are quoted on the OTC Markets.
If the Trading Prices cannot be calculated for such security on
such date in the manner provided above, the Trading Prices shall be
the fair market value as mutually determined by the Borrower and
the holders of a majority in interest of the Notes being converted
for which the calculation of the Trading Prices are required in
order to determine the Conversion Price of such Notes.
“Trading Day” shall mean any day on which the Common
Stock is tradable for any period on the OTCQB, or on the principal
securities exchange or other securities market on which the Common
Stock is then being traded. If at any time while this Note is
outstanding, an Event of Default (as defined herein) occurs, then
an additional discount of 12.5% shall be factored into the Variable
Conversion Price until this Note is no longer outstanding
(resulting in a discount rate of 52.5% assuming no other
adjustments are triggered hereunder). If at any time while this
Note is outstanding, the Borrower’s Common Stock are not
deliverable via DWAC, an additional 5% discount shall be factored
into the Variable Conversion Price until this Note is no longer
outstanding (resulting in a discount rate of 45% assuming no other
adjustments are triggered hereunder).
Each
time, while this Note is outstanding, the Borrower enters into a
Section 3(a)(9) transaction (including but not limited to the
issuance of new promissory notes or of a replacement promissory
note), or Section 3(a)(10) transaction, in which any 3
rd
party has the right
to convert monies owed to that 3
rd
party (or receive
shares pursuant to a settlement or otherwise) at a discount to
market greater than the Variable Conversion Price in effect at that
time (prior to all other applicable adjustments in the Note), then
the Variable Conversion Price shall be automatically adjusted to
such greater discount percentage (prior to all applicable
adjustments in this Note) until this Note is no longer outstanding.
Each time, while this Note is outstanding, the Borrower enters into
a Section 3(a)(9) transaction (including but not limited to the
issuance of new promissory notes or of a replacement promissory
note), or Section 3(a)(10) transaction, in which any 3
rd
party has a look
back period greater than the look back period in effect under the
Note at that time, then the Holder’s look back period shall
automatically be adjusted to such greater number of days until this
Note is no longer outstanding. The adjustments in this paragraph,
with respect to Section 3(a)(9) transactions, shall not take effect
unless the holder of the note with more favorable terms is eligible
to convert. The Borrower shall give written notice to the Holder,
with the adjusted Variable Conversion Price and/or adjusted look
back period (each adjustment that is applicable due to the
triggering event), within one (1) business day of an event that
requires any adjustment described in the two immediately preceding
sentences.
All
expenses incurred by Holder with respect to the Borrower’s
transfer agent, for the issuance of the Common Stock into which
this Note is convertible into, shall immediately and automatically
be added to the balance of the Note at such time as the expenses
are incurred by Holder.
If at
any time the Conversion Price as determined hereunder for any
conversion would be less than the par value of the Common Stock,
then at the sole discretion of the Holder, the Conversion Price
hereunder may equal such par value for such conversion and the
Conversion Amount for such conversion may be increased to include
Additional Principal, where “Additional Principal”
means such additional amount to be added to the Conversion Amount
to the extent necessary to cause the number of conversion shares
issuable upon such conversion to equal the same number of
conversion shares as would have been issued had the Conversion
Price not been adjusted by the Holder to the par value
price.
1.3
Authorized
Shares
. The Borrower covenants that during the period the
conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares,
free from preemptive rights, to provide for the issuance of Common
Stock upon the full conversion of this Note. The Borrower is
required at all times to have authorized and reserved four (4)
times the number of shares that is actually issuable upon full
conversion of the Note (based on the Conversion Price of the Notes
in effect from time to time)(the “Reserved Amount”).
The Reserved Amount shall be increased from time to time in
accordance with the Borrower’s obligations hereunder. The
Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. In addition, if
the Borrower shall issue any securities or make any change to its
capital structure which would change the number of shares of Common
Stock into which the Notes shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper
provision so that thereafter there shall be a sufficient number of
shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Notes. The
Borrower (i) acknowledges that it has irrevocably instructed its
transfer agent to issue certificates for the Common Stock issuable
upon conversion of this Note, and (ii) agrees that its issuance of
this Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for
shares of Common Stock in accordance with the terms and conditions
of this Note.
If, at any time the
Borrower does not maintain the Reserved Amount it will be
considered an Event of Default under Section 3.2 of the
Note.
1.4
Method
of Conversion
.
(a)
Mechanics
of Conversion
. Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part, at any time on or
after the 170th calendar day after the Issue Date, by (A)
submitting to the Borrower a Notice of Conversion (by facsimile,
e-mail or other reasonable means of communication dispatched on the
Conversion Date prior to 6:00 p.m., New York, New York time) and
(B) subject to Section 1.4(b), surrendering this Note at the
principal office of the Borrower.
(b)
Surrender
of Note Upon Conversion
. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in
accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Borrower unless the entire
unpaid principal amount of this Note is so converted. The Holder
and the Borrower shall maintain records showing the principal
amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the
Borrower, so as not to require physical surrender of this Note upon
each such conversion. In the event of any dispute or discrepancy,
such records of the Borrower shall,
prima facie,
be controlling and
determinative in the absence of manifest error. Notwithstanding the
foregoing, if any portion of this Note is converted as aforesaid,
the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the
Holder a new Note of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes) may
request, representing in the aggregate the remaining unpaid
principal amount of this Note. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of a portion
of this Note, the unpaid and unconverted principal amount of this
Note represented by this Note may be less than the amount stated on
the face hereof.
(c)
Payment
of Taxes
. The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or
property on conversion of this Note in a name other than that of
the Holder (or in street name), and the Borrower shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder’s account) requesting the issuance
thereof shall have paid to the Borrower the amount of any such tax
or shall have established to the satisfaction of the Borrower that
such tax has been paid.
(d)
Delivery
of Common Stock Upon Conversion
. Upon receipt by the
Borrower from the Holder of a facsimile transmission or e-mail (or
other reasonable means of communication) of a Notice of Conversion
meeting the requirements for conversion as provided in this Section
1.4, the Borrower shall issue and deliver or cause to be issued and
delivered to or upon the order of the Holder certificates for the
Common Stock issuable upon such conversion within three (3)
business days after such receipt (the “Deadline”) (and,
solely in the case of conversion of the entire unpaid principal
amount hereof, surrender of this Note) in accordance with the terms
hereof.
(e)
Obligation of Borrower to Deliver
Common Stock
. Upon receipt by the Borrower of a Notice of
Conversion, the Holder shall be deemed to be the holder of record
of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on
this Note shall be reduced to reflect such conversion, and, unless
the Borrower defaults on its obligations under this Article I, all
rights with respect to the portion of this Note being so converted
shall forthwith terminate except the right to receive the Common
Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a
Notice of Conversion as provided herein, the Borrower’s
obligation to issue and deliver the certificates for Common Stock
shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure
or delay in the enforcement of any other obligation of the Borrower
to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the
Conversion Date so long as the Notice of Conversion is received by
the Borrower before 6:00 p.m., New York, New York time, on such
date.
(f)
Delivery
of Common Stock by Electronic Transfer
. In lieu of
delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Borrower is participating in
the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer (“FAST”) program, upon request of
the Holder and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit
the Common Stock issuable upon conversion to the Holder by
crediting the account of Holder’s Prime Broker with DTC
through its Deposit Withdrawal Agent Commission
(“DWAC”) system.
(g)
Failure
to Deliver Common Stock Prior to Deadline
. Without in any
way limiting the Holder’s right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree
that if delivery of the Common Stock issuable upon conversion of
this Note is not delivered by the Deadline (other than a failure
due to the circumstances described in Section 1.3 above, which
failure shall be governed by such Section) the Borrower shall pay
to the Holder $2,000 per day in cash, for each day beyond the
Deadline that the Borrower fails to deliver such Common Stock. Such
cash amount shall be paid to Holder by the fifth day of the month
following the month in which it has accrued or, at the option of
the Holder (by written notice to the Borrower by the first day of
the month following the month in which it has accrued), shall be
added to the principal amount of this Note, in which event interest
shall accrue thereon in accordance with the terms of this Note and
such additional principal amount shall be convertible into Common
Stock in accordance with the terms of this Note. The Borrower
agrees that the right to convert is a valuable right to the Holder.
The damages resulting from a failure, attempt to frustrate,
interference with such conversion right are difficult if not
impossible to qualify. Accordingly the parties acknowledge that the
liquidated damages provision contained in this Section 1.4(g) are
justified.
1.5
Concerning
the Shares
. The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless (i)
such shares are
sold pursuant to an
effective registration statement under the Act or (ii) the Borrower
or its transfer agent shall have been furnished with an opinion of
counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to
the effect that the shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration or
(iii) such shares are sold or transferred pursuant to Rule 144
under the Act (or a successor rule) (“Rule 144”) or
(iv) such shares are transferred to an “affiliate” (as
defined in Rule 144) of the Borrower who agrees to sell or
otherwise transfer the shares only in accordance with this Section
1.5 and who is an Accredited Investor. Except as otherwise provided
(and subject to the removal provisions set forth below), until such
time as the shares of Common Stock issuable upon conversion of this
Note have been registered under the Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately
sold, each certificate for shares of Common Stock issuable upon
conversion of this Note that has not been so included in an
effective registration statement or that has not been sold pursuant
to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the
following form, as appropriate:
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER),
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”
The
legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefore free of any
transfer legend if (i) the Borrower or its transfer agent shall
have received an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to
the effect that a public sale or transfer of such Common Stock may
be made without registration under the Act, which opinion shall be
accepted by the Borrower so that the sale or transfer is effected
or (ii) in the case of the Common Stock issuable upon conversion of
this Note, such security is registered for sale by the Holder under
an effective registration statement filed under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can
then be immediately sold. In the event that the Borrower does not
accept the opinion of counsel provided by the Holder with respect
to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S,
provided that the opinion provides a
reasonable
basis
for an exemption from registration
, at the Deadline, it will
be considered an Event of
Default pursuant to
Section 3.2 of the Note.
1.6
[Intentionally
Omitted]
.
1.7
Status
as Shareholder
. Upon submission of a Notice of Conversion by
a Holder, (i) the shares covered thereby (other than the shares, if
any, which cannot be issued because their issuance would exceed
such Holder’s allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of
Common Stock and (ii) the Holder’s rights as a Holder of such
converted portion of this Note shall cease and terminate, excepting
only the right to receive certificates for such shares of Common
Stock and to any remedies provided herein or otherwise available at
law or in equity to such Holder because of a failure by the
Borrower to comply with the terms of this Note. Notwithstanding the
foregoing, if a Holder has not received certificates for all shares
of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any
portion of this Note for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock
by so notifying the Borrower) the Holder shall regain the rights of
a Holder of this Note with respect to such unconverted portions of
this Note and the Borrower shall, as soon as practicable, return
such unconverted Note to the Holder or, if the Note has not been
surrendered, adjust its records to reflect that such portion of
this Note has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments
pursuant to Section 1.3 to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii)
the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Section 1.3) for the
Borrower’s failure to convert this Note.
ARTICLE
II. CERTAIN COVENANTS
2.1
Distributions
on Capital Stock
. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the
Holder’s written consent
(a)
pay, declare or set apart for such payment, any dividend or other
distribution (whether in cash, property or other securities) on
shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock or
(b) directly or indirectly or through any subsidiary make any other
payment or distribution in respect of its capital stock except for
distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested
directors.
2.2
Restriction
on Stock Repurchases
. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the
Holder’s written consent redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other
securities or otherwise) in any one transaction or series of
related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such
shares.
ARTICLE
III. EVENTS OF DEFAULT
If any
of the following events of default (each, an “Event of
Default”) shall occur:
3.1
Failure
to Pay Principal or Interest
. The Borrower fails to pay the
principal hereof or interest thereon when due on this Note, whether
at maturity, upon acceleration or otherwise, and such breach
continues for a period of ten (10) days.
3.2
Conversion
and the Shares
. The Borrower fails to reserve a sufficient
amount of shares of common stock as required under the terms of
this Note (including Section 1.3 of this Note), fails to issue
shares of Common Stock to the Holder (or announces or threatens in
writing that it will not honor its obligation to do so) upon
exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Note, fails to transfer or cause
its transfer agent to transfer (issue) (electronically or in
certificated form) shares of Common Stock issued to the Holder upon
conversion of or otherwise pursuant to this Note as and when
required by this Note, the Borrower directs its transfer agent not
to transfer or delays, impairs, and/or hinders its transfer agent
in transferring (or issuing) (electronically or in certificated
form) shares of Common Stock to be issued to the Holder upon
conversion of or otherwise pursuant to this Note as and when
required by this Note, or fails to remove (or directs its transfer
agent not to remove or impairs, delays, and/or hinders its transfer
agent from removing) any restrictive legend (or to withdraw any
stop transfer instructions in respect thereof) on any shares of
Common Stock issued to the Holder upon conversion of or otherwise
pursuant to this Note as and when required by this Note (or makes
any written announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and
any such failure shall continue uncured (or any written
announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for two (2) business days after
the Holder shall have delivered a Notice of Conversion. It is an
obligation of the Borrower to remain current in its obligations to
its transfer agent. It shall be an event of default of this Note,
if a conversion of this Note is delayed, hindered or frustrated due
to a balance owed by the Borrower to its transfer
agent.
3.3
Breach
of Covenants
. The Borrower breaches any material covenant or
other material term or condition contained in this Note and any
collateral documents and such breach continues for a period of ten
(10) days after written notice thereof to the Borrower from the
Holder.
3.4
Breach
of Representations and Warranties
. Any representation or
warranty of the Borrower made herein or in any agreement, statement
or certificate given in writing pursuant hereto or in connection
herewith, shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will
have) a material adverse effect on the rights of the Holder with
respect to this Note.
3.5
Receiver
or Trustee
. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for
or consent to the appointment of a receiver or trustee for it or
for a substantial part of its property or business, or such a
receiver or trustee shall otherwise be appointed.
3.6
Judgments
.
Any money judgment, writ or similar process shall be entered or
filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $50,000, and shall
remain unvacated, unbonded or unstayed for a period of twenty (20)
days unless otherwise consented to by the Holder, which consent
will not be unreasonably withheld.
3.7
Bankruptcy
.
Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings, voluntary or involuntary, for relief under
any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower or any subsidiary of the
Borrower.
3.8
Delisting
of Common Stock
. The Borrower shall fail to maintain the
listing or quotation of the Common Stock on the OTCQB or an
equivalent replacement exchange, the Nasdaq Global Market, the
Nasdaq Capital Market, the New York Stock Exchange, or the NYSE
MKT.
3.9
Failure
to Comply with the Exchange Act
. The Borrower shall fail to
comply with the reporting requirements of the Exchange Act
(including but not limited to becoming delinquent in its filings),
and/or the Borrower shall cease to be subject to the reporting
requirements of the Exchange Act.
3.10
Liquidation
.
Any dissolution, liquidation, or winding up of Borrower or any
substantial portion of its business.
3.11
Cessation
of Operations
. Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts
as such debts become due, provided, however, that any disclosure of
the Borrower’s ability to continue as a “going
concern” shall not be an admission that the Borrower cannot
pay its debts as they become due.
3.12
Financial
Statement Restatement
. The Borrower replaces its auditor, or
any restatement of any financial statements filed by the Borrower
with the SEC for any date or period from two years prior to the
Issue Date of this Note and until this Note is no longer
outstanding, if the result of such restatement would, by comparison
to the unrestated financial statement, have constituted a material
adverse effect on the rights of the Holder with respect to this
Note.
3.13
Replacement
of Transfer Agent
. In the event that the Borrower replaces
its transfer agent, and the Borrower fails to provide prior to the
effective date of such replacement, a fully executed Irrevocable
Transfer Agent Instructions (including but not limited to the
provision to irrevocably reserve shares of Common Stock in the
Reserved Amount) signed by the successor transfer agent to Borrower
and the Borrower.
3.14
Cross-Default
.
Notwithstanding anything to the contrary contained in this Note or
the other related or companion documents, a breach or default by
the Borrower of any covenant or other term or condition contained
in any of the other financial instrument, including but not limited
to all convertible promissory notes, currently issued, or hereafter
issued, by the Borrower, to the Holder or any other 3
rd
party (the
“Other Agreements”), after the passage of all
applicable notice and cure or grace periods, shall, at the option
of the Holder, be considered a default under this Note, in which
event the Holder shall be entitled to apply all rights and remedies
of the Holder under the terms of this Note by reason of a default
under said Other Agreement or hereunder.
3.15
Inside
Information
. Any attempt by the Borrower or its officers,
directors, and/or affiliates to transmit, convey, disclose, or any
actual transmittal, conveyance, or disclosure by the Borrower or
its officers, directors, and/or affiliates of, material non-public
information concerning the Borrower, to the Holder or its
successors and assigns, which is not immediately cured by
Borrower’s filing of a Form 8-K pursuant to Regulation FD on
that same date.
3.16
No
bid
. At any time while this Note is outstanding, the lowest
Trading Prices on the OTCQB or other applicable principal trading
market for the Common Stock is equal to or less than
$0.0001.
3.17
Failure
to Repay Upon Qualified Offering
. The Borrower fails to
repay the Note, in its entirety, pursuant to the terms of the Note,
with funds received from its next completed offering (with the
understanding that all related issuances of an offering shall be
aggregated for purposes of the calculation hereunder) of
$750,000.00 or more (consummated on or after the Issue
Date).
3.18
Failure
to Register
. The Borrower fails to use commercially
reasonable efforts to: (1) file a registration statement covering
the Holder’s resale of the common stock underlying the Note
(the “Registration Statement”) within thirty (30) days
following the Issue Date, (ii) cause the Registration Statement to
become effective within one hundred twenty
(120)
days following the Issue Date, or (iii) maintain the effectiveness
of the Registration Statement beginning on the 90th day after the
Issue Date and ending on the date that the Note is satisfied in
full.
Upon
the occurrence of any Event of Default specified in Sections 3.1,
3.2, 3.3, 3.4, 3.5,
3.6, 3.7, 3.8, 3.9,
3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, and/or 3.18
exercisable through
the delivery of
written notice to the Borrower by such Holders (the “Default
Notice”), the Note shall become immediately due and payable
and the Borrower shall pay to the Holder, in full satisfaction of
its obligations hereunder, an amount equal to 150% (EXCEPT THAT
150%
SHALL BE REPLACED
WITH 200% WITH RESPECT TO A DEFAULT UNDER SECTION
3.2)
multiplied by
the
then outstanding entire balance of the Note (including principal
and accrued and unpaid interest)
plus
Default Interest, if any,
plus
any amounts
owed to the Holder pursuant to Sections 1.4(g) hereof
(collectively, in the aggregate of all of the above, the
“Default Sum”), and all other amounts payable hereunder
shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived,
together with all costs, including, without limitation, legal fees
and expenses, of collection, and the Holder shall be entitled to
exercise all other rights and remedies available at law or in
equity.
The
Holder shall have the right at any time to require the Borrower to
issue the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect,
subject to issuance in tranches due to the beneficial ownership
limitations contained in this Note.
ARTICLE
IV. MISCELLANEOUS
4.1
Failure
or Indulgence Not Waiver
. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or
privileges. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2
Notices
.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable
air courier service with charges prepaid, or (iv) transmitted by
hand delivery, telegram, facsimile, or electronic mail addressed as
set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery, upon electronic mail
delivery, or delivery by facsimile, with accurate confirmation
generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than
on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications
shall be:
If to
the Borrower, to:
EXACTUS,
INC.
4870
Sadler Rd., Suite 300 Glen Allen, VA 23060
e-mail:
tryan@exactusinc.com
If to
the Holder:
Harvey
Kesner
e-mail:
pdox74@gmail.com
4.3
Amendments
.
This Note and any provision hereof may only be amended by an
instrument in writing signed by the Borrower and the Holder. The
term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as
so amended or supplemented.
4.4
Assignability
.
This Note shall be binding upon the Borrower and its successors and
assigns, and shall inure to be the benefit of the Holder and its
successors and assigns. Each transferee of this Note must be an
“accredited investor” (as defined in Rule 501(a) of the
1933 Act). Notwithstanding anything in this Note to the contrary,
this Note may be pledged as collateral in connection with a
bona fide
margin
account or other lending arrangement.
4.5
Cost
of Collection
. If default is made in the payment of this
Note, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys’ fees.
4.6
Governing
Law
. This Note shall be governed by and construed in
accordance with the laws of the State of Nevada without regard to
principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this
Note shall be brought only in the state and/or federal courts of
New York, NY. The parties to this Note hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon
forum non conveniens
. The Borrower and
Holder waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Note or any other
agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process
and consents to process being served in any suit, action or
proceeding in connection with this Agreement or any other
Transaction Document by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law.
4.7
Certain
Amounts
. Whenever pursuant to this Note the
Borrower is
required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time)
plus accrued and unpaid interest plus Default Interest on such
interest, the Borrower and the Holder agree that the actual damages
to the Holder from the receipt of cash payment on this Note may be
difficult to determine and the amount to be so paid by the Borrower
represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to
convert this Note and to earn a return from the sale of shares of
Common Stock acquired upon conversion of this Note at a price in
excess of the price paid for such shares pursuant to this Note. The
Borrower and the Holder hereby agree that such amount of stipulated
damages is not plainly disproportionate to the possible loss to the
Holder from the receipt of a cash payment without the opportunity
to convert this Note into shares of Common Stock.
4.8
Remedies
.
The Borrower acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a
breach of its obligations under this Note will be inadequate and
agrees, in the event of a breach or threatened breach by the
Borrower of the provisions of this Note, that the Holder shall be
entitled, in addition to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an
injunction or injunctions restraining, preventing or curing any
breach of this Note and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss
and without any bond or other security being required.
4.9
Prepayment
.
Notwithstanding anything to the contrary contained in this Note,
the Borrower may prepay this Note, during the initial 170 day
period after the issuance of this Note, by making a payment to the
Holder of an amount in cash equal to 135% multiplied by the total
amount outstanding under the Note. The Borrower may not prepay this
Note after the 170
th
day after the
issuance of this Note.
Usury
. To the extent it may
lawfully do so, the Borrower hereby agrees not to insist upon or
plead or in any manner whatsoever claim, and will resist any and
all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force,
in connection with any action or proceeding that may be brought by
the Holder in order to enforce any right or remedy under this Note.
Notwithstanding any provision to the contrary contained in this
Note, it is expressly agreed and provided that the total liability
of the Borrower under this Note for payments which under the
applicable law are in the nature of interest shall not exceed the
maximum lawful rate authorized under the law applicable to this
Note (the “Maximum Rate”), and, without limiting the
foregoing, in no event shall any rate of interest or default
interest, or both of them, when aggregated with any other sums
which under the law applicable to this Note in the nature of
interest that the Borrower may be obligated to pay under this Note
exceed such Maximum Rate. It is agreed that if the maximum contract
rate of interest allowed by the law applicable to this Note is
increased or decreased by statute or any official governmental
action subsequent to the Issue Date, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to
this Note from the effective date thereof forward, unless such
application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is
paid by the Borrower to the Holder with respect to indebtedness
evidenced by this the Note, such excess shall be applied by the
Holder to the unpaid principal balance of any such indebtedness or
be
refunded to the
Borrower, the manner of handling such excess to be at the
Holder’s election.
4.10
Section
3(a)(10) Transactions
. If at any time on or after six (6)
months from the issue date and while this Note is outstanding, the
Borrower enters into a transaction structured in accordance with,
based upon, or related or pursuant to, in whole or in part, Section
3(a)(10) of the Securities Act (a “3(a)(10)
Transaction”), then a liquidated damages charge of 25% of the
outstanding principal balance of this Note at that time, will be
assessed and will become immediately due and payable to the Holder,
either in the form of cash payment or as an addition to the balance
of the Note, as determined by mutual agreement of the Borrower and
Holder.
4.11
Reverse
Split Penalty
. If at any time on or after six (6) months
from the issue date and while this Note is outstanding, the
Borrower effectuates a reverse split with respect to the Common
Stock without providing notice to the Holder at least fifteen (15)
calendar days prior to the effectuation, then a liquidated damages
charge of 25% of the outstanding principal balance of this Note at
that time, will be assessed and will become immediately due and
payable to the Holder, either in the form of cash payment or as an
addition to the balance of the Note, as determined by mutual
agreement of the Borrower and Holder.
4.12
Right
of First Refusal
. If at any time on or after six (6) months
from the issue date and while this Note is outstanding, the
Borrower has a bona fide offer of capital or financing from any
3
rd
party,
that the Borrower intends to act upon, then the Borrower must first
offer such opportunity to the Holder to provide such capital or
financing to the Borrower on the same terms as each respective
3
rd
party’s terms. Should the Holder be unwilling or unable to
provide such capital or financing to the Borrower within 10 trading
days from Holder’s receipt of written notice of the offer
(the “Offer Notice”) from the Borrower, then the
Borrower may obtain such capital or financing from that respective
3
rd
party
upon the exact same terms and conditions offered by the Borrower to
the Holder, which transaction must be completed within 30 days
after the date of the Offer Notice. If the Borrower does not
receive the capital or financing from the respective 3
rd
party within 30
days after the date of the respective Offer Notice, then the
Borrower must again offer the capital or financing opportunity to
the Holder as described above, and the process detailed above shall
be repeated. The Offer Notice must be sent via electronic mail to
max@morningviewfn.com.
4.13
Terms
of Other Financings
. At any
time on or after six (6) months from the issue date and while this
Note is outstanding, upon any issuance by the Borrower or any of
its subsidiaries of any security with any term more favorable to
the holder of such security or with a term in favor of the holder
of such security that was not similarly provided to the Holder in
this Note, then the Borrower shall notify the Holder of such
additional or more favorable term and such term, at Holder’s
option, shall become a part of the transaction documents with the
Holder. The types of terms contained in another security that may
be more favorable to the holder of such security include, but are
not limited to, terms addressing conversion discounts, prepayment
rate, conversion lookback periods, interest rates, original issue
discounts, stock sale price, private placement price per share, and
warrant coverage. With respect to promissory notes issued prior to
the Issue Date, this Section
4.14 shall only apply if the
holder of the respective promissory note is eligible to convert at
any time after the Issue Date pursuant to the terms
thereunder.
[signature page to follow]
IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer this 11
th
day of January,
2019.
EXACTUS,
INC.
By:______________________
Name:
Philip
Young
Title:
Chief Executive
Officer
EXHIBIT
A -- NOTICE OF CONVERSION
The
undersigned hereby elects to convert $_____________ principal
amount of the Note (defined below) into that number of shares of
Common Stock to be issued pursuant to the conversion of the Note
(“Common Stock”) as set forth below, of EXACTUS, INC.,
a Nevada corporation (the “Borrower”) according to the
conditions of the convertible note of the Borrower dated as of
August 14, 2017 (the “Note”), as of the date written
below. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
Box
Checked as to applicable instructions:
[ ] The
Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal
Agent Commission system (“DWAC Transfer”).
Name of
DTC Prime
Broker:
Account Number:
[ ] The
undersigned hereby requests that the Borrower issue a certificate
or certificates for the number of shares of Common Stock set forth
below (which numbers are based on the Holder’s calculation
attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment
hereto:
___________________________________
___________________________________
Date of
Conversion:
Applicable
Conversion Price:
Number of Shares of
Common Stock to be Issued
Pursuant to
Conversion of the Notes:
Amount
of Principal Balance Due remaining
Under
the Note after this conversion:
MORNINGVIEW
FINANCIAL, LLC
By:_
Name:
Title:
Date:
EXACTUS, INC.
CODE OF BUSINESS CONDUCT AND ETHICS
Exactus, Inc. (the
"Company") has adopted the following Code of Business Conduct and
Ethics (this "Code") for directors, executive officers and
employees of the Company. This Code is intended to focus the
directors, executive officers and employees on areas of ethical
risk, provide guidance to directors, executive officers and
employees to help them recognize and deal with ethical issues,
provide mechanisms to report unethical conduct, and help foster a
culture of honesty and accountability. Each director, executive
officer and employee must comply with the letter and spirit of this
Code.
No code
or policy can anticipate every situation that may arise.
Accordingly, this Code is intended to serve as a source of guiding
principles for directors, executive officers and employees.
Directors, executive officers and employees are encouraged to bring
questions about particular circumstances that may implicate one or
more of the provisions of this Code to the attention of the
Chairman of the Audit Committee, who may consult with inside or
outside legal counsel as appropriate.
1.
Maintain Fiduciary Duties.
Directors and
executive officers must be loyal to the Company and must act at all
times in the best interest of the Company and its shareholders and
subordinate self-interest to the corporate and shareholder good.
Directors and executive officers should never use their position to
make a personal profit. Directors and executive officers must
perform their duties in good faith, with sound business judgment
and with the cafe of a prudent person.
A
"conflict of' interest" occurs when the private interest of' a
director, executive officer or employee interferes in any way, or
appears to interfere, with the interests of the Company as a whole.
Conflicts of interest also arise when a director, executive officer
or employee, or a member of his or her family, receives improper
personal benefits as a result of his or her position as a director,
executive officer or employee of the Company. Loans to, or
guarantees of the obligations of a director, executive officer or
employee, of a member of his or her family, may create conflicts of
interest.
Directors and
executive officers must avoid conflicts of interest with the
Company. Any situation that involves, or may reasonably be expected
to involve, a conflict of interest with the Company must be
disclosed immediately to the Chairman of the Board.
This
Code does not attempt to describe all possible conflicts of
interest which could develop. Some of the more common conflicts
from which directors and executive offices must refrain, however,
are set out below.
●
Relationship of
Company with third-parties. Directors, executive officers and
employees may not engage in any conduct or activities that are
inconsistent with the Company's best interests or that disrupt or
impair the Company's relationship with any person or entity with
which the Company has or proposes to enter into a business or
contractual relationship.
●
Compensation from
non-Company sources. Directors, executive officers and employees
may not accept compensation, in any form, for services performed
for the Company from any source other than the
Company.
●
Gifts. Directors,
executive officers and employees and members of their families may
not offer, give or receive gifts from persons or entities who deal
with the Company in those cases where any such gift is being made
in order to influence the actions of a director as member of the
Board or the actions of an executive officer as an officer of the
Company, or where acceptance of the gifts would create the
appearance of a conflict of interest.
3.
Corporate Opportunities.
Directors,
executive officers and employees owe a duty to the Company to
advance its legitimate interests when the opportunity to do so
arises. Directors, executive officers and employees are prohibited
from: (a) taking for themselves personally opportunities that are
discovered through the use of corporate property, information or
the director's or executive officer's position; (b) using the
Company's property, information, or position for personal gain, or
(c) competing with the Company, directly or indirectly, for
business opportunities, provided, however, if the Company's
disinterested directors determine that the Company will not pursue
an opportunity that relates to the Company's business, a director,
executive officer or employee may do so.
Directors,
executive officers and employees must maintain the confidentiality
of information entrusted to them by the Company or its customers,
and any other confidential information about the Company that comes
to them, from whatever source, in their capacity as a director,
executive officer or employee, except when disclosure is authorized
or required by laws or regulations. Confidential information
includes all non-public information that might be of use to
competitors, or harmful to the Company or its customers, if
disclosed.
5.
Protection and Proper Use of Company Assets.
Directors,
executive officers and employees must protect the Company's assets
and ensure their efficient use. Theft, loss, misuse, carelessness
and waste of' assets have a direct impact on the Company's
profitability. Directors, executive officers and employees must not
use Company time, employees, supplies, equipment, tools, buildings
or other assets for personal benefit without prior authorization
from the Chairman of the Corporate Governance/Nominating Committee
or as part of a compensation or expense reimbursement program
available to all directors or executive officers.
6.
Fair
Dealing.
Directors,
executive officers and employees shall deal fairly and directors
and executive officers shall oversee fair dealing by employees and
officers with the Company's directors, officers, employees,
customers, suppliers and competitors. None should take unfair
advantage of anyone through manipulation, concealment, abuse of
privileged information, misrepresentation of' material facts or any
other unfair dealing practices.
7.
Compliance
with Laws, Rules and Regulations.
Directors and
executive officers shall comply, and oversee compliance by
employees, officers and other directors, with all laws, rules and
regulations applicable to the Company, including insider-trading
laws. Transactions in Company securities are governed by Company
Policy entitled "Insider Trading Policy."
8.
Accuracy
of Records.
The
integrity, reliability and accuracy in
all material respects of the
Company's books, records and financial statements is fundamental to
the Company's continued and future business success. No director,
executive officer or employee may cause the Company to enter into a
transaction with the intent to document or record it in a deceptive
or unlawful manner. In addition, no director, executive officer, or
employee may create any false or artificial documentation or book
entry for any transaction entered into by the Company. Similarly,
executive officers and employees who have responsibility for
accounting and financial reporting matters have a responsibility to
accurately record all funds, assets and transactions on the
Company's books and records.
9.
Quality
of Public Disclosures.
The
Company is committed to providing its shareholders with information
about its financial condition and results of operations as required
by the securities laws of
'
the United States.
It is the Company's policy that the reports and documents it files
with or submits to the Securities and Exchange Commission, and its
earnings releases and similar public communications made by the
Company, include fair, timely and understandable disclosure.
Executive officers and employees who are responsible for these
filings and disclosures, including the Company's principal
executive, financial and accounting officers, must use reasonable
judgment and perform their responsibilities honestly, ethically and
objectively in order to ensure that this disclosure policy is
fulfilled. The Company's senior management are primarily
responsible for monitoring the Company's public
disclosure.
10.
Waivers and Amendments of the Code of Business Conduct and
Ethics.
No
waiver of any provisions of the Code for the benefit of a director
or an executive officer (which includes without limitation, for
purposes of this Code, the Company's principal executive, financial
and accounting officers) shall be effective unless (i) approved by
the Board of Directors, and (ii) if applicable, such a waiver is
promptly disclosed to the Company's shareholders in
accordance with applicable United
States securities laws and/or the rules and regulations of the
exchange or system on which the Company's shares are traded or
quoted, as the case may be.
Any
waivers of this Code for the other employees may be made by the
Board of Directors, or, if permitted, a committee
thereof.
All
amendments to this Code must be approved by the Board of Directors
or a committee thereof and, if applicable, must be promptly
disclosed to the Company's shareholders in accordance with
applicable United States securities laws and/or the rules and
regulations of the exchange or system on which the Company's shares
are traded or quoted, as the case may be.
11.
Encouraging the Reporting of any Illegal or Unethical
Behavior.
Directors and
executive officers should promote ethical behavior and take steps
to ensure the Company (a) encourages employees to talk to
supervisors, managers and other appropriate personnel when in doubt
about the best course of action in a particular situation; (b)
encourages employees to report violations of laws, rules or
regulations to appropriate personnel; and (c) informs employees
that the Company will not permit retaliation for reports made
in
good
faith.
Any
executive officer or employee who in good faith reports a suspected
violation under this Code by the Company, or its agents acting on
behalf of the Company, or who in good faith raises issues or
concerns regarding the Company's business or operations, may not be
fired, demoted, reprimanded or otherwise harmed for, or because of,
the reporting of the suspected violation, issues or concerns,
regardless of whether the suspected violation involves the
executive officer or employee, the executive officer's or
employee's supervisor or senior management of the
Company.
In
addition, any executive officer or
employee who in good faith reports a suspected violation under this
Code which the executive officer or employee reasonably believes
constitutes a violation of a federal statute by the Company, or its
agents acting on behalf of the Company, to a federal regulatory or
law enforcement agency, may not be reprimanded, discharged,
demoted, suspended, threatened, harassed or in any manner
discriminated against in the terms and conditions of the executive
officer's or employee's employment for, or because of, the
reporting of the suspected violation, regardless of whether the
suspected violation involves the executive officer or employee, the
executive officer's or employee's supervisor or senior management
of the Company.
12.
Communication of Code.
All
directors, executive officers and employees will be supplied with a
copy of this Code upon beginning service at the Company. Updates of
this Code will be provided from time to time. A copy of this Code
is also available to all directors, executive officers and
employees by requesting one from the human resources department or
by accessing the Company's website at
https://www.exactusinc.com/
.
13.
Failure to Comply; Compliance Procedures.
A
failure by any director or executive officer to comply with the
laws or regulations governing the Company's business, this Code or
any other Company policy or requirement may result in disciplinary
action, and, if warranted, legal proceedings.
Directors and
executive officers should communicate any suspected violations of
this Code promptly to the Chairman of the Audit Committee, or if no
Audit Committee has been appointed, to the Board of
Directors.
Violations will be
investigated by the Board or by a person or persons designated by
the Board and appropriate action will be taken in the event of any
violations of this Code.
ACKNOWLEDGEMENT
I
acknowledge that I
have reviewed and understand Exactus, Inc.'s Code
of Business Conduct and Ethics (the "Code") and agree to abide by
the provisions of the Code.
________________________________________________________
Signature
________________________________________________________
Name
(Printed or typed)
________________________________________________________
Position
__________________________________________________________
Date
Exactus,
Inc.
Insider
Trading Policy
January
7, 2019
INSIDER TRADING POLICY
January 7, 2019
Purpose
This
Insider Trading Policy (the “Policy”) provides
guidelines with respect to transactions in the securities of
Exactus, Inc. (the “Company”) and the handling of
confidential information about the Company and the companies with
which the Company does business. The Company’s Board of
Directors has adopted this Policy to promote compliance with
federal, state and foreign securities laws that prohibit certain
persons who are aware of material nonpublic information about a
company from: (i) trading in securities of that company; or (ii)
providing material nonpublic information to other persons who may
trade on the basis of that information.
Persons Subject to the Policy
This
Policy applies to all officers of the Company and its subsidiaries,
all members of the Company’s Board of Directors and all
employees of the Company and its subsidiaries. Contractors or
consultants who have access to material nonpublic information are
also subject to this Policy. This Policy also applies to family
members, other members of a person’s household and entities
controlled by a person covered by this Policy, as described
below.
Transactions Subject to the Policy
This
Policy applies to transactions in the Company’s securities
(collectively referred to in this Policy as “Company
Securities”), including the Company’s common stock,
options to purchase common stock, or any other type of securities
that the Company may issue, including (but not limited to)
preferred stock, convertible debentures and warrants, as well as
derivative securities that are not issued by the Company, such as
exchange-traded put or call options or swaps relating to the
Company’s Securities.
Individual Responsibility
Persons
subject to this Policy have ethical and legal obligations to
maintain the confidentiality of information about the Company and
to not engage in transactions in Company Securities while in
possession of material nonpublic information. Each individual is
responsible for making sure that he or she complies with this
Policy, and that any family member, household member or entity
whose transactions are subject to this Policy, as discussed below,
also comply with this Policy. In all cases, the responsibility for
determining whether an individual is in possession of material
nonpublic information rests with that individual, and any action on
the part of the Company, the Compliance Officer or any other
employee or director pursuant to this Policy (or otherwise) does
not in any way constitute legal advice or insulate an individual
from liability under applicable securities laws. You could be
subject to severe legal penalties and disciplinary action by the
Company for any conduct prohibited by this Policy or applicable
securities laws, as described below in more detail under the
heading “Consequences of Violations.”
Administration of the Policy
Our
Chief Executive Officer (the “Compliance Officer”), or
in his or her absence, another employee designated by him or her,
shall be responsible for administration of this Policy. All
determinations and interpretations by the Compliance Officer shall
be final and not subject to further review.
Statement of Policy
It is
the policy of the Company that no director, officer or other
employee of the Company (or any other person designated by this
Policy or by the Compliance Officer as subject to this Policy) who
is aware of material nonpublic information relating to the Company
may, directly, or indirectly through family members or other
persons or entities:
1.
Engage in transactions in Company Securities, except as otherwise
specified in this Policy under the headings “Transactions
Under Company Plans,” “Transactions Not Involving a
Purchase or Sale” and “Rule 10b5-1
Plans;”
2.
Recommend the purchase or sale of any Company
Securities;
3.
Disclose material nonpublic information to persons within the
Company whose jobs do not require them to have that information, or
outside of the Company to other persons, including, but not limited
to, family, friends, business associates, investors and expert
consulting firms, unless any such disclosure is made in accordance
with the Company’s policies regarding the protection or
authorized external disclosure of information regarding the
Company; or
4.
Assist anyone engaged in the above activities.
In
addition, it is the policy of the Company that no director, officer
or other employee of the Company (or any other person designated as
subject to this Policy) who, in the course of working for the
Company, learns of material nonpublic information about a company
with which the Company does business, including a customer or
supplier of the Company, may trade in that company’s
securities until the information becomes public or is no longer
material.
There
are no exceptions to this Policy, except as specifically noted
herein. Transactions that may be necessary or justifiable for
independent reasons (such as the need to raise money for an
emergency expenditure), or small transactions, are not exempted
from this Policy. The securities laws do not recognize any
mitigating circumstances, and, in any event, even the appearance of
an improper transaction must be avoided to preserve the
Company’s reputation for adhering to the highest standards of
conduct
Definition of Material Nonpublic Information
Material Information
. Information is considered
“material” if a reasonable investor would consider that
information important in making a decision to buy, hold or sell
securities. Any information that could be expected to affect the
Company’s stock price, whether it is positive or negative,
should be considered material. There is no bright-line standard for
assessing materiality; rather, materiality is based on an
assessment of all of the facts and circumstances, and is often
evaluated by enforcement authorities with the benefit of hindsight.
While it is not possible to define all categories of material
information, some examples of information that ordinarily would be
regarded as material are:
●
Projections of
future revenue, earnings or losses, or other guidance;
●
Changes to
previously announced guidance, or the decision to suspend
guidance;
●
A pending or
proposed merger, acquisition or tender offer;
●
A pending or
proposed acquisition or disposition of a significant
asset;
●
A pending or
proposed partnership, licensing arrangement or joint venture, or
significant developments relating to an existing such
arrangement;
●
Significant related
party transactions;
●
A change in
dividend policy, the declaration of a stock split, or an offering
of additional securities;
●
Bank borrowings or
other financing transactions out of the ordinary
course;
●
The establishment
of a repurchase program for Company Securities;
●
A change in the
Company’s pricing or cost structure;
●
Major marketing
changes;
●
A change in
management;
●
Development of a
significant new product, process, or service;
●
Developments
relating to regulatory approval for any of our product candidates
or programs;
●
Positive or
negative results or other significant developments relating to any
of our pre-clinical studies or clinical trials;
●
Gain or loss of
significant grant funding;
●
A change in
auditors or notification that the auditor’s reports may no
longer be relied upon;
●
The pendency or
threat of significant litigation, or the resolution of such
litigation;
●
A Company
restructuring, impending bankruptcy or the existence of severe
liquidity problems;
●
The imposition of a
ban on trading in Company Securities or the securities of another
company.
When Information is Considered Public
. Information that has
not been disclosed to the public is generally considered to be
nonpublic information. In order to establish that the information
has been disclosed to the public, it may be necessary to
demonstrate that the information has been widely disseminated.
Information generally would be considered widely disseminated if it
has been disclosed through the Dow Jones “broad tape,”
newswire services, a broadcast on widely-available radio or
television programs, publication in a widely-available newspaper,
magazine or news website, or public disclosure documents filed with
the SEC that are available on the SEC’s website. By contrast,
information would likely not be considered widely disseminated if
it is available only to the Company’s employees, or if it is
only available to a select group of analysts, brokers and
institutional investors. Once information is widely disseminated,
it is still necessary to afford the investing public with
sufficient time to absorb the information. As a general rule,
information should not be considered fully absorbed by the
marketplace until after the first business day after the day on
which the information is released. If, for example, the Company
were to make an announcement on a Monday, you should not trade in
Company Securities until Wednesday. Depending on the particular
circumstances, the Company may determine that a longer or shorter
period should apply to the release of specific material nonpublic
information.
Transactions by Family Members and Others
This
Policy applies to (a) your family members who reside with you
(including a spouse, a child, a child away at college,
stepchildren, grandchildren, parents, stepparents, grandparents,
siblings and in-laws), (b) anyone else who lives in your household,
and (c) any family members who do not live in your household but
whose transactions in Company Securities are directed by you or are
subject to your influence or control, such as parents or children
who consult with you before they trade in Company Securities
(collectively referred to as “Family Members”). You are
responsible for the transactions of these other persons and
therefore should make them aware of the need to confer with you
before they trade in Company Securities, and you should treat all
such transactions for the purposes of this Policy and applicable
securities laws as if the transactions were for your own account.
This Policy does not, however, apply to personal securities
transactions of Family Members where the purchase or sale decision
is made by a third party not controlled by, influenced by or
related to you or your Family Members.
Transactions by Entities that You Influence or Control
This
Policy applies to any entities that you influence or control,
including any corporations, partnerships or trusts (collectively
referred to as “Controlled Entities”), and transactions
by these Controlled Entities should be treated for the purposes of
this Policy and applicable securities laws as if they were for your
own account. This Policy does not, however, apply to transactions
by Controlled Entities to the extent that you do not control,
participate in or influence the decision to purchase or sell the
Company Securities.
Transactions Under Company Plans
This
Policy does not apply in the case of the following transactions,
except as specifically noted:
Stock Option Exercises
. This Policy does not apply to the
exercise of an employee stock option acquired pursuant to the
Company’s plans, or to the exercise of a tax withholding
right pursuant to which a person has elected to have the Company
withhold shares subject to an option to satisfy tax withholding
requirements. This Policy does apply, however, to any sale of stock
as part of a broker-assisted cashless exercise of an option, or any
other market sale for the purpose of generating the cash needed to
pay the exercise price of an option.
Restricted Stock Awards or Restricted Stock Units
. This
Policy does not apply to the vesting of restricted stock awards or
units, or the exercise of a tax withholding right pursuant to which
you elect to have the Company withhold shares of stock to satisfy
tax withholding requirements upon the vesting of any stock award.
The Policy does apply, however, to any market sale of the shares
underlying a restricted stock award or unit that has
vested.
401(k) Plan
. This Policy does not apply to purchases of
Company Securities in the Company’s 401(k) plan, if such plan
option exists, resulting from your periodic contribution of money
to the plan pursuant to your payroll deduction
election.
Employee Stock Purchase Plan
. This Policy does not apply to
purchases of Company Securities in the employee stock purchase
plan, if such plan exists, resulting from your periodic
contribution of money to the plan pursuant to the election you made
at the time of your enrollment in the plan. This Policy also does
not apply to purchases of Company Securities resulting from lump
sum contributions to the plan, provided that you elected to
participate by lump sum payment at the beginning of the applicable
enrollment period. This Policy does apply, however, to any sales of
Company Securities purchased pursuant to the plan.
Other Similar Transactions
. Any other purchase of Company
Securities from the Company or sales of Company Securities to the
Company are not subject to this Policy.
Transactions Involving Mutual Funds
Transactions
in mutual funds that are invested in Company Securities are not
transactions subject to this Policy.
Special and Prohibited Transactions
The
Company has determined that there is a heightened legal risk and/or
the appearance of improper or inappropriate conduct if the persons
subject to this Policy engage in certain types of transactions. It
therefore is the Company’s policy that any persons covered by
this Policy may not engage in any of the following transactions, or
should otherwise consider the Company’s preferences as
described below:
Short Sales
. Short sales of Company Securities (i.e., the
sale of a security that the seller does not own) may evidence an
expectation on the part of the seller that the securities will
decline in value, and therefore have the potential to signal to the
market that the seller lacks confidence in the Company’s
prospects. In addition, short sales may reduce a seller’s
incentive to seek to improve the Company’s performance. For
these reasons, short sales of Company Securities are prohibited. In
addition, Section 16(c) of the Exchange Act prohibits officers and
directors from engaging in short sales. (Short sales arising from
certain types of hedging transactions are governed by the paragraph
below captioned “Hedging Transactions.”)
Publicly-Traded Options
. Given the relatively short term of
publicly-traded options, transactions in options may create the
appearance that a director, officer or employee is trading based on
material nonpublic information and focus a director’s,
officer’s or other employee’s attention on short-term
performance at the expense of the Company’s long-term
objectives. Accordingly, transactions in put options, call options
or other derivative securities based on the Company’s common
stock, on an exchange or in any other organized market, are
prohibited by this Policy.
Hedging Transactions
. Hedging or monetization transactions
can be accomplished through a number of possible mechanisms,
including through the use of financial instruments such as prepaid
variable forwards, equity swaps, collars and exchange funds. Such
hedging transactions may permit a director, officer or employee to
continue to own Company Securities obtained through employee
benefit plans or otherwise, but without the full risks and rewards
of ownership. When that occurs, the director, officer or employee
may no longer have the same objectives as the Company’s other
shareholders. Therefore, directors, officers and employees are
prohibited from engaging in any such transactions.
Cautionary Note Regarding Standing and Limit Orders and Margin
Accounts:
Standing and limit orders (except standing and
limit orders under approved Rule 10b5-1 Plans, as described below),
and the use of margin accounts, create heightened risks for insider
trading violations. There is no control over the timing of
purchases or sales that result from standing instructions to a
broker, and as a result the broker could execute a transaction when
a director, officer or other employee is in possession of material
nonpublic information. Similarly, a margin call under a margin
account could result in an involuntary sale of Company Securities
held in the account.
The
Company therefore discourages placing standing or limit orders on
Company Securities or the holding of Company Securities in a margin
account. If a person subject to this Policy determines that they
must use a standing order or limit order, the order should be
limited to short duration and should otherwise comply with the
restrictions and procedures outlined below under the heading
“Additional Procedures.”
Additional Procedures
The
Company has established additional procedures in order to assist
the Company in the administration of this Policy, to facilitate
compliance with laws prohibiting insider trading while in
possession of material nonpublic information, and to avoid the
appearance of any impropriety. These additional procedures are
applicable only to those individuals described below.
Pre-Clearance Procedures
. Persons designated by the
Compliance Officer as being subject to these pre-clearance
procedures, as well as the Family Members and Controlled Entities
of such persons, may not engage in any transaction in Company
Securities without first obtaining pre-clearance of the transaction
from the Compliance Officer. A request for pre-clearance should be
submitted to the Compliance Officer at least two business days in
advance of the proposed transaction. The Compliance Officer is
under no obligation to approve a transaction submitted for
pre-clearance, and may determine not to permit the transaction. If
a person seeks pre-clearance and permission to engage in the
transaction is denied, then he or she should refrain from
initiating any transaction in Company Securities, and should not
inform any other person of the restriction.
When a
request for pre-clearance is made, the requestor should carefully
consider whether he or she may be aware of any material nonpublic
information about the Company, and should describe fully those
circumstances to the Compliance Officer. The requestor should also
indicate whether he or she has effected any non-exempt
“opposite-way” transactions within the past six months,
and should be prepared to report the proposed transaction on an
appropriate Form 4 or Form 5. The requestor should also be prepared
to comply with SEC Rule 144 and file Form 144, if necessary, at the
time of any sale.
Any
pre-cleared transaction approved by the Compliance Officer must be
effectuated within five business days of such pre-clearance. If the
transaction is not effectuated within such five-day period must be
resubmitted to the Compliance Officer for
pre-clearance.
Quarterly Trading Restrictions
. No director, officer or
other employee of the Company, or any of their Family Members or
Controlled Entities, may conduct any transactions involving the
Company’s Securities (other than as specified by this
Policy), during a “Blackout Period” beginning on the
fifth day prior to the end of each fiscal quarter and ending on the
second business day following the date of the public release of the
Company’s earnings results for that quarter. In other words,
these persons may only conduct transactions in Company Securities
during the “Window Period” beginning on the second
business day following the public release of the Company’s
quarterly earnings and ending five days before the close of the
next fiscal quarter.
Event-Specific
Trading Restriction Periods
. From time to time, an event may
occur that is material to the Company and is known by only a few
directors, officers and/or employees. So long as the event remains
material and nonpublic, persons designated by the Compliance
Officer may not trade Company Securities. In addition, the
Company’s financial results may be sufficiently material in a
particular fiscal quarter that, in the judgment of the Compliance
Officer, designated persons should refrain from trading in Company
Securities even sooner than the typical Blackout Period described
above. In either such situation, the Compliance Officer may notify
these persons that they should not trade in the Company’s
Securities, without disclosing the reason for the restriction. The
existence of an event-specific trading restriction period or
extension of a Blackout Period will not be announced to the Company
as a whole, and should not be communicated to any other person.
Even if the Compliance Officer has not designated you as a person
who should not trade due to an event-specific restriction, you
should not trade while aware of material nonpublic information.
Exceptions will not be granted during an event-specific trading
restriction period.
Exceptions
. The quarterly trading restrictions and
event-driven trading restrictions do not apply to those
transactions to which this Policy does not apply, as described
above under the headings “Transactions Under Company
Plans” and “Transactions Not Involving a Purchase or
Sale.” Further, the requirement for pre-clearance does not
apply to transactions conducted pursuant to approved Rule 10b5-1
plans, described under the heading “Rule 10b5-1
Plans.”
Rule 10b5-1 Plans
Rule
10b5-1 under the Exchange Act provides a defense from insider
trading liability under Rule 10b-5. In order to be eligible to rely
on this defense, a person subject to this Policy must enter into a
Rule 10b5-1 plan for transactions in Company Securities that meets
certain conditions specified in the Rule (a “Rule 10b5-1
Plan”). If the plan meets the requirements of Rule 10b5-1,
Company Securities may be purchased or sold without regard to
certain insider trading restrictions. To comply with the Policy, a
Rule 10b5-1 Plan must be reviewed in advance by the Compliance
Officer and meet the requirements of Rule 10b5-1 and the
Company’s “Guidelines for Rule 10b5-1 Plans,”
which may be obtained from the Compliance Officer.
In
general, a Rule 10b5-1 Plan must be entered into at a time when the
person entering into the plan is not aware of material nonpublic
information. Once the plan is adopted, the person must not exercise
any influence over the amount of securities to be traded, the price
at which they are to be traded or the date of the trade. The plan
must either specify the amount, pricing and timing of transactions
in advance or delegate discretion on these matters to an
independent third party.
Any
Rule 10b5-1 Plan must be submitted to the Compliance Officer for
review at least five business days prior to the entry into the Rule
10b5-1 Plan. To be acceptable to the Company, Rule 10b-51 Plans
must conform to parameters regarding the timing of entry into and
trades under the plan, suspension of transactions under the plan
under certain circumstances and other matters set forth in the
Company’s Policy regarding Pre-Arranged Trading Plans, a copy
of which is available from the Compliance Officer.
Post-Termination Transactions
This
Policy continues to apply to transactions in Company Securities
even after termination of service to the Company. If an individual
is in possession of material nonpublic information when his or her
service terminates, that individual may not trade in Company
Securities until that information has become public or is no longer
material. The pre-clearance procedures specified under the heading
“Additional Procedures” above, however, will cease to
apply to transactions in Company Securities upon the expiration of
any Blackout Period or other Company-imposed trading restrictions
applicable at the time of the termination of service.
Consequences of Violations
The
purchase or sale of securities while aware of material nonpublic
information, or the disclosure of material nonpublic information to
others who then trade in the Company’s Securities, is
prohibited by the federal and state laws. Insider trading
violations are pursued vigorously by the SEC, U.S. Attorneys and
state enforcement authorities as well as the laws of foreign
jurisdictions. Punishment for insider trading violations is severe,
and could include significant fines and imprisonment. While the
regulatory authorities concentrate their efforts on the individuals
who trade, or who tip inside information to others who trade, the
federal securities laws also impose potential liability on
companies and other “controlling persons” if they fail
to take reasonable steps to prevent insider trading by company
personnel.
In
addition, an individual’s failure to comply with this Policy
may subject the individual to Company imposed sanctions, including
dismissal for cause, whether or not the employee’s failure to
comply results in a violation of law. Needless to say, a violation
of law, or even an SEC investigation that does not result in
prosecution, can tarnish a person’s reputation and
irreparably damage a career.
Company Assistance
Any
person who has a question about this Policy or its application to
any proposed transaction may obtain additional guidance from the
Chief Executive Officer, who can be reached by telephone at the
Company’s headquarters at (804) 205-5036 or by e-mail at
pyoung@exactusinc.com
.
Exactus,
Inc.
Insider
Trading Policy
January
7, 2019
Certification
All
persons subject to this Policy must certify their understanding of,
and intent to comply with, this Policy.
CERTIFICATION
I
certify that:
1. I
have read and understand the Company’s Insider Trading Policy
(the “Policy”). I understand that the Chief Executive
Officer is available to answer any questions I have regarding the
Policy.
2.
Since January 7, 2019
,
or
such shorter period of time that I have been affiliated with the
Company, I have complied with the Policy.
3. I
will continue to comply with the Policy for as long as I am subject
to the Policy.
/s/ ________________________________________
(Signature of
Director, Officer, Employee, Contractor)
_________________________________________
(Print
Name)
_________________________________________
(Title)
_________________________________________
(Date)
