Lftd Partners Inc 8-K, filed Jan 8, 2020
Lftd Partners Inc. (LIFD)
About this 8-K
Lftd Partners Inc filed this 8-K on January 8, 2020, reporting on events of January 7, 2020.
Items reported
- Item 1.01: Entered into a material agreement
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 7, 2020
ACQUIRED SALES CORP.
(Exact name of registrant as specified in its charter)
Nevada |
| 87-0479286 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
31 N. Suffolk Lane, Lake Forest, Illinois |
| 60045 |
(Address of principal executive offices) |
| (Zip Code) |
847-915-2446
(Registrant’s telephone number, including area code)
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))
Section 1 - Registrant’s Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.
Execution of Agreement and Plan of Merger – Warrender Enterprise Inc. d/b/a Lifted Liquids
On January 7, 2020, Acquired Sales Corp. (the “Company”), Gerard M. Jacobs and William C. “Jake” Jacobs entered into an Agreement and Plan of Merger (“Merger Agreement”) with Warrender Enterprise Inc. d/b/a Lifted Liquids (“Lifted”) and its owner Nicholas C. Warrender (“Warrender”) to, subject to a number of conditions, acquire 100% of the ownership of Lifted for consideration of (1) $3,750,000 in cash, (2) a promissory note issued by the Company for an additional $3,750,000 (“Promissory Note”), (3) 4,545,455 shares of the Company’s unregistered common stock, and (4) warrants to purchase 1,820,000 shares of the Company’s unregistered common stock at an exercise price of $5.00 per share. The Company will pay the $3,750,000 cash portion of the consideration from cash on hand.
The Promissory Note is to be secured by (a) a first lien security interest in all of the assets of the Company; and (b) a pledge of all of the capital stock of the Lifted subsidiary held by the Company post-merger and all of the common stock of Bendistillery Inc., Bend Spirits, Inc., and Ablis Holding Company that is owned by the Company.
The Promissory Note accrues interest at 2% per annum and must be repaid at the sooner of five years from execution or that time in which the Company’s consolidated earnings from the date of the closing of the merger exceeds $7.5 million.
In connection with the Merger, Warrender will be granted registration rights for the 4,545,455 shares of the Company’s unregistered common stock that he is to receive in connection with the Merger.
Also in connection with the Merger, Warrender, William C. “Jake” Jacobs, Gerard M. Jacobs, and the Roberti Jacobs Family Trust, who together as a group will have stockholder and managerial control of the Company, will enter into a stockholder agreement wherein they must unanimously agree on Board members and on any liquidation event involving the Company or its assets.
The Merger Agreement also requires that the Company enter into an employment agreement with Warrender, where Warrender is entitled to $100,000 in base salary and an annual bonus stemming from the Company’s cash management bonus pool.
There will be many conditions to closing of the Merger Agreement, many of which are outside of the parties’ control and we cannot predict whether these conditions will be satisfied. There are no assurances when or if closing of the merger as set out in the Merger Agreement will occur.
Closing of the acquisition of Lifted is subject to a number of conditions, including but not limited to approval of the Company’s stockholders, providing required stockholder information and notice, and the completion, filing and clearance of all necessary securities filings.
The foregoing description of the Merger Agreement and its exhibits, including the Promissory Note, Warrender Employment Agreement, Registration Rights Agreement, and Stockholder Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, and the exhibits thereto, which are attached as Exhibit 10.56 to this Current Report on Form 8-K and incorporated in this Item 1.01 by reference.
Any equity securities that may be issued in the Company’s capital raise to complete the Merger Agreement or fulfill the obligations stemming from it will not be registered at the time of issuance under the Securities Act of 1933, as amended, or applicable state laws and may not be offered or sold in the United States absent registration or an available exemption under applicable federal and state securities laws. The disclosures in this Form 8-K regarding the Company’s capital raise to finance the promissory
note or any portion of the Merger Agreement are being made pursuant to Rule 135c under the Securities Act of 1933. This Form 8-K shall not constitute an offer to sell or the solicitation of an offer to buy any securities of the Company or Lifted.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
Exhibit 10.56Merger Agreement between Acquired Sales Corp., Gerard M. Jacobs, William C. “Jake” Jacobs and Warrender Enterprise Inc. d/b/a Lifted Liquids and its owners
Exhibit 99.1Press Release Dated January 8, 2020
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Current Report to be signed on its behalf by the undersigned hereunto duly authorized.
ACQUIRED SALES CORP.
/s/ Gerard M. Jacobs
Gerard M. Jacobs
Chief Executive Officer
Dated: January 8, 2020
AGREEMENT AND PLAN OF MERGER
By and Among
ACQUIRED SALES CORP.
LIFTED LIQUIDS, INC.
GERARD M. JACOBS
WILLIAM C. JACOBS
and
WARRENDER ENTERPRISE INC.
and
NICHOLAS S. WARRENDER
Dated as of January 7, 2020
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this “Agreement”), is entered into as of _______, 2019, by and among Acquired Sales Corp., a Nevada corporation (“AQSP”), Lifted Liquids, Inc., an Illinois corporation and a wholly-owned Subsidiary of AQSP (“Merger Sub”), Gerard M. Jacobs (“GMJ”), William C. Jacobs (“WCJ” and together with GMJ, each, a “Jacobs Owner” and collectively, the “Jacobs Owners”) and WARRENDER ENTERPRISE INC., a Wisconsin corporation d/b/a Lifted Liquids (the “Company”) and Nicholas S. Warrender (the “Company Owner”). Capitalized terms used herein (including in the immediately preceding sentence) and not otherwise defined herein shall have the meanings set forth in Section 9.1.
RECITALS
WHEREAS, the parties intend for AQSP to acquire the Company, on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, in furtherance of such acquisition of the Company by AQSP, and on the terms and subject to the conditions set forth in this Agreement and in accordance with the Illinois Business Corporation Act of 1983 (the “IL BCA”) and the Wisconsin Business Corporation Law (the “WI BCL”), the Company shall be merged with and into Merger Sub (the “Merger”), with Merger Sub as the surviving entity (the “Surviving Entity”), and each outstanding share of the Company’s common stock, no par value per share (the “Company Common Stock”) shall be converted into the right to receive the Merger Consideration;
WHEREAS, the Board of Directors of the Company has: (a) determined that it is in the best interests of the Company and the holders of shares of Company Common Stock, and declared it advisable, to enter into this Agreement with AQSP and Merger Sub; and (b) approved the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger;
WHEREAS, the Board of Directors of AQSP (the “AQSP Board”) has: (a) determined that it is in the best interests of AQSP and its stockholders, and declared it advisable, to enter into this Agreement; and (b) approved the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger;
WHEREAS, the Board of Directors of Merger Sub/AQSP, in its capacity as the sole shareholder of Merger Sub has: (a) determined that it is in the best interests of Merger Sub and its shareholder, and declared it advisable, to enter into this Agreement; and (b) approved the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger;
WHEREAS, the AQSP Board has resolved to recommend that the holders of shares of AQSP’s common stock, par value $0.001 per share (the “AQSP Common Stock”) approve the issuance of shares of AQSP Common Stock in connection with the Merger on the terms and subject to the conditions set forth in this Agreement (the “AQSP Stock Issuance”);
WHEREAS, for U.S. federal income tax purposes, the parties intend that the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the “Code”), and that this Agreement be, and is hereby, adopted as a plan of reorganization within the meaning of Section 368(a) of the Code; and
WHEREAS, the parties desire to make certain representations, warranties, covenants, and agreements in connection with the Merger and the other transactions contemplated by this Agreement and also to prescribe certain terms and conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants, and agreements contained in this Agreement, the parties, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
Section 1.1The Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the IL BCA and the WI BCL, at the Effective Time: (i) the Company shall merge with and into Merger Sub; (ii) the separate corporate existence of the Company shall cease; and (iii) Merger Sub shall continue its corporate existence under the IL BCA as the surviving corporation in the Merger.
Section 1.2Closing. Upon the terms and subject to the conditions set forth herein, the closing of the Merger (the “Closing”) shall take place at 12:01 p.m., Chicago time, on a date that is as soon as practicable (and, in any event, within three Business Days) after the satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing), unless this Agreement has been terminated pursuant to its terms or unless another time or date is agreed to in writing by the parties hereto. The Closing shall be held at the offices of Fox Rothschild LLP, 321 N. Clark Street, Suite 1600, Chicago, Illinois 60654, unless another place is agreed to in writing by the parties hereto, or by .pdf delivery of the original execution documents and the actual date of the Closing is hereinafter referred to as the “Closing Date.”
Section 1.3Effective Time. Subject to the provisions of this Agreement, on the Closing Date, the Company and Merger Sub shall cause articles of merger (the “IL Articles of Merger”) to be executed, acknowledged, and filed with the Secretary of State of the State of Illinois in accordance with the relevant provisions of the IL BCA and articles of merger (the “WI Articles of Merger”) with the Secretary of State of the State of Wisconsin in accordance with the relevant provisions of the WI BCL and shall make all other filings or recordings required under the IL BCA and the WI BCL. The Merger shall become effective at such time as the IL Articles of Merger has been duly filed with the Secretary of State of the State of Illinois and the WI Articles of Merger have been duly filed with the Secretary of State of the State of Wisconsin or at such later date or time as may be agreed by the Company and AQSP in writing and specified in the IL Articles of Merger in accordance with the IL BCA and the WI Articles of Merger in accordance with the WI BCL (the effective time of the Merger being hereinafter referred to as the “Effective Time”).
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Section 1.4Effects of the Merger. The Merger shall have the effects set in this Agreement and in the applicable provisions of the IL BCA and the WI BCL. Without limiting the generality of the foregoing, and subject thereto from and after the Effective Time, the effects of the Merger shall be that all assets, property, rights, privileges, immunities, powers, franchises, licenses, and authority of the Company and Merger Sub shall vest in the Surviving Entity, and all debts, liabilities, obligations, restrictions, and duties of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions, and duties of the Surviving Entity.
Section 1.5Organizational Documents. At the Effective Time: (i) the articles of incorporation of Merger Sub shall be the articles of incorporation of the Surviving Entity; and (ii) the by-laws of Merger Sub shall be the by-laws of the Surviving Entity.
Section 1.6Directors and Officers. At the Effective Time, the directors of AQSP shall be Gerard M. Jacobs (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead outside director), Thomas W. Hines, James S. Jacobs, Joshua A. Bloom, Richard E. Morrissy, Michael D. McCaffrey and a ninth director who will be designated by Nicholas S. Warrender and reasonably acceptable to Gerard M. Jacobs, and the officers of AQSP shall be as set forth below, each to hold the office until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation, or removal in accordance with applicable Law:
Gerard M. Jacobs - Chairman, CEO and Secretary
William C. Jacobs - President, CFO and Treasurer
Nicholas S. Warrender – Co-Founder, Vice Chairman, Chief Operating Officer
ARTICLE II
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
Section 2.1Effect of the Merger. At the Effective Time, as a result of the Merger and without any action on the part of AQSP or the Company or the holder of any capital stock of AQSP or shares of Company Common Stock:
(a)Conversion of Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive: (i) such number of shares of AQSP Common Stock equal to the product of (A) the Interest Ratio, multiplied by (B) the Stock Consideration; (ii) an amount in cash equal to the product of (A) the Interest Ratio, multiplied by (B) the Cash Consideration; and (iii) an amount in the form of a Promissory Note equal to the product of (a) the Interest Ratio multiplied by (b) the Note Consideration.
(b)Cancellation of Common Stock. At the Effective Time, all shares of Company Common Stock shall no longer be outstanding and shall be cancelled and retired and shall cease to exist, and each holder of a share of Company Common Stock shall, subject to applicable Law, cease to have any rights with respect thereto, except the right to receive the Merger Consideration in accordance with Section 2.2.
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(c)Fractional Shares. Any fractional shares of AQSP Common Stock to be issued upon the conversion of the shares of Company Common Stock shall be rounded up to one full share.
(d)Equity of Merger Sub. All equity of Merger Sub issued and outstanding at and as of the Effective Time will remain issued and outstanding.
Section 2.2Payment of Merger Consideration. For purposes of payment of the Merger Consideration (and the payment in lieu of fractions shares pursuant to Section 2.1(c)), AQSP shall be entitled to rely on the information set forth in Section 3.2 of the Company Disclosure Letter with respect to all of the shares of Company Common Stock being held by the Company Owner and the wire instructions identified for payment to the Company Owner. At or promptly following the Effective Time, AQSP shall: (a) deliver to its transfer agent irrevocable instructions to issue to the Company Owner a number of whole shares of AQSP Common Stock equal to the excess of (i) the Stock Consideration, reduced by (ii) the Escrowed Shares and (b) deliver to the Company Owner cash, delivered by wire transfer, in an amount equal to the excess of (i) the Cash Consideration, reduced by (iii) the Escrowed Cash; and (c) AQSP shall deliver the executed Promissory Note to the Company Owner. At or promptly following the Effective Time, AQSP shall: (x) deliver to its transfer agent irrevocable instructions to issue to the Company Owner (but deliver to the Escrow Agent) the Escrowed Shares, and (y) deliver to the Escrow Agent the Escrowed Cash.
Section 2.3Adjustments. Without limiting the other provisions of this Agreement, if at any time during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of AQSP Common Stock shall occur by reason of any reclassification, recapitalization, stock split (including a reverse stock split), or combination, exchange, readjustment of shares, or similar transaction, or any stock dividend or distribution paid in stock, the Stock Consideration and any other amounts payable pursuant to this Agreement shall be appropriately adjusted to reflect such change.
Section 2.4Withholding Rights. AQSP shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article II such amounts as may be required to be deducted and withheld with respect to the making of such payment under any Tax Laws.
Section 2.5Tax Treatment. The Merger is intended to constitute a “reorganization” within the meaning of Section 368(a) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY OWNER
Except as set forth in the correspondingly numbered Section of the Company Disclosure Letter that relates to such Section or in another Section of the Company Disclosure Letter to the extent that it is reasonably apparent on the face of such disclosure that such disclosure is
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applicable to such Section, the Company and each Company Owner (jointly and severally) hereby represents and warrants to AQSP as follows:
Section 3.1Organization; Standing and Power; Charter Documents; Subsidiaries.
(a)Organization; Standing and Power. The Company is a corporation duly incorporated, validly existing, and in good standing under the Laws of the State of Wisconsin and has the requisite corporate power and authority to own, lease, and operate its assets and to carry on its business as now conducted. The Company is duly qualified or licensed to do business as a foreign corporation in each jurisdiction where the character of the assets and properties owned, leased, or operated by it or the nature of its business makes such qualification or license necessary, except where the failure to be so qualified or licensed or to be in good standing, would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(b)Charter Documents. The Company has delivered or made available to AQSP a true and correct copy of the Company’s Charter Documents. The Company is not in material violation of any of the provisions of its Charter Documents.
(c)Subsidiaries. The Company has no Subsidiaries.
Section 3.2Capital Structure; Capital Stock. Section 3.2 of the Company Disclosure Letter accurately sets forth the outstanding shares of Company Common Stock as of the date hereof. The shares of Company Common Stock have been duly authorized and validly issued, and are owned by the Company Owner, free and clear of all Liens, other than those Liens set forth in Section 3.2 of the Company Disclosure Letter. There are no outstanding or authorized options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character obligating the Company to issue or sell any equity securities of, or any other interest in, the Company, its business or its assets. The Company does not have outstanding or authorized any stock appreciation, phantom stock, profit participation or similar rights. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the shares of Company Common Stock except as set forth in Section 3.2 of the Company Disclosure Letter. The Company does not have any outstanding capital stock other than the shares of Company Common Stock set forth in Section 3.2 of the Company Disclosure Letter. Except as provided in this Agreement, the Company does not have any legal obligation to effect any merger, consolidation or reorganization of the Company, nor to enter into any agreement with respect thereto, nor to redeem or repurchase any shares of capital stock, nor to issue any dividends or to make any divestitures except the Estimated Tax Distribution.
Section 3.3Authority; Non-Contravention; Governmental Consents.
(a)Authority. The Company has all requisite corporate power and authority to enter into and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement. The Company Owner has voted, in the Company Owner’s capacity as the sole shareholder of the Company, to approve the Merger in accordance with the requirements of the WI BCL. The execution and delivery
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of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other actions on the part of the Company are necessary to authorize the execution and delivery of this Agreement or to consummate the Merger and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming due execution and delivery by AQSP and Merger Sub, constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability may be limited by bankruptcy, insolvency, moratorium, and other similar Laws affecting creditors’ rights generally and by principles of equity.
(b)Non-Contravention. The execution, delivery, and performance of this Agreement by the Company, and the consummation by the Company of the transactions contemplated by this Agreement, including the Merger, do not: (i) contravene or conflict with, or result in any violation or breach of, the Charter Documents of the Company or any Company Permit; (ii) assuming that all Consents contemplated by Section 3.3(c) have been obtained or made, conflict with or violate any Law applicable to the Company or any of its properties or assets; (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the Company’s loss of any benefit or the imposition of any additional payment or other liability under, or give to any third party any rights of termination, amendment, acceleration, or cancellation, or require any Consent under, any Contract to which the Company is a party or otherwise bound as of the date hereof; or (iv) result in the creation of a Lien (other than Permitted Liens) on any of the properties or assets of the Company.
(c)Governmental Consents. To the Knowledge of the Company, no consent, approval, order, or authorization of, or registration, declaration, or filing with, or notice to (any of the foregoing being a “Consent”), any national, state, municipal, local, or foreign government, any instrumentality, subdivision, court, administrative agency or commission, or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority (a “Governmental Entity”) is required to be obtained or made by the Company in connection with the execution, delivery, and performance by the Company of this Agreement or the consummation by the Company of the Merger and other transactions contemplated hereby, except for: (i) the filing of the IL Articles of Merger with the Secretary of State of the State of Illinois and the WI Articles of Merger with the Secretary of State of the State of Wisconsin; (ii) such Consents as may be required under applicable state securities or “blue sky” Laws and the securities Laws of any foreign country or the rules and regulations of the OTC; and (iii) the other Consents of Governmental Entities listed in Section 3.3(c) of the Company Disclosure Letter (the “Other Governmental Approvals”).
Section 3.4Company Financial Statements; Undisclosed Liabilities.
(a)Financial Statements. Attached as Section 3.4(a) of Company Disclosure Letter are (a) copies of the Company’s unaudited financial statements consisting of the balance sheet of the Company as of December 31 of each of the years 2017 and 2018 and
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the related statements of income for the calendar years then ended (the “Annual Financial Statements”) and (b) an unaudited balance sheet of the Company as of September 30, 2019 (the “Interim Balance Sheet”) and the related statements of income for the nine (9) month period then ended (together with the Interim Balance Sheet the “Interim Financial Statements” and the Interim Financial Statements, together with the Annual Financial Statements, the “Financial Statements”). The Financial Statements (i) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of Interim Financial Statements, subject, in the case of the Interim Financial Statements, to year-end adjustments); and (ii) are based on the books and records of the Company, and fairly present in all material respects the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated.
(b)Undisclosed Liabilities. The Company does not have any Liabilities other than Liabilities that: (i) are reflected or reserved against in the Interim Balance Sheet; (ii) were incurred since the date of the Interim Balance Sheet in the ordinary course of business consistent with past practice; or (iii) are incurred in connection with the transactions contemplated by this Agreement.
Section 3.5Absence of Certain Changes or Events. Since the date of the Interim Balance Sheet, except in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, the business of the Company has been conducted in the ordinary course of business consistent with past practice and there has not been or occurred:
(a)any Company Material Adverse Effect or any event, condition, change, or effect that could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect; or
(b)any event, condition, action, or effect that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a breach of Section 5.1.
Section 3.6Taxes.
(a)Tax Returns and Payment of Taxes. The Company has been a validly electing S corporation within the meaning of Code Section 1361 and 1362 since its formation. The Company has duly and timely filed or caused to be filed (taking into account any valid extensions) all Tax Returns required to be filed by it. Such Tax Returns are true, complete, and correct in all material respects. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return other than extensions of time to file Tax Returns obtained in the ordinary course of business consistent with past practice. All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been timely paid.
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(b)Availability of Tax Returns. The Company has made available to AQSP complete and accurate copies of all material federal, state, local, and foreign income, franchise, and other material Tax Returns filed by or on behalf of the Company for any Tax period ending on or after December 31, 2016.
(c)Withholding. The Company has withheld and timely paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any Company Employee and complied with all information reporting and backup withholding provisions of applicable Law.
(d)Liens. There are no Liens for Taxes upon the assets of the Company other than for current Taxes not yet due and payable or for Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves have been made in the Company’s Financial Statements.
(e)Tax Deficiencies and Audits. No deficiency for any amount of Taxes which has been proposed, asserted, or assessed in writing by any taxing authority against the Company remains unpaid. There are no waivers or extensions of any statute of limitations currently in effect with respect to Taxes of the Company. There are no audits, suits, proceedings, investigations, claims, examinations, or other administrative or judicial proceedings ongoing or, to the Knowledge of the Company, pending with respect to any Taxes of the Company.
(f)Tax Jurisdictions. No claim has ever been made in writing by any taxing authority in a jurisdiction where the Company does not file Tax Returns that the Company may be subject to Tax in that jurisdiction.
(g)Intended Tax Treatment. The Company has not taken or agreed not to take any action, and to the Knowledge of the Company, there exist no facts or circumstances that are likely to prevent or impede the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
Section 3.7Intellectual Property.
(a)Scheduled Company-Owned IP. Section 3.7(a) of the Company Disclosure Letter contains a true and complete list, as of the date hereof, of all: (i) Company-Owned IP that is the subject of any issuance, registration, certificate, application, or other filing with any Governmental Entity or authorized private registrar, including patents, patent applications, trademark registrations and pending applications for registration, copyright registrations and pending applications for registration, and internet domain name registrations; and (ii) material unregistered Company-Owned IP.
(b)Right to Use; Title. The Company is the sole and exclusive owner of all right, title, and interest in and to the Company-Owned IP, and has the valid and enforceable right to use all other Intellectual Property used in or necessary for the conduct of the business of the Company as currently conducted (“Company IP”), in each case, free and clear of all Liens, other than Permitted Liens. The Company Owner does
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not have any ownership interest in, or any claim in or with respect to, any Intellectual Property used by the Company in the conduct of its business.
(c)Validity and Enforceability. The Company’s rights in the Company-Owned IP are valid, subsisting, and enforceable.
(d)Non-Infringement. The Company, in the conduct of its business, has not infringed, misappropriated, or otherwise violated, and is not infringing, misappropriating, or otherwise violating, any Intellectual Property of any other Person. To the Knowledge of the Company, no third party is infringing upon, violating, or misappropriating any Company-Owned IP.
(e)IP Legal Actions and Orders. There are no Legal Actions pending or, to the Knowledge of the Company, threatened: (i) alleging any infringement, misappropriation, or violation by the Company of the Intellectual Property of any Person; or (ii) challenging the validity, enforceability, or ownership of any Company-Owned IP or the Company’s rights with respect to any Company IP. The Company is not subject to any outstanding Order that restricts or impairs the use of any Company-Owned IP.
(f)Company IT Systems. Since the Company’s formation, to the Company’s Knowledge there have been no security breaches of, unauthorized access to or use of, failures or unplanned outages in, or other adverse integrity or security events affecting any Company IT Systems or the data or transactions stored or processed thereon.
Section 3.8Compliance; Permits.
(a)Compliance. The Company is in material compliance with, all Laws or Orders applicable to the Company or by which the Company or any of its businesses or properties is bound. Since the Company’s formation, no Governmental Entity has issued any written notice or notification stating that the Company is not in compliance with any Law.
(b)Permits. The Company holds all permits, licenses, registrations, authorizations and approvals from Governmental Entities (collectively, “Permits”) required to conduct its business as currently being conducted. No suspension, cancellation, non-renewal, or adverse modifications of any Permits of the Company is pending or, to the Knowledge of the Company, threatened. The Company is and, since its formation, has been in compliance with the terms of all Permits. To the Company’s Knowledge, the consummation of the Merger will not require AQSP to obtain any additional Permits in order for AQSP or the Merger Sub to carry on the business of the Company (as the surviving entity) as currently conducted and be in compliance with all Laws.
Section 3.9Litigation; Other Activities. (a) Other than as set forth in Section 3.9 of the Company Disclosure Letter, there is no Legal Action pending, or to the Knowledge of the Company, threatened against the Company or any of its properties or assets or, to the Knowledge of the Company, any officer or director of the Company in their capacities as such other than any such Legal Action that: (a) does not involve an amount in controversy in excess of $25,000; and
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(b) does not seek material injunctive or other material non-monetary relief. None of the Company or any of its properties or assets is subject to any order, writ, assessment, decision, injunction, decree, ruling, or judgment (“Order”) of a Governmental Entity or arbitrator, whether temporary, preliminary, or permanent. (b) The Company has properly accounted (in all material respects) for any cash received by the Company and paid out by the Company in the operation of its business. Neither the Company nor its Owner, officers or employees have made or authorized any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of funds or received or retained any funds in violation of any Law.
Section 3.10Brokers’ and Finders’ Fees. The Company has not incurred, nor shall it incur, directly or indirectly, any liability for investment banker, brokerage, or finders’ fees or agents’ commissions, or any similar charges in connection with this Agreement or any transaction contemplated by this Agreement.
Section 3.11Related Person Transactions. No Affiliate has been involved in any material business relationship with the Company, since January 1, 2018, other than those set forth on Section 3.11 of the Company Disclosure Letter.
Section 3.12Employee Matters.
(a)Schedule. Section 3.12(a) of the Company Disclosure Letter contains a true and complete list, as of the date hereof, of each employment agreement, bonus agreement, pension plan, employee benefits plan or program, collective bargaining agreement, or other arrangement providing for employee compensation, severance, deferred compensation, performance awards, stock or stock-based awards, fringe, retirement, death, disability, medical, or wellness benefits, or other employee benefits or remuneration of any kind, which is sponsored, maintained, contributed to, or required to be contributed to, by the Company, for the benefit of any current or former employee, independent contractor, consultant, or director of the Company (each, a “Company Employee”), or with respect to which the Company or any Company ERISA Affiliate has or may have any Liability (collectively, the “Company Employee Plans”) including each employment, termination, severance, retention, change in control, or consulting or independent contractor plan, program, arrangement, or agreement, in each case whether written or unwritten or otherwise, funded or unfunded, insured or self-insured, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA.
(b)Documents. The Company has made available to AQSP correct and complete copies (or, if a plan or arrangement is not written, a written description) of all Company Employee Plan current plan documents and amendments thereto, and, to the extent applicable: (i) all related trust agreements, funding arrangements, insurance contracts, and service provider agreements now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (ii) the most recent determination letter received regarding the tax-qualified status of each Company Employee Plan; (iii) the most recent financial statements for each Company Employee Plan; (iv) the Form 5500 Annual Returns/Reports and Schedules for the most recent plan year for each Company Employee Plan; (v) the current summary plan description for
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each Company Employee Plan; and (vi) all actuarial valuation reports in the most recent three plan years related to any Company Employee Plans.
(c)Employee Plan Compliance. Except for such matters as would not reasonably be expected to have, individually or in the aggregate, a Company material Adverse Effect, (i) Each Company Employee Plan (including any multiemployer plans within the meaning of Section 3(37) of ERISA (each a “Multiemployer Plan”)) has been established, administered, and maintained in all material respects in accordance with its terms and in material compliance with applicable Laws, including, but not limited to ERISA and the Code, where applicable; (ii) all the Company Employee Plans that are intended to be qualified under Section 401(a) of the Code are so qualified and have received timely determination letters from the IRS and no such determination letter has been revoked nor, to the Knowledge of the Company, has any such revocation been threatened, or with respect to a prototype plan, the Company can rely on an opinion letter from the IRS to the prototype plan sponsor, to the effect that such qualified retirement plan and the related trust are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and to the Knowledge of the Company no circumstance exists that is likely to result in the loss of such qualified status under Section 401(a) of the Code; (iii) the Company, where applicable, has timely made all contributions, premiums, and other payments required by and due under the terms of each Company Employee Plan and applicable Law and accounting principles, and all benefits accrued under any unfunded Company Employee Plan have been paid, accrued, or otherwise adequately reserved to the extent required by, and in accordance with GAAP; (iv) there are no investigations, audits, inquiries, enforcement actions, or Legal Actions pending or, to the Knowledge of the Company, threatened by the IRS, U.S. Department of Labor, Health and Human Services, Equal Employment Opportunity Commission, or any similar Governmental Entity with respect to any Company Employee Plan; (vi) there are no Legal Actions pending, or, to the Knowledge of the Company, threatened with respect to any Company Employee Plan (in each case, other than routine claims for benefits); and (vii) to the Knowledge of the Company, neither the Company nor any of its Company ERISA Affiliates has engaged in a transaction that could subject the Company or any Company ERISA Affiliate to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(d)Plan Liabilities. Neither the Company nor any Company ERISA Affiliate has: (i) incurred or reasonably expects to incur, either directly or indirectly, any liability under Title IV of ERISA, or related provisions of the Code or foreign Law relating to any Company Employee Plan and nothing has occurred that constitute grounds under Title IV of ERISA to terminate, or appoint a trustee to administer, any Company Employee Plan; (ii) except for payments of premiums to the Pension Benefit Guaranty Corporation (“PBGC”) which have been timely paid in full, incurred any liability to the PBGC in connection with any Company Employee Plan covering any active, retired, or former employees or directors of the Company or any Company ERISA Affiliate, including, without limitation, any liability under Sections 4069 or 4212(c) of ERISA or any penalty imposed under Section 4071 of ERISA, or ceased operations at any facility, or withdrawn from any such Company Employee Plan in a manner that could subject it to liability under Sections 4062, 4063 or 4064 of ERISA; (iii) failed to satisfy the health plan
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compliance requirements under the Affordable Care Act, including related information reporting requirements; (iv) failed to comply with Section 601 et. seq. of ERISA and Section 4980B of the Code, regarding the health plan continuation coverage requirements under COBRA; (v) failed to comply with the privacy, security, and breach notification requirements under HIPPA; or (vi) incurred any withdrawal liability (including any contingent or secondary withdrawal liability) within the meaning of Sections 4201 or 4204 of ERISA to any Multiemployer Plan and nothing has occurred that presents a material risk of the occurrence of any withdrawal from or the partition, termination, reorganization, or insolvency of any such Multiemployer Plan which could result in any liability of the Company or any Company ERISA Affiliate to any such Multiemployer Plan. No complete or partial termination of any Company Employee Plan has occurred or is expected to occur.
(e)Certain Company Employee Plans. With respect to each Company Employee Plan:
1.no such plan is a Multiemployer Plan or a “multiple employer plan” within the meaning of Section 413(c) of the Code and neither the Company nor any of its Company ERISA Affiliates has now or at any time in the past six years contributed to, sponsored, maintained, or had any liability or obligation in respect of any such Multiemployer Plan or multiple employer plan;
2.no Legal Action has been initiated by the PBGC to terminate any such Company Employee Plan or to appoint a trustee for any such Company Employee Plan;
3.no Company Employee Plan is subject to the minimum funding standards of Section 302 of ERISA or Section 412 or 430 of the Code, and none of the assets of the Company or any Company ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under Section 303 of ERISA or Sections 430 or 436 of the Code; and
4.no “reportable event,” as defined in Section 4043 of ERISA, has occurred, or is reasonably expected to occur, with respect to any such Company Employee Plan.
(f)No Post-Employment Obligations. No Company Employee Plan provides post-termination or retiree health benefits to any person for any reason, except as may be required by COBRA or other applicable Law, and neither the Company nor any Company ERISA Affiliate has any Liability to provide post-termination or retiree health benefits to any person or ever represented, promised, or contracted to any Company Employee (either individually or to Company Employees as a group) or any other person that such Company Employee(s) or other person would be provided with post-termination or retiree health benefits, except to the extent required by COBRA or other applicable Law.
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(g)Potential Governmental or Lawsuit Liability. No Company Employee Plan has in the past six years submitted or corrected operational errors under a voluntary compliance, self-correction, or similar program sponsored by any Governmental Entity.
(h)Section 409A Compliance. Each Company Employee Plan that is subject to Section 409A of the Code has been operated in material compliance with such section and all applicable regulatory guidance (including, without limitation, proposed regulations, notices, rulings, and final regulations).
(i)Health Plan Compliance. If the Company has a Health Plan, it complies in all material respects with the applicable requirements under the Affordable Care Act, the Code, ERISA, COBRA, HIPAA, and other state and federal statutes governing employer sponsored health care plans with respect to any Company Employee Plan that is a group health plan within the meaning of Section 733(a) of ERISA, Section 5000(b)(1) of the Code or such state statute.
(j)Effect of Transaction. Neither the execution or delivery of this Agreement, the consummation of the Merger, nor any of the other transactions contemplated by this Agreement shall (either alone or in combination with any other event): (i) entitle any current or former director, employee, contractor, or consultant of the Company to severance pay or any other payment; (ii) accelerate the timing of payment, funding, or vesting, or increase the amount of compensation due to any such individual; (iii) limit or restrict the right of the Company to merge, amend, or terminate any Company Employee Plan; or (iv) increase the amount payable or result in any other material obligation pursuant to any Company Employee Plan. No amount that could be received (whether in cash or property or the vesting of any property) as a result of the consummation of the transactions contemplated by this Agreement by any employee, director, or other service provider of the Company under any Company Employee Plan or otherwise would not be deductible by reason of Section 280G of the Code nor would be subject to an excise tax under Section 4999 of the Code.
(k)Employment Law Matters. The Company: (i) is in material compliance with all applicable Laws and agreements regarding hiring, employment, termination of employment, plant closing and mass layoff, employment discrimination, harassment, retaliation, and reasonable accommodation, leaves of absence, terms and conditions of employment, wages and hours of work, employee classification, employee health and safety, use of genetic information, leasing and supply of temporary and contingent staff, engagement of independent contractors, including proper classification of same, payroll taxes, and immigration with respect to Company Employees, and contingent workers; and (ii) is in material compliance with all applicable Laws relating to the relations between it and any labor organization, trade union, work council, or other body representing Company Employees, in each event, except where such failure would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(l)Labor. The Company is not party to, or subject to, any collective bargaining agreement or other agreement with any labor organization, work council, or
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trade union with respect to any of its or their operations. There are no Legal Actions, government investigations, or labor grievances pending, or, to the Knowledge of the Company, threatened relating to any employment related matter involving any Company Employee or applicant, including, but not limited to, charges of unlawful discrimination, retaliation or harassment, failure to provide reasonable accommodation, denial of a leave of absence, failure to provide compensation or benefits, unfair labor practices, or other alleged violations of Law.
Section 3.13Real Property and Personal Property Matters.
(a)Owned Real Estate. The Company does not own any Real Estate. The Company is not a party to any agreement or option to purchase any real property or interest in real property.
(b)Leased Real Estate. Section 3.13(b) of the Company Disclosure Letter contains a true and complete list of all Leases (including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto) as of the date hereof for each such Leased Real Estate (including the date and name of the parties to such Lease document). The Company has made available to AQSP a true and complete copy of each such Lease. Except as set forth on Section 3.13(b) of the Company Disclosure Letter, with respect to each of the Leases: (i) such Lease is legal, valid, binding, enforceable, and in full force and effect; (ii) neither the Company, nor, to the Knowledge of the Company, any other party to the Lease, is in material breach or default under such Lease, and no event has occurred or circumstance exists which, with or without notice, lapse of time, or both, would constitute a material breach or default under such Lease; (iii) the Company’s possession and quiet enjoyment of the Leased Real Estate under such Lease has not been materially disturbed, and to the Knowledge of the Company, there are no material disputes with respect to such Lease; and (iv) the Company has not collaterally assigned or granted any other Liens other than Permitted Liens in such Lease. The Company has not subleased, licensed, or otherwise granted any Person a right to use or occupy such Leased Real Estate or any portion thereof.
(c)Real Estate Used in the Business. The Leased Real Estate identified in Section 3.13(b) of the Company Disclosure Letter comprise all of the real property used in the business of the Company.
(d)Personal Property. The machinery, equipment, furniture, fixtures, and other tangible personal property and assets owned or leased, by the Company are in good working condition and repair, ordinary wear and tear excepted.
Section 3.14Environmental Matters. Except for such matters as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:
(a)The Company is, and for the past three years has been, in material compliance with all Environmental Laws, which compliance includes the possession, maintenance of, compliance with, or application for, all Permits required under applicable
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Environmental Laws for the operation of the business of the Company as currently conducted.
(b)The Company has not disposed of, released, or discharged any Hazardous Substances on, at, under, in, or from the Leased Real Estate or, to the Knowledge of the Company, at any other location, in either event that is: (i) currently subject to any investigation, remediation, or monitoring; or (ii) to the Knowledge of the Company, reasonably likely to result in liability to the Company, in either case of (i) or (ii) under any applicable Environmental Laws.
(c)The Company has not: (i) produced, processed, manufactured, transported, treated, handled, used, or stored any Hazardous Substances, except in material compliance with Environmental Laws, at any Leased Real Estate; or (ii) exposed any employee or any third party to any Hazardous Substances under circumstances reasonably expected to give rise to any material Liability or obligation under any Environmental Law.
(d)The Company has not received written notice of and there is no Legal Action pending, or to the Knowledge of the Company, threatened against the Company, alleging any Liability or responsibility under or for non-compliance with any Environmental Law or seeking to impose any financial responsibility for any investigation, cleanup, removal, containment, or any other remediation or compliance under any Environmental Law. The Company is not subject to any Order, settlement agreement, or other written agreement by or with any Governmental Entity or third party imposing any material Liability or obligation with respect to any of the foregoing.
(e)The Company has not expressly assumed or retained any Liabilities under any applicable Environmental Laws of any other Person, including in any acquisition or divestiture of any property or business.
Section 3.15Material Contracts.
(a)Material Contracts. For purposes of this Agreement, “Company Material Contract” shall mean the following to which the Company is a party or any of its assets are bound (excluding any Leases):
1.any employment or consulting Contract (in each case with respect to which the Company has continuing obligations as of the date hereof) with any current or former (A) officer of the Company, (B) director of the Company, or (C) Company Employee;
2.any Contract providing for indemnification or any guaranty by the Company, other than any Contract providing for indemnification of customers or other Persons pursuant to Contracts entered into in the ordinary course of business;
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3.any Contract that purports to limit the right of the Company (A) to engage in any line of business, (B) compete with any Person or solicit any client or customer, or (C) operate in any geographical location;
4.any Contract relating to the disposition or acquisition, directly or indirectly (by merger, sale of stock, sale of assets, or otherwise), by the Company after the date of this Agreement of assets or capital stock or other equity interests of the Company, outside the ordinary course of business;
5.any Contract that grants any right of first refusal, right of first offer, or similar right with respect to any assets, rights, or properties of the Company;
6.any Contract that contains any provision that requires the purchase of all or a portion of the Company’s requirements for a given product or service from a given third party;
7.any Contract that obligates the Company to conduct business on an exclusive or preferential basis or that contains a “most favored nation” or similar covenant with any third party or upon consummation of the Merger shall obligate AQSP or any of its Subsidiaries to conduct business on an exclusive or preferential basis or that contains a “most favored nation” or similar covenant with any third party;
8.any partnership, joint venture, limited liability company agreement, or similar Contract relating to the formation, creation, operation, management, or control of any joint venture, partnership, or limited liability company;
9.any mortgages, indentures, guarantees, loans, or credit agreements, security agreements, or other Contracts, in each case relating to indebtedness for borrowed money, whether as borrower or lender, other than accounts receivables and payables;
10.any employee collective bargaining agreement or other Contract with any labor union;
11.any Company IP Agreement, other than licenses for shrink-wrap, click-wrap, or other similar commercially available off-the-shelf software that has not been modified or customized by a third party for the Company;
12.any other Contract under which the Company is obligated to make payment or incur costs in excess of $50,000 in any year and which is not otherwise described in clauses (i)–(xii).
(b)Schedule of Material Contracts; Documents. Section 3.15(b) of the Company Disclosure Letter sets forth a true and complete list as of the date hereof of all
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Company Material Contracts. The Company has made available to AQSP correct and complete copies of all Company Material Contracts, including any amendments thereto.
(c)No Breach. (i) All the Company Material Contracts are legal, valid, and binding on the Company, enforceable against it in accordance with its terms, and is in full force and effect in all material respects; and (ii) neither the Company nor, to the Knowledge of the Company, any third party is in material breach or default, or has received written notice of a material breach or default, of any Company Material Contract.
Section 3.16Insurance. Section 3.16 of the Company Disclosure Letter sets forth a true and complete list as of the date hereof of all material insurance policies of the Company. Each such insurance policy is in full force and effect and such insurance policies provide insurance in such amounts and against such risks as the Company reasonably has determined to be prudent, taking into account the industries in which the Company operates, and as is sufficient to comply with applicable Law. The Company is not in material breach or default, and the Company has not taken any action or failed to take any action which, with notice or the lapse of time, would constitute such a material breach or default, or trigger termination or material modification of, any of such insurance policies. To the Knowledge of the Company: (i) no insurer of any such policy has been declared insolvent or placed in receivership, conservatorship, or liquidation; and (ii) no notice of cancellation or termination, other than pursuant to the expiration of a term in accordance with the terms thereof, has been received with respect to any such policy.
Section 3.17Information Supplied. None of the information regarding the Company that is supplied or to be supplied by the Company in writing, specifically for inclusion or incorporation by reference in the Schedule 14C information statement to be filed with the SEC and sent to the AQSP stockholders in connection with the AQSP Stockholder Approval Matters (including any amendments or supplements thereto, the “Information Statement”) shall contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information that was not supplied by the Company in writing specifically for the Information Statement.
Section 3.18Outside CBD Business. Except as disclosed in Schedule 3.18, as of the date hereof and as of the Closing, the Company Owner does not have any interest in any brand, product, Person or business engaged in the manufacturing, sale, distribution or transport of CBD-infused products other than through the Company (with any interests such businesses being referred to herein as an “Outside CBD Business Interests”). For the avoidance of doubt, Outside CBD Business Interests shall not include the Company Owner owning, solely as an investment, securities of any Person traded over the counter or on any national securities exchange if the Company Owner is not a controlling Person of, or a member of a group which controls, such Person and does not, directly or indirectly, own 3% or more of any class of securities of such Person.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AQSP AND MERGER SUB
Except: (a) as disclosed in the AQSP SEC Documents and that is reasonably apparent on the face of such disclosure to be applicable to the representation and warranty set forth herein (other than any disclosures contained or referenced therein under the captions “Risk Factors,” “Forward-Looking Statements,” “Quantitative and Qualitative Disclosures About Market Risk,” and any other disclosures contained or referenced therein of information, factors, or risks that are predictive, cautionary, or forward-looking in nature); or (b) as set forth in the correspondingly numbered Section of the AQSP Disclosure Letter that relates to such Section or in another Section of the AQSP Disclosure Letter to the extent that it is reasonably apparent on the face of such disclosure that such disclosure is applicable to such Section; AQSP hereby represents and warrants to the Company and each Company Owner as follows:
Section 4.1Organization; Standing and Power; Charter Documents; Subsidiaries.
(a)Organization; Standing and Power. Each of AQSP and its Subsidiaries is a corporation, limited liability company, or other legal entity duly organized, validly existing, and in good standing (to the extent that the concept of “good standing” is applicable in the case of any jurisdiction outside the United States) under the Laws of its jurisdiction of organization, and has the requisite corporate, limited liability company, or other organizational, as applicable, power and authority to own, lease, and operate its assets and to carry on its business as now conducted. Each of AQSP and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation, limited liability company, or other legal entity and is in good standing (to the extent that the concept of “good standing” is applicable in the case of any jurisdiction outside the United States) in each jurisdiction where the character of the assets and properties owned, leased, or operated by it or the nature of its business makes such qualification or license necessary.
(b)Charter Documents. The articles of incorporation and by-laws of AQSP as most recently filed with the AQSP SEC Documents are true, correct, and complete copies of such documents as in effect as of the date of this Agreement. AQSP has delivered or made available to the Company a true and complete copy of Merger Sub’s Charter Documents. Neither AQSP nor Merger Sub is in violation of any of the provisions of its Charter Documents.
(c)Subsidiaries. All of the outstanding shares of capital stock of, or other equity or voting interests in, each Subsidiary of AQSP, including Merger Sub, have been validly issued and are owned by AQSP, directly or indirectly, free of pre-emptive rights, are fully paid and non-assessable, and are free and clear of all Liens, including any restriction on the right to vote, sell, or otherwise dispose of such capital stock or other equity or voting interests, except for any Liens: (i) imposed by applicable securities Laws; or (ii) arising pursuant to the Charter Documents of any non-wholly-owned Subsidiary of AQSP. Except for the capital stock of, or other equity or voting interests in, its Subsidiaries, AQSP does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.
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Section 4.2Capital Structure.
(a)Capital Stock. Section 4.2 of the AQSP Disclosure Letter completely and accurately sets forth the capital structure of AQSP as of the date of this Agreement (including but not limited to, as of the date hereof: (i) the number of shares of AQSP Common Stock authorized, issued and outstanding; and (ii) the number of shares of AQSP Preferred Stock authorized, issued and outstanding, (iii) the number of shares of AQSP Common Stock reserved for issuance pursuant to outstanding AQSP Equity Awards).
1.Section 4.2(a) of the AQSP Disclosure Letter sets forth a complete and accurate list, as of the close of business on January 7, 2020, of all outstanding Equity Awards of AQSP, indicating with respect to each such Equity Award the name of the holder thereof, the number of shares and class of stock subject to such Equity Award, the exercise price (if applicable) and the date of grant. Other than as set forth on Section 4.2 of the AQSP Disclosure Letter, as of the date hereof, there are no outstanding (A) securities of AQSP or any of its Subsidiaries convertible into or exchangeable for AQSP Voting Debt or shares of capital stock of AQSP, (B) options, warrants, or other agreements or commitments to acquire from AQSP or any of its Subsidiaries, or obligations of AQSP or any of its Subsidiaries to issue, any AQSP Voting Debt or shares of capital stock of (or securities convertible into or exchangeable for shares of capital stock of) AQSP, or (C) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit participation rights, contingent value rights, “phantom” stock, or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital stock of AQSP, in each case that have been issued by AQSP or its Subsidiaries (the items in clauses (A), (B), and (C), together with the capital stock of AQSP, being referred to collectively as “AQSP Securities”). All outstanding shares of AQSP Common Stock, all outstanding AQSP Equity Awards, and all outstanding shares of capital stock, voting securities, or other ownership interests in any Subsidiary of AQSP, have been issued or granted, as applicable, in compliance in all material respects with all applicable securities Laws and, with respect to Equity Awards, in accordance with the terms of the applicable equity plans and award agreements.
2.Other than as set forth on Section 4.2 of the AQSP Disclosure Letter, as of the date hereof, there are no outstanding Contracts requiring AQSP or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any AQSP Securities or AQSP Subsidiary Securities. Neither AQSP nor any of its Subsidiaries is a party to any voting agreement with respect to any AQSP Securities or AQSP Subsidiary Securities.
(b)Voting Debt. No bonds, debentures, notes, or other indebtedness issued by AQSP or any of its Subsidiaries: (i) having the right to vote on any matters on which stockholders or equityholders of AQSP or any of its Subsidiaries may vote (or which is convertible into, or exchangeable for, securities having such right); or (ii) the value of
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which is directly based upon or derived from the capital stock, voting securities, or other ownership interests of AQSP or any of its Subsidiaries, are issued or outstanding (collectively, “AQSP Voting Debt”).
(c)AQSP Subsidiary Securities. As of the date hereof, there are no outstanding: (i) securities of AQSP or any of its Subsidiaries convertible into or exchangeable for AQSP Voting Debt, capital stock, voting securities, or other ownership interests in any Subsidiary of AQSP; (ii) options, warrants, or other agreements or commitments to acquire from AQSP or any of its Subsidiaries, or obligations of AQSP or any of its Subsidiaries to issue, any AQSP Voting Debt, capital stock, voting securities, or other ownership interests in (or securities convertible into or exchangeable for capital stock, voting securities, or other ownership interests in) any Subsidiary of AQSP; or (iii) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit participation rights, contingent value rights, “phantom” stock, or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock or voting securities of, or other ownership interests in, any Subsidiary of AQSP, in each case that have been issued by a Subsidiary of AQSP (the items in clauses (i), (ii), and (iii), together with the capital stock, voting securities, or other ownership interests of such Subsidiaries, being referred to collectively as “AQSP Subsidiary Securities”).
Section 4.3Authority; Non-Contravention; Governmental Consents; Board Approval.
(a)Authority. Each of AQSP and Merger Sub has all requisite corporate power and authority to enter into and to perform its obligations under this Agreement and, subject to, in the case of the consummation of the Merger, the Requisite AQSP Vote, to consummate the transactions contemplated by this Agreement. Except for the Requisite AQSP Vote, no other corporate proceedings on the part of AQSP or Merger Sub is necessary to authorize the execution and delivery of this Agreement or to consummate the Merger, the AQSP Stock Issuance, and the other transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by AQSP and Merger Sub and, assuming due execution and delivery by the Company, constitutes the legal, valid, and binding obligation of AQSP and Merger Sub, enforceable against AQSP and Merger Sub in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, and other similar Laws affecting creditors’ rights generally and by general principles of equity.
(b)Non-Contravention. The execution, delivery, and performance of this Agreement by AQSP and Merger Sub and the consummation by AQSP and Merger Sub of the transactions contemplated by this Agreement, do not and shall not: (i) contravene or conflict with, or result in any violation or breach of, AQSP’s Charter Documents or Merger Sub’s Charter Documents; (ii) assuming that all of the Consents contemplated by Section 4.3(c) have been obtained or made, and in the case of the consummation of the Merger, obtaining the Requisite AQSP Vote, conflict with or violate any Law applicable to either of AQSP or Merger Sub or any of their properties or assets; (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in AQSP’s or any of its Subsidiaries’ loss of any
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benefit or the imposition of any additional payment or other liability under, or alter the rights or obligations of any third party under, or give to any third party any rights of termination, amendment, acceleration, or cancellation, or require any Consent under, any Contract to which AQSP or any of its Subsidiaries is a party or otherwise bound; or (iv) result in the creation of a Lien (other than Permitted Liens) on any of the properties or assets of AQSP or any of its Subsidiaries.
(c)Governmental Consents. Other than as set forth in Section 4.3 of the AQSP Disclosure letter, no Consent of any Governmental Entity is required to be obtained or made by AQSP or Merger Sub in connection with the execution, delivery, and performance by AQSP or Merger Sub of this Agreement or the consummation by AQSP or Merger Sub of the Merger, the AQSP Stock Issuance, and the other transactions contemplated hereby, except for: (i) the filing of the IL Articles of Merger with the Secretary of State of the State of Illinois and the WI Articles of Merger with the Secretary of State of the State of Wisconsin; (ii) such Consents as may be required under applicable state securities or “blue sky” Laws and the securities Laws of any foreign country or the rules and regulations of the OTC; (iii) the filings with the SEC of such reports under the Exchange Act as may be required in connection with this Agreement, the Merger, the AQSP Stock Issuance, and the other transactions contemplated by this Agreement; and (iv) the Other Governmental Approvals.
(d)Board Approval.
1.The AQSP Board by resolutions duly adopted by a majority vote at a meeting of the directors of AQSP duly called and held and, not subsequently rescinded or modified in any way, has (A) determined that this Agreement and the transactions contemplated hereby, including the Merger, and the AQSP Stock Issuance, upon the terms and subject to the conditions set forth herein, are fair to, and in the best interests of, AQSP and the AQSP’s stockholders, (B) approved and declared advisable this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Merger and the AQSP Stock Issuance, upon the terms and subject to the conditions set forth herein, (C) directed that the AQSP Stockholder Approval Matters be submitted to a vote of, or written consent by, AQSP’s stockholders, and (D) resolved to recommend that AQSP’s stockholders vote in favor of approval of the AQSP Stockholder Approval Matters.
2.By resolutions duly adopted by AQSP in its capacity as the sole shareholder of Merger Sub and not subsequently rescinded or modified in any way, has (A) determined that this Agreement and the transactions contemplated hereby, including the Merger, upon the terms and subject to the conditions set forth herein, are fair to, and in the best interests of, Merger Sub and AQSP, as the sole shareholder of Merger Sub, and (B) approved and declared advisable this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Merger, upon the terms and subject to the conditions set forth herein, and
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(C)resolved to recommend that AQSP as the sole shareholder of Merger Sub, approve the adoption of this Agreement in accordance with the IL BCA.
(e)Voting Requirements. The affirmative vote of the holders of a majority of all outstanding shares of AQSP Common Stock entitled to vote thereon is necessary to adopt this Agreement and approve the AQSP Stockholder Approval Matters (the “Requisite AQSP Vote”). The Requisite AQSP Vote is the only vote of holders of any securities of AQSP or its Subsidiaries necessary to approve and consummate the Merger and the AQSP Stock Issuance, and the transactions contemplated by this Agreement.
Section 4.4SEC Filings; Financial Statements; Undisclosed Liabilities.
(a)SEC Filings. AQSP has filed with or furnished to, as applicable, the SEC all registration statements, prospectuses, reports, schedules, forms, statements, and other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it with the SEC since January 1, 2016 (the “AQSP SEC Documents”). True, correct, and complete copies of all the AQSP SEC Documents are publicly available in the Electronic Data Gathering, Analysis, and Retrieval database of the SEC. As of their respective filing dates or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), each of the AQSP SEC Documents conform in all material respects with the applicable requirements of the Securities Act, and the Exchange Act, and the rules and regulations of the SEC thereunder applicable to such AQSP SEC Documents. None of the AQSP SEC Documents, including any financial statements, schedules, or exhibits included or incorporated by reference therein at the time they were filed (or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that AQSP makes no representation as to the accuracy and completeness of its risk factors and other disclosures regarding the manufacture, sale, distribution or transport of CBD infused products. Except as disclosed in writing by AQSP, there are no outstanding or unresolved comments received from the SEC with respect to any of the AQSP SEC Documents, and to the Knowledge of AQSP, none of the AQSP SEC Documents is the subject of ongoing SEC review or outstanding SEC investigation. None of AQSP’s Subsidiaries is required to file or furnish any forms, reports, or other documents with the SEC.
(b)Financial Statements. Each of the consolidated financial statements (including, in each case, any notes and schedules thereto) contained in or incorporated by reference into the AQSP SEC Documents: (i) complied in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC for
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Quarterly Reports on Form 10-Q); and (iii) fairly presented in all material respects the consolidated financial position and the results of operations, changes in stockholders’ equity, and cash flows of AQSP and its consolidated Subsidiaries as of the respective dates of and for the periods referred to in such financial statements, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by GAAP and the applicable rules and regulations of the SEC (but only if the effect of such adjustments would not, individually or in the aggregate, be material).
(c)Undisclosed Liabilities. The audited balance sheet of AQSP dated as of December 31, 2018 contained in the AQSP SEC Documents filed prior to the date hereof is hereinafter referred to as the “AQSP Balance Sheet.” Other than as set forth in Section 4.4 of the AQSP Disclosure Letter, neither AQSP nor any of its Subsidiaries has any Liabilities other than Liabilities that: (i) are reflected or reserved against in the AQSP Balance Sheet (including in the notes thereto); (ii) were incurred since the date of the AQSP Balance Sheet in the ordinary course of business consistent with past practice; or (iii) are incurred in connection with the transactions contemplated by this Agreement.
Section 4.5Absence of Certain Changes or Events. Since the date of the AQSP Balance Sheet, except in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, there has not been or occurred any AQSP Material Adverse Effect or any event, condition, change, or effect that could reasonably be expected to have, individually or in the aggregate, an AQSP Material Adverse Effect.
Section 4.6Compliance; Permits.
(a)AQSP and each of its Subsidiaries are and, since November 10, 2018, have been in compliance with, all Laws or Orders applicable to AQSP or any of its Subsidiaries or by which AQSP or any of its Subsidiaries or any of their respective businesses or properties is bound. Since November 10, 2018, no Governmental Entity has issued any notice or notification stating that AQSP or any of its Subsidiaries is not in compliance with any Law.
(b)Permits. AQSP and its Subsidiaries hold all Permits necessary to operate their respective businesses as such businesses are being operated as of the date hereof. AQSP and its Subsidiaries are in material compliance with all Permits, and no suspension, cancellation, non-renewal, or adverse modifications of any Permits of AQSP or any of its Subsidiaries is pending or, to the Knowledge of AQSP, threatened.
Section 4.7Litigation. Except as set forth in Section 4.7 of the AQSP Disclosure Letter, there is no Legal Action pending, or to the Knowledge of AQSP, threatened against AQSP or any of its Subsidiaries or any of their respective properties or assets or, to the Knowledge of AQSP, any officer or director of AQSP or any of its Subsidiaries in their capacities as such other than any such Legal Action that: (a) does not involve an amount that would reasonably be expected to have, individually or in the aggregate, an AQSP Material Adverse Effect; and (b) does not seek material injunctive or other material non-monetary relief. None of AQSP or any of its Subsidiaries or any of their respective properties or assets is subject to any Order of a Governmental Entity or arbitrator, whether temporary, preliminary, or
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permanent, which would reasonably be expected to have, individually or in the aggregate, an AQSP Material Adverse Effect. Except as set forth on Section 4.7 of the AQSP Disclosure Letter, to the Knowledge of AQSP, there are no SEC inquiries or investigations, other governmental inquiries or investigations, or internal investigations pending or threatened, in each case regarding any accounting practices of AQSP or any of its Subsidiaries or any malfeasance by any officer or director of AQSP.
Section 4.8Brokers. Except as set forth on Section 4.8 of the AQSP Disclosure Letter, neither AQSP nor any of its Affiliates has incurred, nor shall it incur, directly or indirectly, any liability for investment banker, brokerage, or finders’ fees or agents’ commissions, or any similar charges in connection with this Agreement or any transaction contemplated hereby.
Section 4.9Tax Matters.
(a)Each of AQSP and its Subsidiaries has filed all federal income Tax Returns and all other material Tax Returns that it was required to file. All such Tax Returns were true, correct, and complete in all material respects. All material Taxes due and owing by AQSP or any of its Subsidiaries (whether or not shown on any Tax Return) have been paid. Neither AQSP nor any of its Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return. No written claim has been made within the past 3 years by an authority in a jurisdiction where AQSP or any of its Subsidiaries does not file Tax Returns that AQSP or any of its Subsidiaries is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of AQSP or any of its Subsidiaries. Each of AQSP and its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed.
(b)There is no material dispute or claim concerning any Tax liability of AQSP or any of its Subsidiaries either (A) claimed or raised by any authority in writing or (B) as to which AQSP or its Subsidiaries has Knowledge based upon personal contact with any agent of such authority.
(c)None of AQSP’s or its Subsidiaries Tax Returns have been audited or are currently the subject of audit. Neither AQSP nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.
(d)Neither AQSP nor any of its Subsidiaries is or has been a party to any ‘‘listed transaction,’’ as defined in Code §6707A(c)(2) and Reg. §1.6011-4(b)(2).
Section 4.10Information Supplied. None of the information supplied or to be supplied by or on behalf of AQSP for inclusion or incorporation by reference in the Information Statement shall contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Information Statement shall comply as to form in all
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material respects with the requirements of the Exchange Act. Notwithstanding the foregoing, no representation or warranty is made by AQSP with respect to statements made or incorporated by reference therein based on information supplied by the Company.
Section 4.11Ownership of Company Common Stock. Neither AQSP nor any of its Affiliates owns any shares of Company Common Stock.
Section 4.12Intended Tax Treatment. Neither AQSP nor any of its Subsidiaries has taken or agreed to take any action, and to the Knowledge of AQSP there exists no fact or circumstance, that is reasonably likely to prevent or impede the Merger, taken together, from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
Section 4.13Financial Capability. AQSP has or will have prior to the Effective Time, sufficient funds to pay the aggregate Cash Consideration contemplated by this Agreement and to perform the other obligations of AQSP contemplated by this Agreement.
Section 4.14Merger Sub. Merger Sub (a) has engaged in no business activities other than those related to the transactions contemplated by this Agreement; and (b) is a direct, wholly-owned Subsidiary of AQSP.
ARTICLE V
COVENANTS
Section 5.1Conduct of Business of the Company. Except as set forth in Section 5.1 of the Company Disclosure Letter, during the period from the date of this Agreement until the Effective Time or termination of this Agreement, the Company shall, except as expressly contemplated by this Agreement, as required by applicable Law, or with the consent of AQSP (which consent shall not be unreasonably withheld, conditioned, or delayed), conduct its business in the ordinary course of business consistent with past practice. To the extent consistent therewith, the Company shall use its reasonable best efforts to preserve substantially intact its business organization, to keep available the services of its current officers and employees, to preserve its present relationships with customers, suppliers, distributors, licensors, licensees, and other Persons having business relationships with it. Without limiting the generality of the foregoing, except as otherwise contemplated by this Agreement, or as set forth in Section 5.1 of the Company Disclosure Letter, or as required by Law, between the date of this Agreement and the Effective Time, the Company shall not, without the consent of AQSP (which consent shall not be unreasonably withheld, conditioned, or delayed):
(a)amend its Charter Documents;
(b)(i) split, combine, or reclassify any shares of Company Common Stock, (ii) repurchase, redeem, or otherwise acquire, or offer to repurchase, redeem, or otherwise acquire, any shares of Company Common Stock, or (iii) declare, set aside, or pay any dividend or distribution (whether in cash, stock, property, or otherwise) in respect of, or enter into any Contract with respect to the voting of, any shares of its capital stock, other than the Estimated Tax Distributions (for avoidance of doubt, the Company shall be
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permitted to make the Estimated Tax Distributions to the Company Owner prior to the Merger in accordance with Section 5.11);
(c)issue, sell, pledge, dispose of, or encumber any shares of Company Common Stock or in any other manner alter the ownership of the shares of Company Common Stock set forth in Section 3.2(a) of the Company Disclosure Letter;
(d)except as required by applicable Law or by any Company Employee Plan or Contract in effect as of the date of this Agreement (i) increase the compensation payable or that could become payable by the Company to managers, directors, officers, or employees, other than increases in compensation made to non-officer employees in the ordinary course of business consistent with past practice, (ii) promote any officers or employees, except in connection with the Company’s annual or quarterly compensation review cycle or as the result of the termination or resignation of any officer or employee, or (iii) establish, adopt, enter into, amend, terminate, exercise any discretion under, or take any action to accelerate rights under any Company Employee Plans;
(e)acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or Person or division thereof or make any loans, advances, or capital contributions to or investments in any Person outside the ordinary course of business;
(f)(i) transfer, license, sell, lease, or otherwise dispose of (whether by way of merger, consolidation, sale of stock or assets, or otherwise) or pledge, encumber, or otherwise subject to any Lien (other than a Permitted Lien), any assets, other than in the ordinary course of business; provided, however, that the foregoing shall not prohibit the Company from transferring, selling, leasing, or disposing of obsolete equipment or assets being replaced, or granting of non-exclusive licenses under the Company IP, in each case in the ordinary course of business consistent with past practice, or (ii) adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;
(g)repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, issue or sell any debt securities or options, warrants, calls, or other rights to acquire any debt securities of the Company, guarantee any debt securities of another Person, enter into any “keep well” or other Contract to maintain any financial statement condition of any other Person or enter into any arrangement having the economic effect of any of the foregoing, other than in the ordinary course of business consistent with past practice;
(h)enter into or amend or modify in any material respect, or consent to the termination of (other than at its stated expiry date), any Company Material Contract or any Lease with respect to material Leased Real Estate, other than in the ordinary course of business;
(i)institute, settle, or compromise any Legal Action involving the payment of monetary damages by the Company of any amount exceeding $25,000 in the aggregate,
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other than (i) the settlement of the current litigation involving Mile High (ii) any Legal Action brought against AQSP arising out of a breach or alleged breach of this Agreement by AQSP, and (iii) the settlement of claims, liabilities, or obligations reserved against on the Interim Balance Sheet; provided, however, that the Company shall not settle or agree to settle any Legal Action which settlement involves a conduct remedy or injunctive or similar relief or has a restrictive impact on the Company’s business;
(j)make any material change in any method of financial accounting principles or practices, in each case except for any such change required by a change in GAAP or applicable Law;
(k)(i) settle or compromise any material Tax claim, audit, or assessment for an amount materially in excess of the amount reserved or accrued on the Interim Balance Sheet, (ii) make or change any material Tax election, change any annual Tax accounting period, or adopt or change any method of Tax accounting, (iii) amend any material Tax Returns or file claims for material Tax refunds, or (iv) enter into any material closing agreement, surrender in writing any right to claim a material Tax refund, offset or other reduction in Tax liability or consent to any extension or waiver of the limitation period applicable to any material Tax claim or assessment relating to the Company;
(l)enter into any agreement, agreement in principle, letter of intent, memorandum of understanding, or similar Contract with respect to any joint venture, strategic partnership, or alliance;
(m)take any action to exempt any Person from, or make any acquisition of securities of the Company by any Person not subject to, any state takeover statute or similar statute or regulation that applies to Company, except for AQSP or any of its Subsidiaries or Affiliates, or the transactions contemplated by this Agreement;
(n)abandon, allow to lapse, sell, assign, transfer, grant any security interest in or otherwise encumber or dispose of any material Company IP, or grant any right or license to any material Company IP other than pursuant to non-exclusive licenses entered into in the ordinary course of business consistent with past practice;
(o)terminate or modify in any material respect any insurance policy;
(p)enter into any discussions, negotiations, letters of intent, mergers, reorganizations, stock sales, asset sales (other than asset sales in the ordinary course of business), loan agreements, financing agreements or arrangements of any type, other capital raises, or other contracts or arrangements outside of the ordinary course of business that is intended or that would reasonably be expected to, individually or in the aggregate, prevent, materially delay, or materially impede the consummation of the Merger, or the other transactions contemplated by this Agreement; or
(q)agree or commit to do any of the foregoing.
Section 5.2Conduct of the Business of AQSP. During the period from the date of this Agreement until the Effective Time, AQSP shall not, nor shall it permit any of its Subsidiaries
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(including Merger Sub) to, without the prior written consent of the Company (which consent shall not be unreasonably withheld, conditioned, or delayed):
(a)amend its Charter Documents in a manner that would adversely affect the Company or the holders of shares of Company Common Stock relative to the other holders of AQSP Common Stock;
(b)(i) split, combine, or reclassify any AQSP Securities or AQSP Subsidiary Securities in a manner that would adversely affect the Company or the holders of the shares of Company Common Stock relative to the other holders of AQSP Common Stock, (ii) repurchase, redeem, or otherwise acquire, or offer to repurchase, redeem, or otherwise acquire, any AQSP Securities or AQSP Subsidiary Securities, or (iii) declare, set aside, or pay any dividend or distribution (whether in cash, stock, property, or otherwise) in respect of, or enter into any Contract with respect to the voting of, any shares of its capital stock (other than dividends from its direct or indirect wholly-owned Subsidiaries, dividends paid to holders of AQSP Preferred Stock, and ordinary quarterly dividends, consistent with past practice with respect to timing of declaration and payment);
(c)adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;
(d)take any action that is intended or that would reasonably be expected to, individually or in the aggregate, prevent, impede, or materially delay the consummation of the Merger, or the other transactions contemplated by this Agreement, provided that this clause shall not be deemed or construed to prevent AQSP from raising capital or making acquisitions approved by the Company Owner;
(e)issue any AQSP Securities other than as set forth on Section 5.2(e) of the AQSP Disclosure Letter or as may hereafter be approved by the Company Owner; or
(f)agree or commit to do any of the foregoing.
Section 5.3Access to Information. From the date of this Agreement until the earlier to occur of the Effective Time or the termination of this Agreement in accordance with the terms set forth in Article VIII, the Company shall afford to AQSP and AQSP’s Representatives reasonable access, at reasonable times and in a manner as shall not unreasonably interfere with the business or operations of the Company thereof, to the officers, employees, accountants, agents, properties, offices, and other facilities and to all books, records, contracts, and other assets of the Company. The Company shall not be required to provide access to or disclose information where such access or disclosure would jeopardize the protection of attorney-client privilege or contravene any Law (it being agreed that the parties shall use their reasonable best efforts to cause such information to be provided in a manner that would not result in such jeopardy or contravention). AQSP will treat and hold as such any confidential information it receives from the Company in the course of the reviews contemplated by this Section, will not use any of the confidential information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, will return to the Company all tangible
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embodiments (and all copies) of the confidential information which are in its possession. Notwithstanding the foregoing, prior to the Effective Date, without the prior written consent of the Company Owner none of AQSP, its Subsidiaries or their representatives shall contact any suppliers or licensors to or customers of, the Company, in connection with or pertaining to any subject matter of this Agreement. No investigation shall affect the Company’s representations, warranties, covenants, or agreements contained herein, or limit or otherwise affect the remedies available to AQSP pursuant to this Agreement.
Section 5.4AQSP Stockholders Consent. As soon as reasonably practicable following the date of this Agreement, AQSP shall prepare a written consent in accordance with applicable Law and AQSP’s Charter Documents covering all AQSP Stockholder Approval Matters (the “AQSP Stockholders Consent”). AQSP shall use its best efforts to obtain the signatures from AQSP stockholders representing the Requisite AQSP Vote necessary to cause such AQSP Stockholders Consent to be properly approved by the AQSP stockholders in accordance with applicable Law and AQSP’s Charter Documents. AQSP shall promptly notify the Company upon obtaining signatures representing the Requisite AQSP Vote. Each Jacobs Owner agrees to execute promptly the AQSP Stockholders Consent and thereby vote to approve the AQSP Stockholder Approval Matters.
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Section 5.5Preparation of Information Statement. As soon as reasonably practicable following approval of AQSP Stockholders Consent in accordance with applicable Law and AQSP’s Charter Documents, AQSP shall prepare and file with the SEC a preliminary Information Statement. AQSP shall use its reasonable best efforts to ensure that the Information Statement complies in all material respects with the applicable provisions of the Securities Act and Exchange Act. AQSP shall promptly provide the Company and its counsel with any comments or other communications, whether written or oral, that AQSP or its counsel may receive from the SEC or its staff with respect to the preliminary Information Statement promptly after the receipt of such comments and AQSP shall give reasonable and good faith consideration to any comments made by the Company or its counsel. AQSP shall use commercially reasonable efforts to respond to any such comments in an expeditious matter (and the Company and the Company Owner shall provide timely, reasonable cooperation to AQSP in respect of any such comments). As soon as practicable following the resolution of any such comments from the SEC, or in the event AQSP has not received any communications from the SEC regarding preliminary Information Statement within ten (10) Business Days of the filing thereof (or has been notified by the SEC that the SEC will not comment on the preliminary Information Statement), then AQSP shall promptly file a definitive Information Statement with the SEC and shall cause the Information Statement to be disseminated to AQSP’s stockholders in accordance with the Exchange Act as promptly as practicable thereafter (with the first day on which the definitive Information Statement is mailed to an AQSP stockholder being the “Mailing Date”). AQSP shall also take any other action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under the Securities Act, the Exchange Act, any applicable foreign or state securities or “blue sky” Laws, and the rules and regulations thereunder in connection with the issuance of AQSP Common Stock in the Merger, and the Company shall furnish to AQSP all information concerning the Company as may be reasonably requested in connection with any such actions.
Section 5.6Notices of Certain Events; Stockholder Litigation; No Effect on Disclosure Letter.
(a)The Company shall notify AQSP, and AQSP shall notify the Company, promptly of: (i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; and (iii) any event, change, or effect between the date of this Agreement and the Effective Time which causes or is reasonably likely to cause the failure of the conditions set forth in Section 6.2(a), Section 6.2(b), or Section 6.2(c) of this Agreement (in the case of the Company) or Section 6.3(a), Section 6.3(b), or Section 6.3(c) of this Agreement (in the case of AQSP), to be satisfied.
(b)The Company shall promptly advise AQSP in writing after becoming aware of any Legal Action commenced, or to the Company’s Knowledge threatened, after the date hereof against the Company or any of its managers or owners (on their own behalf or on behalf of the Company) relating to this Agreement or the transactions contemplated hereby (including the Merger) and shall keep AQSP reasonably informed regarding any such Legal Action. The Company shall give AQSP the opportunity to
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consult with the Company regarding the defense or settlement of any such litigation and shall consider AQSP’s views with respect to such litigation and shall not settle any such litigation without the prior written consent of AQSP (which consent shall not be unreasonably withheld, delayed, or conditioned). AQSP shall promptly advise the Company in writing after becoming aware of any Legal Action commenced, or to the AQSP’s Knowledge threatened, after the date hereof against AQSP or any of its managers or owners (on their own behalf or on behalf of the Company) relating to this Agreement or the transactions contemplated hereby (including the Merger) and shall keep the Company reasonably informed regarding any such Legal Action. AQSP shall give the Company the opportunity to consult with AQSP regarding the defense or settlement of any such litigation and shall consider the Company’s views with respect to such litigation and shall not settle any such litigation without the prior written consent of the Company (which consent shall not be unreasonably withheld, delayed, or conditioned).
(c)In no event shall: (i) the delivery of any notice by a party pursuant to this Section 5.6 limit or otherwise affect the respective rights, obligations, representations, warranties, covenants, or agreements of the parties or the conditions to the obligations of the parties under this Agreement; (ii) disclosure by the Company be deemed to amend or supplement the Company Disclosure Letter or constitute an exception to the Company’s representations or warranties; or (iii) disclosure by AQSP be deemed to amend or supplement the AQSP Disclosure Letter or constitute an exception to AQSP’s representations or warranties. This Section 5.6 shall not constitute a covenant or agreement for purposes of Section 6.2(b) or Section 6.3(b).
Section 5.7Employees; Benefit Plans.
(a)During the period commencing at the Effective Time and ending on the date which is twelve months from the Effective Time (or if earlier, the date of the employee’s termination of employment with AQSP and its Subsidiaries), and to the extent consistent with the terms of the governing plan documents, AQSP shall provide the employees of the Company who remain employed immediately after the Effective Time (collectively, the “Company Continuing Employees”) with annual base salary or wage level, annual target bonus opportunities (excluding equity-based compensation), and employee benefits (excluding any retiree health or defined benefit retirement benefits) that are, in the aggregate, no less favorable than the annual base salary or wage level, annual target bonus opportunities (excluding equity-based compensation), and employee benefits (excluding any retiree health or defined benefit retirement benefits) provided by the Company on the date of this Agreement, provided, that this Section shall be superseded, in regard to all Company Continuing Employees, by the terms and conditions of any employment agreement between any of the Company Continuing Employees and AQSP.
(b)With respect to any “employee benefit plan,” as defined in Section 3(3) of ERISA, maintained by AQSP or any of its Subsidiaries, excluding any retiree health plans or programs maintained by AQSP or any of its Subsidiaries, any defined benefit retirement plans or programs maintained by AQSP or any of its Subsidiaries (collectively, “AQSP Benefit Plans”) in which any Company Continuing Employees
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shall participate effective as of the Effective Time, and subject to the terms of the governing plan documents, AQSP shall credit all service of the Company Continuing Employees with the Company as if such service were with AQSP, for purposes of eligibility to participate (but not for purposes of benefit accrual, except for vacation )or paid time off) and severance, if applicable) for full or partial years of service in any AQSP Benefit Plan in which such Company Continuing Employees may be eligible to participate after the Effective Time; provided, however, that such service shall not be credited to the extent that: (i) such crediting would result in a duplication of benefits; or (ii) such service was not credited under the corresponding Company Employee Plan. If any Company Employee Plan that is a welfare benefit plan is terminated during a plan year and Company Continuing Employees are enrolled in a comparable AQSP Benefit Plan providing such welfare benefit (including medical, dental, life insurance, short-term and long-term disability plans), AQSP shall waive any waiting periods or limitations for preexisting conditions and shall ensure that each Company Continuing Employee is given credit under the AQSP Benefit Plan for any amounts paid toward deductibles, co-payments or out-of-pocket limits incurred under the Company Employee Plan during the same plan year.
(c)AQSP shall ensure that any Company Continuing Employee whose employment with AQSP or any of its Subsidiaries is involuntarily terminated (other than for cause) within twelve months on or after the Effective Time receives severance benefits the greater of: (i) as required under applicable Law (ii) no less favorable than those provided under the applicable Company Employee Plan covering such Company Employee immediately prior to the Effective Time or (iii) no less favorable in the aggregate than the severance benefits as described on Section 5.7(c) of the Company Disclosure Letter.
(d)This Section 5.7 shall be binding upon and inure solely to the benefit of each of the parties to this Agreement, and nothing in this Section 5.7, express or implied, shall confer upon any Company Employee, any beneficiary, or any other Person any rights or remedies of any nature whatsoever under or by reason of this Section 5.7. Nothing contained herein, express or implied: (i) shall be construed to establish, amend, or modify any benefit plan, program, agreement, or arrangement; (ii) shall alter or limit the ability of the AQSP or any of its Affiliates to amend, modify, or terminate any benefit plan, program, agreement, or arrangement at any time assumed, established, sponsored, or maintained by it; or (iii) shall prevent AQSP or any of its Affiliates from terminating the employment of any Company Continuing Employee following the Effective Time. The parties hereto acknowledge and agree that the terms set forth in this Section 5.7 shall not create any right in any Company Employee or any other Person to any continued employment with AQSP or any of its Subsidiaries or compensation or benefits of any nature or kind whatsoever, or otherwise alters any existing at-will employment relationship between any Company Employee and AQSP.
(e)With respect to matters described in this Section 5.7, the Company shall not send any written notices or other written communication materials to Company Employees without the prior written consent of AQSP and, prior to Closing, AQSP shall
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not send any written notice or other written communication materials to Company Employees without the prior written consent of the Company.
Section 5.8Directors’ and Officers’ Exculpation and Indemnification.
(a)Other than with respect to violations of this Agreement, AQSP agrees that all rights to indemnification, advancement of Expenses, and exculpation by the Company now existing in favor of each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time an officer or director of the Company (each an “Indemnifiable Company Party”) as provided in the Charter Documents of the Company, in each case as in effect on the date of this Agreement, or pursuant to any other Contracts in effect on the date hereof and disclosed in Section 5.8 of the Company Disclosure Letter, shall be assumed by AQSP and shall remain in full force and effect in accordance with their terms. For a period of six years from the Effective Time, AQSP shall maintain in effect the exculpation, indemnification, and advancement of Expenses equivalent to the provisions of the Charter Documents of the Company as in effect immediately prior to the Effective Time with respect to acts or omissions by any Indemnifiable Company Party occurring prior to the Effective Time, and shall not amend, repeal, or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any Indemnifiable Company Party, provided that all rights to indemnification in respect of any claim made for indemnification within such period shall continue until the disposition of such action or resolution of such claim.
(b)The obligations of AQSP under this Section 5.8 shall survive the consummation of the Merger and shall not be terminated or modified in such a manner as to adversely affect any Indemnifiable Company Party to whom this Section 5.8 applies without the consent of such affected Indemnifiable Company Party (it being expressly agreed that the Indemnified Parties to whom this Section 5.8 applies shall be third party beneficiaries of this Section 5.8, each of whom may enforce the provisions of this Section 5.8).
(c)In the event AQSP: (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger; or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in either such case, proper provision shall be made so that the successors and assigns of AQSP shall assume all of the obligations set forth in this Section 5.8. The agreements and covenants contained herein shall not be deemed to be exclusive of any other rights to which any Indemnifiable Company Party is entitled, whether pursuant to Law, Contract, or otherwise. Nothing in this Agreement is intended to, shall be construed to, or shall release, waive, or impair any rights to directors’ and officers’ insurance claims under any policy that is or has been in existence with respect to the Company or its officers, directors, and employees, it being understood and agreed that the indemnification provided for in this Section 5.8 is not prior to, or in substitution for, any such claims under any such policies.
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Section 5.9Commercially Reasonable Efforts.
(a)Upon the terms and subject to the conditions set forth in this Agreement (including those contained in this Section 5.9), each of the parties hereto shall, and shall cause its Subsidiaries to, use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper, or advisable to consummate and make effective, and to satisfy all conditions to, in the most commercially reasonable manner practicable, the transactions contemplated by this Agreement, including: (i) obtaining all necessary Permits, waivers, and actions or nonactions from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities) and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entities; (ii) obtaining all necessary consents or waivers from third parties; and (iii) execution and delivery of any additional instruments necessary to consummate the Merger and to fully carry out the purposes of this Agreement. The Company and AQSP shall, subject to applicable Law, promptly: (A) cooperate and coordinate with the other in taking the actions contemplated by clauses (i), (ii), and (iii) immediately above; and (B) supply the other with any information that may be reasonably required in order to effectuate the taking of such actions. Each party hereto shall promptly inform the other party or parties hereto, as the case may be, of any communication from any Governmental Entity regarding any of the transactions contemplated by this Agreement. If the Company, on the one hand, or AQSP, on the other hand, receives a request for additional information or documentary material from any Governmental Entity with respect to the transactions contemplated by this Agreement, then it shall use reasonable best efforts to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request, and, if permitted by applicable Law and by any applicable Governmental Entity, provide the other party’s counsel with advance notice and the opportunity to attend and participate in any meeting with any Governmental Entity in respect of any filing made thereto in connection with the transactions contemplated by this Agreement.
(b)In the event that any administrative or judicial action or proceeding is instituted (or threatened to be instituted) by a Governmental Entity or private party challenging the Merger or any other transaction contemplated by this Agreement, or any other agreement contemplated hereby, the Company and AQSP shall cooperate in all reasonable respects with the other and shall use its reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any Order, whether temporary, preliminary, or permanent, that is in effect and that prohibits, prevents, or restricts consummation of the transactions contemplated by this Agreement.
(c)Notwithstanding anything to the contrary set forth in this Agreement, none of AQSP or any of its Subsidiaries shall be required to, and the Company may not, without the prior written consent of AQSP, become subject to, consent to, or offer or agree to, or otherwise take any action with respect to, any requirement, condition, limitation, understanding, agreement, or order to: (i) sell, license, assign, transfer, divest,
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hold separate, or otherwise dispose of any assets, business, or portion of business of the Company, AQSP, or any of their respective Subsidiaries; (ii) conduct, restrict, operate, invest, or otherwise change the assets, business, or portion of business of the Company, AQSP, or any of their respective Subsidiaries in any manner; or (iii) impose any restriction, requirement, or limitation on the operation of the business or portion of the business of the Company, AQSP, or any of their respective Subsidiaries.
Section 5.10Public Announcements. The initial press release with respect to this Agreement and the transactions contemplated hereby shall be a release mutually agreed to by the Company and AQSP substantially in the form set forth on Section 5.10 of the AQSP Disclosure Letter. Thereafter, each of the Company and AQSP agrees that no public release or announcement concerning the transactions contemplated hereby shall be issued by any party without the prior written consent of the Company and AQSP (which consent shall not be unreasonably withheld, conditioned, or delayed), except as may be required by applicable Law or the rules or regulations of any applicable United States securities exchange or other Governmental Entity to which the relevant party is subject or submits, in which case the party required to make the release or announcement shall use its reasonable best efforts to allow the other party reasonable time to comment on such release or announcement in advance of such issuance. Notwithstanding the foregoing, the restrictions set forth in this Section 5.10 shall not apply to any release or announcement made or proposed to be made in connection with any disclosures made in compliance with Section 5.5.
Section 5.11Certain Tax Matters.
(a)None of the Company or AQSP shall take or fail to take any action which action (or failure to act) would reasonably be expected to prevent or impede the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
(b)The parties acknowledge that the Company has elected to be taxable as a corporation subject to subchapter S of title 1 of the Code (an “S corporation”), and in accordance therewith, the income of the Company has been allocated to the Company Owner for federal income tax purposes. As a result of the Merger and pursuant to Treasury Regulations Section 1.1362-3, the Company shall terminate for federal income tax purposes and shall have a short taxable year commencing on January 1, 2020, and ending on the day before the Closing Date. In recognition of the tax obligations of the Company Owner with respect to the income of the Company for such short taxable year, the Company shall be permitted to make the Estimated Tax Distributions to the Company Owner prior to the Closing Date.
(c)The parties shall cooperate fully, as and to the extent reasonably requested by another party, in connection with the filing of any Tax Returns and any audit, litigation or other proceeding with respect to Taxes.
Section 5.12Employment Agreement. In connection with the Closing, AQSP shall execute and deliver, and Nicholas S. Warrender shall execute and deliver, an employment agreement between AQSP and Nicholas S. Warrender, in the form of the Employment Agreement set forth on Exhibit A, attached hereto, using the “Title” and “Base Salary” set forth
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for Nicholas S. Warrender on Exhibit A-1, attached hereto (the “NW Employment Agreement”).
Section 5.13Stockholders Agreement. The Company Owner shall execute a Stockholders Agreement with Gerard Jacobs and William Jacobs in the form attached hereto as Exhibit B.
Section 5.14Closing Date Capital Structure. On the day prior to the Closing Date, AQSP shall deliver to the Company a true, accurate and complete update to Section 4.2(a) along with any revisions made since the date hereof to AQSP’s Charter Documents (the “Closing Capital Structure Schedule”).
Section 5.15Company Audit.
Concurrent with the execution hereof, AQSP shall reimburse the Company for all out-of-pocket costs expended by the Company with respect to the Company Audit and shall agree with Fruci & Associates to be primarily responsible for any future costs related to such Company Audit.
Section 5.16Escrow Agreement. At the Closing, the Company Owner, AQSP and the Escrow Agent shall have entered into an Escrow Agreement reasonably acceptable to AQSP and the Company Owner (the “Escrow Agreement”).
Section 5.17Recipes. At or promptly following the Effective Time, the Company Owner shall deliver to AQSP a file containing all product recipes used in the Company business (or proposed to be used in the Company business).
Section 5.18Purchase Option. The Company Owner hereby grants to AQSP an exclusive, perpetual, non-expiring option to purchase all or any portion of the Company Owner’s Outside CBD Business Interests for $1.00.
Section 5.19Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Entity shall be authorized to execute and deliver, in the name and on behalf of the Company, any deeds, bills of sale, assignments, or assurances and to take and do, in the name and on behalf of the Company, any other actions and things to vest, perfect, or confirm of record or otherwise in the Surviving Entity any and all right, title, and interest in, to and under any of the rights, properties, or assets of the Company acquired or to be acquired by the Surviving Entity as a result of, or in connection with, the Merger.
Section 5.20
Hemp Processing System. Through Company Owner and his Father, Robert Warrender II ("Warrender II"), AQSP has been made aware of a potential business opportunity to process CBD from hemp using a system that is currently undergoing proof of concept operational testing and that incorporates particular filtration and pump equipment and technology identified by Warrender II (the "System"). In consideration of Company Owner's and Warrender II's agreement to disclose to AQSP, on an exclusive basis, the completed design, the actual construction and operating costs, and the results of the proof of concept operational testing, of the System (the "System Confidential Information"), AQSP agrees and covenants:
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(a) to keep the System Confidential Information confidential, and to share the System Confidential Information with AQSP's directors, officers, investment bankers, lawyers, accountants and other professional advisors only on a need-to-know basis;
(b) to analyze the System Confidential Information in regard to the potential financing, construction and operation of one or more Systems; and
(c) to use good faith efforts to attempt to proceed forward, in a joint venture or other arrangement involving Warrender II, with a project(s) consisting of the financing, construction and operation of one or more Systems if but only if:
(1)such analysis is favorable and is approved by the AQSP Board in its discretion; and
(2)Warrender II and AQSP mutually agree upon the structure, terms and conditions of such project(s) including the respective ownership, control, obligations and compensation of Warrender II (or his designees) and AQSP in and from the financing, construction, operation, leasing and/or sale of such project(s), provided that any equity compensation to be received by Warrender II (or his designees) from the financing, construction, operation, leasing and/or sale of such project(s) shall be structured in the form of shares of AQSP Common Stock valued at the then-current trading price of AQSP Common Stock but in no event at higher than $5.00 per share of AQSP Common Stock.
AQSP shall have 90 days after disclosure of the System Confidential Information to obtain its Board’s approval to proceed as discussed in paragraph (c) above. In the absence of such approval, Warrender II shall be free to disclose the System Confidential Information for any purpose.
Section 5.21Deferred Contingent Stock. As an inducement to the Company Owner to enter into this Agreement and to close the Merger:
(a)Subject to the conditions and contingencies set forth in Sections 5.21(b) and 5.21(c) below, AQSP agrees and covenants to set aside an aggregate of 645,000 shares of unregistered AQSP Common Stock (the "Deferred Contingent Stock") as deferred contingent compensation to be issued and delivered to certain persons (the "Deferred Contingent Stock Recipients"), all as specified by the Company Owner in a schedule (the "Deferred Contingent Stock Schedule") delivered by the Company Owner to AQSP at the Closing.
(b)The issuance and delivery of Deferred Contingent Stock to each of the Deferred Contingent Stock Recipients shall be contingent upon such Deferred Contingent Stock Recipient meeting each of the following conditions and contingencies (the "Stock Conditions and Contingencies"):
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(1)such Deferred Contingent Stock Recipient must have served continuously as a director of Merger Sub or AQSP, or must have been continuously employed by Merger Sub or AQSP, or must have been continuously retained as a contractor, consultant or advisor by Merger Sub or AQSP, during the period from the Closing Date through the third anniversary of the Closing Date;
(2)if such Deferred Contingent Stock Recipient is listed on the Deferred Contingent Stock Schedule as being subject to a performance review by the Company Owner, then such Deferred Contingent Stock Recipient must not have had his or her performance as a director of Merger Sub or AQSP, or as an employee of Merger Sub or AQSP, or as a contractor, consultant or advisor of Merger Sub or AQSP, during the period from the Closing Date through the third anniversary of the Closing Date, determined by the Company Owner to be unacceptable in his sole discretion, as evidenced by a signed letter from the Company Owner delivered to the CEO of AQSP no later than the third anniversary of the Closing Date;
(3)such Deferred Contingent Stock Recipient must not have disclosed, orally or in writing, directly or indirectly, to any person or entity, excepting only in a required filing with the SEC, either that such Deferred Contingent Stock Recipient is a Deferred Contingent Stock Recipient, or the number of shares of Deferred Contingent Stock which such Deferred Contingent Stock Recipient hopes to be awarded hereunder; and
(4)such Deferred Contingent Stock Recipient must have signed and delivered to AQSP prior to the Closing Date an estoppel letter in form and substance satisfactory to AQSP in its discretion, evidencing that such Deferred Contingent Stock Recipient has no right, title or interest in the stock of the Company or in any of the Company's assets including any of the Company's cash, receivables, contracts, products, customers or intellectual property, and that such Deferred Contingent Stock Recipient is not owed anything whatsoever by the Company or the Company Owner other than wages owed by the Company for the period from the Company's last payroll date through the Closing Date (collectively the "Estoppel Letters").
(c)If for any reason whatsoever any of the foregoing Stock Conditions and Contingencies is not met by any Deferred Contingent Stock Recipient, then such Deferred Contingent Stock Recipient shall immediately forfeit such Deferred Contingent Stock Recipient's right to receive his or her share of the Deferred Contingent Stock as specified in the Deferred Contingent Stock Schedule, and such forfeited Deferred Contingent Stock shall promptly be issued and delivered to the Company Owner as additional Stock Consideration hereunder. However, if all of the foregoing Stock Conditions and Contingencies are met by any Deferred Contingent Stock Recipient, then AQSP shall issue and deliver to such Deferred Contingent Stock Recipient his or her share of the Deferred Contingent Stock as specified in the Deferred Contingent Stock
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Schedule, no later than thirty (30) days following the third anniversary of the Closing Date.
Section 5.22Warrants. As an inducement to the Company Owner to enter into this Agreement and to close the Merger:
(a)Subject to the terms and conditions set forth in Sections 5.22(b), 5.22(c) and 5.22(d) below, AQSP agrees and covenants to issue, on the Closing Date or within thirty (30) days following the Closing Date, warrants to purchase an aggregate of 1,820,000 shares of unregistered AQSP Common Stock at an exercise price of $5.00 per share (the "Warrants"), to certain persons (the "Warrant Recipients"); all as specified by the Company Owner in a schedule (the "Warrant Schedule") delivered by the Company Owner to AQSP at the Closing.
(b)The Warrants issued to each Warrant Recipient who following the Closing Date serves as a director or officer of AQSP shall be vested and may be exercised by such Warrant Recipient at any time during the five year period from the Closing Date through the fifth anniversary of the Closing Date, and such Warrants shall include a so-called "cashless exercise" feature.
(c)The vesting of the Warrants issued to each of the Warrant Recipients who following the Closing Date does not serve as a director or officer of AQSP shall be contingent upon such Warrant Recipient meeting each of the following conditions and contingencies (the "Warrant Conditions and Contingencies"):
(1)such Warrant Recipient must have been continuously employed by Merger Sub or AQSP, or such Warrant Recipient must have continuously served as a contractor, consultant, paid advisor, or informal unpaid advisor to Merger Sub, AQSP or Nicholas S. Warrender, during the period from the Closing Date through the third anniversary of the Closing Date;
(2)if such Warrant Recipient is listed on the Warrant Schedule as being subject to a performance review by the Company Owner, then such Warrant Recipient must not have had his or her performance as an employee of Merger Sub or AQSP, or as a contractor, consultant, paid advisor, or informal advisor to Merger Sub, AQSP or Nicholas S. Warrender, during the period from the Closing Date through the third anniversary of the Closing Date, determined by Nicholas S. Warrender to be unacceptable in his sole discretion, as evidenced by a signed letter from Nicholas S. Warrender delivered to the CEO of AQSP no later than the third anniversary of the Closing Date;
(3)such Warrant Recipient must not have disclosed, orally or in writing, directly or indirectly, to any person or entity, excepting only in a required filing with the SEC, either that such Warrant Recipient is a Warrant Recipient, or the number of shares of AQSP Common Stock which could be purchased upon the exercise of the Warrants granted to such Warrant Recipient; and
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(4)such Warrant Recipient must have signed and delivered to AQSP prior to the Closing Date an estoppel letter in form and substance satisfactory to AQSP in its discretion, evidencing that such Warrant Recipient has no right, title or interest in the stock of the Company or in any of the Company's assets including any of the Company's cash, receivables, contracts, products, customers or intellectual property, and that such Warrant Recipient is not owed anything whatsoever by the Company or the Company Owner other than wages owed by the Company for the period from the Company's last payroll date through the Closing Date (collectively the "Estoppel Letters").
(d)If for any reason whatsoever any of the foregoing Warrant Conditions and Contingencies is not met by any Warrant Recipient who following the Closing Date does not serve as a director or officer of AQSP, then the Warrants granted to such Warrant Recipient shall not vest and shall immediately terminate. However, if all of the foregoing Warrant Conditions and Contingencies are met by any Warrant Recipient who following the Closing Date does not serve as a director or officer of AQSP, then the Warrants granted to such Warrant Recipient shall vest and may be exercised by such Warrant Recipient at any time during the two year period from the third anniversary of the Closing Date through the fifth anniversary of the Closing Date, provided that if after the third anniversary of the Closing Date such Warrant Recipient's continuous employment by Merger Sub or AQSP terminates for any reason, or if after the third anniversary of the Closing Date such Warrant Recipient's continuous service as a contractor, consultant, paid advisor, or informal unpaid advisor to Merger Sub, AQSP or Nicholas S. Warrender terminates for any reason (collectively a "Termination"), then such Warrant Recipient's vested Warrants shall terminate if they are not exercised within thirty (30) days following such Termination.
Section 5.23Wisconsin Acquisitions. Through Company Owner, AQSP has been made aware of a potential business opportunity to acquire two companies located in Wisconsin: a company that among other things plans to manufacture and sell products incorporating a unique CBD delivery system ("Wisconsin Company #1") and a company that among other things plans to test and remediate hemp and hemp oils ("Wisconsin Company #2") (Wisconsin Company #1 and Wisconsin Company #2, collectively, the "Wisconsin Companies"). AQSP agrees and covenants to use good faith efforts to attempt to proceed forward to close (the "Wisconsin Closing") the acquisition (the "Wisconsin Acquisitions") of the Wisconsin Companies on the following terms and conditions, among others:
(a)a capital raise must be completed, on terms acceptable to AQSP and Nicholas S. Warrender, in an amount sufficient to fund the pre-Wisconsin Closing loan referred to in Section 5.23(b) and to fund the cash portion of the Wisconsin Acquisitions consideration paid at the Wisconsin Closing referred to in Section 5.23 (d) (i);
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(b)a pre-Wisconsin Closing loan may be made by AQSP to the Wisconsin Companies, on terms and conditions mutually acceptable to AQSP, Nicholas S. Warrender, and the owners of the Wisconsin Companies;
(c)the Wisconsin Closing shall be subject to the following terms and conditions, among others:
(1)AQSP's due diligence investigation of the Wisconsin Companies must be acceptable to AQSP and Nicholas S. Warrender;
(2)the audit of the Wisconsin Companies must be acceptable to AQSP and Nicholas S. Warrender;
(3)the definitive acquisition documentation must be mutually acceptable to AQSP, to Nicholas S. Warrender, and to the owners of the Wisconsin Companies;
(4)all necessary third party approvals must be obtained, including approvals by the Board of Directors of AQSP and by a majority of the shareholders of AQSP; and
(5)all necessary securities filings must be made.
(d)the merger consideration paid by AQSP in the Wisconsin Acquisitions shall be as follows (or as otherwise mutually agreed upon by AQSP, Nicholas S. Warrender, and the owners of the Wisconsin Companies):
(1)the cash portion of the Wisconsin Acquisitions merger consideration to be paid at the Wisconsin Closing shall be Two Million Dollars ($2,000,000) in cash;
(2)the stock portion of the Wisconsin Acquisitions merger consideration to be paid at the Wisconsin Closing shall be One Million (1,000,000) shares of AQSP Common Stock; and
(3)the portion of the Wisconsin Acquisitions merger consideration to be paid following the Wisconsin Closing shall be up to an additional Two Million Dollars ($2,000,000) in cash and up to an additional Three Million (3,000,000) shares of AQSP Common Stock, subject to an "earnout" contingency that the Wisconsin Companies shall have achieved, during an "earnout" period of 24-30 months following the Wisconsin Closing, an annualized EBITDA run rate of Four Million Dollars ($4,000,000) or more.
Section 5.24Escrow of Preferred Stock Dividends. Prior to the Closing Date, AQSP shall escrow with a third party escrow agent all of the 3% dividends that are estimated to be payable by AQSP during calendar year 2020 in regard to AQSP's outstanding shares of Series A
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and Series B convertible preferred stock, to ensure that such 3% dividends are timely paid on the respective anniversaries of the purchases of such shares of preferred stock (subject to appropriate adjustments in regard to any conversions of shares of preferred stock prior to such respective anniversaries).
Section 5.25Consultations. The Company Owner shall allow AQSP's lead outside director, Vincent J. Mesolella, to periodically consult with the Company's litigation counsel regarding strategies for potential settlements of the Company's disputes involving third parties.
ARTICLE VI
CONDITIONS
Section 6.1Conditions to Each Party’s Obligation to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger is subject to the satisfaction or waiver (where permissible pursuant to applicable Law) on or prior to the Closing Date of each of the following conditions:
(a)AQSP Stockholder Approval. The AQSP Stockholder Approval Matters shall have been approved by the Requisite AQSP Vote.
(b)Waiting Period. At least twenty (20) days shall have passed since the Mailing Date.
(c)No Injunctions, Restraints, or Illegality. No Governmental Entity having jurisdiction over any party hereto shall have enacted, issued, promulgated, enforced, or entered any Laws or Orders, whether temporary, preliminary, or permanent, that make illegal, enjoin, or otherwise prohibit consummation of the Merger, the AQSP Stock Issuance, or the other transactions contemplated by this Agreement.
(d)Governmental Consents. All consents, approvals and other authorizations of any Governmental Entity set forth in Section 6.1 of the Company Disclosure Letter and Section 6.1 of the AQSP Disclosure Letter and required to consummate the Merger, the AQSP Stock Issuance, and the other transactions contemplated by this Agreement (other than the filing of the IL Articles of Merger and the WI Articles of Merger) shall have been obtained, free of any condition that would reasonably be expected to have a Company Material Adverse Effect or AQSP Material Adverse Effect. All filings required under the Securities Act or the Exchange Act necessary to consummate the Merger shall have been made.
Section 6.2Conditions to Obligations of AQSP. The obligations of AQSP to effect the Merger are also subject to the satisfaction or waiver (where permissible pursuant to applicable Law) by AQSP on or prior to the Effective Time of the following conditions:
(a)Representations and Warranties. (i) The representations and warranties of the Company set forth in Article III of this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date, as if made on and as of
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such date (except those representations and warranties that address matters only as of a particular date, which shall be true and correct in all respects as of that date).
(b)Performance of Covenants. The Company and the Company Owner shall have performed in all material respects all obligations, and complied in all material respects with the agreements and covenants, in this Agreement required to be performed by or complied with by it at or prior to the Closing Date, including but not limited to, delivery of the following documents:
1.Nicholas S. Warrender executing and delivering to AQSP the NW Employment Agreement;
2.Nicholas S. Warrender executing and delivering the Stockholders Agreement;
3.The Company Owner executing and delivering the Escrow Agreement; and
4.The Company Owner executing and delivering to AQSP a registration rights agreement, substantially in the form of the Registration Rights Agreement set forth on Exhibit C, attached hereto.
(c)Company Material Adverse Effect. Since the date of this Agreement, there shall not have been any Company Material Adverse Effect or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(d)Officers Certificate. AQSP shall have received a certificate, signed by the chief executive officer or chief financial officer of the Company, certifying as to the matters set forth in Section 6.2(a), Section 6.2(b), and Section 6.2(c).
(e)AQSP shall have received the signed Estoppel Letters referred to in Sections 5.21(c) and 5.22(c).
Section 6.3Conditions to Obligation of the Company. The obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company on or prior to the Effective Time of the following conditions:
(a)Representations and Warranties. The representations and warranties of AQSP shall be true and correct in all material respects when made and on and as of the Closing Date, as if made on and as of such date (except those representations and warranties that address matters only as of a particular date, which shall be true and correct in all material respects as of that date).
(b)Performance of Covenants. AQSP and each Jacobs Owner shall have performed in all material respects all obligations, and complied in all material respects with the agreements and covenants, of this Agreement required to be performed by or
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complied with by it at or prior to the Closing Date including but not limited to, delivery of the following documents:
1.AQSP executing and delivering to Nicholas S. Warrender the NW Employment Agreement;
2.AQSP executing and delivering the Escrow Agreement;
3.AQSP and each Jacobs Owner executing and delivering the Stockholders Agreement; and
4.AQSP executing and delivering the Registration Rights Agreement.
(c)AQSP Material Adverse Effect. Since the date of this Agreement, there shall not have been any AQSP Material Adverse Effect or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have an AQSP Material Adverse Effect.
(d)Officers Certificate. The Company shall have received a certificate, signed by an officer of AQSP, certifying as to the matters set forth in Section 6.3(a), Section 6.3(b), and Section 6.3(c).
ARTICLE VII
INDEMNIFICATION
Section 7.1Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein (other than Fundamental Representations and Warranties) shall survive the Closing and shall remain in full force and effect until the date that is twelve (12) months from the Closing Date. Fundamental Representations and Warranties shall survive the Closing and shall remain in full force and effect indefinitely, other than the representations and warranties set forth in Section 3.6 which shall remain in full force and effect until 30 days following the expiration of the applicable statute of limitations. None of the covenants or other agreements contained in this Agreement shall survive the Closing Date other than those which by their terms contemplate performance after the Closing Date, and each such surviving covenant and agreement shall survive the Closing for the period contemplated by its terms or if no such term of survival is contemplated, shall survive indefinitely until performed. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of such survival period and such claims shall survive until finally resolved.
Section 7.2Indemnification by Company Owner. Subject to the other conditions set forth in this Article VII, the Company Owner shall indemnify AQSP against, and shall hold AQSP harmless from and against, any and all Expenses incurred or sustained by, or imposed upon, Buyer based upon, arising out of, with respect to or by reason of:
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(a)any inaccuracy in or breach of any of the representations or warranties of the Company or the Company Owner contained in this Agreement (other than a breach of Section 3.18); or
Section 7.3Indemnification by AQSP. Subject to the other conditions set forth in this Article VII, AQSP shall indemnify the Company Owner, and shall hold the Company Owner harmless from and against, any and all Expenses incurred or sustained by, or imposed upon, the Company Owner based upon, arising out of, with respect to or by reason of:
(a)any inaccuracy in or breach of any of the representations or warranties of AQSP contained in this Agreement; or
(b)any breach or non-fulfillment of any covenant, agreement or obligation to be performed by AQSP or any Jacobs Owner pursuant to this Agreement.
Section 7.4Certain Limitations. The party making a claim under this Article VII is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this Article VII is referred to as the “Indemnifying Party”. For the avoidance of doubt, the Company and the Company Owner shall be treated as a single Indemnified Party or Indemnifying Party, as applicable. The indemnification provided for in Section 7.2 and Section 7.3 shall be subject to the following limitations:
(a)The Indemnifying Party shall not be liable to the Indemnified Party for indemnification under Section 7.2(a) or Section 7.3(a), as the case may be, until the aggregate amount of all Expense in respect of indemnification thereunder exceeds $30,000 (the “Deductible”), in which event the Indemnifying Party shall be liable for all Expenses in excess of the Deductible.
(b)The aggregate amount of all Expenses for which an Indemnifying Party shall be liable pursuant to Section 7.2(a) or Section 7.3(a), as the case may be (other than for breaches of Fundamental Representations and Warranties), shall not exceed ten percent (10%) of the Cash Consideration and ten percent (10%) of the Stock Consideration (the “Indemnification Cap”); provided that in no event shall the aggregate amount of all Expenses for which an Indemnifying Party shall be liable hereunder exceed the total Cash Consideration.
(c)Payments by an Indemnifying Party pursuant to Section 7.2 or Section 7.3 in respect of any Expense shall be limited to the amount of any liability or damage that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment received or reasonably expected to be received by the Indemnified Party in respect of any such claim. The Indemnified Party shall use its commercially reasonable efforts to recover under insurance policies or indemnity, contribution or other similar agreements for any Expenses prior to seeking indemnification under this Agreement.
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(d)Payments by an Indemnifying Party pursuant to Section 7.2 or Section 7.3 in respect of any Expense shall be reduced by an amount equal to any Tax benefit realized or reasonably expected to be realized as a result of such Expense by the Indemnified Party.
(e)In no event shall any Indemnifying Party be liable to any Indemnified Party for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple.
(f)Each Indemnified Party shall take, and cause its Affiliates to take, all reasonable steps to mitigate any Expense upon becoming aware of any event or circumstance that would be reasonably expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the breach that gives rise to such Expense.
(g)Any indemnification payments from the Company Owner in the form of AQSP Common Stock (whether as Escrowed Shares or otherwise) shall be treated as having a value based on the Deemed Value of the Stock Consideration.
(h)Notwithstanding anything else contained herein, neither AQSP or the Jacobs Owners, on the one hand, or the Company or the Company Owner, on the other hand, shall be deemed to be in default of, or have any liability under this Agreement (or the transactions contemplated hereby), as a result of the manufacture, sale or distribution of CBD or CBD-Infused products by the Company or AQSP or in regard to any representations or warranties of any nature relating directly or indirectly to the legality or illegality of CBD or CBD-Infused products.
(i)AQSP acknowledges and agrees, that notwithstanding anything else contained herein, the option set forth in this Section 5.18 shall be AQSP’s sole and exclusive remedy with respect to a breach of any representation and warranty contained in Section 3.18.
(j)The foregoing indemnification provisions in this Section 7 are the sole and exclusive remedy AQSP (and its Affiliates) may have with respect to the representations, warranties and covenants of the Company and Company Owner set forth in this Agreement and the transactions contemplated by this Agreement.
Section 7.5Indemnification Procedures.
(a)Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any action, suit, claim or other legal proceeding made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement (a “Third-Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party prompt written notice thereof. The failure to give such prompt written notice shall not, however, relieve
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the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third-Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Expense that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of, any Third-Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense. In the event that the Indemnifying Party assumes the defense of any Third-Party Claim, subject to Section 7.5(b), the Indemnifying Party shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third-Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right, at its own cost and expense, to participate in the defense of any Third-Party Claim with counsel selected by the Indemnified Party, subject to the Indemnifying Party’s right to control the defense thereof. If the Indemnifying Party elects not to compromise or defend such Third-Party Claim or fails to notify promptly the Indemnified Party in writing of its election to defend as provided in this Agreement, the Indemnified Party may, subject to Section 7.5(b) pay, compromise and defend such Third-Party Claim and seek indemnification for any and all Expenses based upon, arising from or relating to such Third-Party Claim. AQSP and the Company Owner shall cooperate with each other in all reasonable respects in connection with the defense of any Third-Party Claim, including making available records relating to such Third-Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third-Party Claim.
(b)Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third-Party Claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed), except as provided in this Section 7.5(b). If a firm offer is made to settle a Third-Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third-Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten (10) days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third-Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third-Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third-Party Claim, the Indemnifying Party may settle the Third-Party Claim upon the terms set forth in such firm offer to settle such Third-Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 7.5(a), the Indemnified Party shall not agree to any
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settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).
(c)Direct Claims. Any claim by an Indemnified Party on account of an Expense which does not result from a Third-Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party prompt written notice thereof. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Expense that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim. During such 30-day period, the Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim, and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such 30-day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.
(d)Manner of Payment. Any amounts owing from a Company Owner pursuant to this Article VII shall be made as follows: (i) first, an amount of Escrowed Cash and Escrowed Shares, pro rata in the Cash/Share Ratio, with aggregate Deemed Value equal to the lesser of (A) the aggregate amount owing or (B) the aggregate Deemed Value of any remaining Escrowed Cash and Escrowed Shares and (ii) thereafter, directly by the Company Owner to AQSP (payable in cash and shares of AQSP Common Stock, pro rata in the Cash/Share Ratio).
(e)When is Payment Due. Any cash indemnification payment to be made pursuant to this Article VII shall be effected by wire transfer of immediately available funds to the applicable account designated by AQSP or the Company Owner, as applicable. Any indemnification payment satisfied by transfer of AQSP Common Stock shall be effected by delivery of an assignment separate from certificate assigning such AQSP Common Stock to AQSP (or its designee). All such indemnification obligations shall be made within five (5) Business Days after the indemnified Expenses have been determined by (i) a final, non-appealable order or judgment of a court of competent jurisdiction or (ii) a written, executed agreement between AQSP and the Company Owner.
(f)Release of Escrowed Shares and Escrowed Cash. On the twelve (12) month anniversary of the Closing Date (except if not a Business Day, then the next Business Day) (the “Release Date”), any portion of the Escrowed Cash remaining as of the Release Date shall be released to the Company Owner and in accordance with the
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instructions of the Company Owner, and all Escrowed Shares shall be delivered to the Company Owner; provided that the Escrow Agent shall continue to hold Escrowed Cash and Escrowed Shares, pro rata in the Cash/Share Ratio, with a Deemed Value equal to the lesser of (i) the Deemed Value of the aggregate remaining Escrowed Cash and Escrowed Shares and (ii) the sum of: (A) the aggregate amount claimed by an AQSP Indemnified Party pursuant to claims made in accordance with this Article VII and not fully resolved prior to such date, plus (B) the aggregate outstanding payments pending to an AQSP Indemnified Party pursuant to Section 7.5(c). At any time following the Release Date, to the extent the Deemed Value of the Escrowed Cash and Escrowed Shares exceeds the aggregate amount claimed by the AQSP Indemnified Parties pursuant to claims made prior to the Release Date and not fully resolved prior to the time of determination, such excess shall be promptly released to each Company Owner as set forth with the previous sentence, pro rata in the Cash/Share Ratio.
ARTICLE VIII
TERMINATION, AMENDMENT, AND WAIVER
Section 8.1Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Effective Time (whether before or after the receipt of the Requisite AQSP Vote) by the mutual written consent of AQSP and the Company.
Section 8.2Termination by Either AQSP or the Company. This Agreement may be terminated by either AQSP or the Company at any time prior to the Effective Time (whether before or after the receipt of the Requisite AQSP Vote):
(a)if the Merger shall not have been consummated on or prior to 5:00 p.m., Central Time, on the End Date; or
(b)if any Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced, or entered any Law or Order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger, the AQSP Stock Issuance, or the other transactions contemplated by this Agreement, and such Law or Order shall have become final and nonappealable; provided, however, that the right to terminate this Agreement pursuant to this Section 8.2(b) shall not be available to any party whose breach of any representation, warranty, covenant, or agreement set forth in this Agreement has been the cause of, or resulted in, the issuance, promulgation, enforcement, or entry of any such Law or Order.
Section 8.3Termination by AQSP. This Agreement may be terminated by AQSP at any time prior to the Effective Time if there shall have been a material breach of any representation, warranty, covenant, or agreement on the part of the Company or the Company Owner set forth in this Agreement such that the conditions to the Closing of the Merger set forth in Section 6.2(a) or Section 6.2(b), as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date; provided, however, that AQSP shall have given the Company at least 30 days written notice prior to such termination stating AQSP’s intention to terminate this Agreement pursuant to this Section 8.3 and provided the Company
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with the opportunity to cure such breach; provided further, that AQSP shall not have the right to terminate this Agreement pursuant to this Section 8.3 if AQSP is then in material breach of any representation, warranty, covenant, or obligation hereunder, which breach has not been cured.
Section 8.4Termination by the Company. This Agreement may be terminated by the Company at any time prior to the Effective Time if there shall have been a breach of any representation, warranty, covenant, or agreement on the part of AQSP or Jacobs Owner set forth in this Agreement such that the conditions to the Closing of the Merger set forth in Section 6.3(a) or Section 6.3(b), as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date; provided, however, that the Company shall have given AQSP at least 30 days written notice prior to such termination stating the Company’s intention to terminate this Agreement pursuant to this Section 8.4; provided further, that the Company shall not have the right to terminate this Agreement pursuant to this Section 8.4 if the Company is then in material breach of any representation, warranty, covenant, or obligation hereunder, which breach has not been cured.
Section 8.5Notice of Termination; Effect of Termination. The party desiring to terminate this Agreement pursuant to this Article VIII (other than pursuant to Section 8.1) shall deliver written notice of such termination to each other party hereto specifying with particularity the reason for such termination, and any such termination in accordance with this Section 8.5 shall be effective immediately upon delivery of such written notice to the other party, except as otherwise provided herein. If this Agreement is terminated pursuant to this Article VIII, it shall become void and of no further force and effect, with no liability on the part of any party to this Agreement (or any stockholder, director, officer, employee, agent, or Representative of such party) to any other party hereto, except: (a) with respect to this Section 8.5, Section 8.6, and Article IX (and any related definitions contained in any such Sections or Article), which shall remain in full force and effect; and (b) with respect to any liabilities or damages incurred or suffered by a party, to the extent such liabilities or damages were the result of fraud or the breach by another party of any of its representations, warranties, covenants, or other agreements set forth in this Agreement.
Section 8.6Amendment. At any time prior to the Effective Time, this Agreement may be amended or supplemented in any and all respects, whether before or after receipt of the Requisite AQSP Vote, by written agreement signed by each of the parties hereto; provided, however, that following the receipt of the Requisite AQSP Vote, there shall be no amendment or supplement to the provisions of this Agreement which by Law or in accordance with the rules of any relevant self-regulatory organization would require further approval by the AQSP stockholders without such approval.
Section 8.7Extension; Waiver. At any time prior to the Effective Time, AQSP, on the one hand, or the Company, on the other hand, may: (a) extend the time for the performance of any of the obligations of the other party(ies); (b) waive any inaccuracies in the representations and warranties of the other party(ies) contained in this Agreement or in any document delivered under this Agreement; or (c) unless prohibited by applicable Law, waive compliance with any of the covenants, agreements, or conditions contained in this Agreement. Any agreement on the part of a party to any extension or waiver shall be valid only if set forth in an instrument in writing
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signed by such party. The failure of any party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
Section 9.1Definitions. For purposes of this Agreement, the following terms shall have the following meanings when used herein with initial capital letters:
“10-Day Trading Average” means the arithmetic average (for consecutive trading days) of the closing trading price of a share of AQSP Common Stock on the OTC (for each trading day) as of the close of business during the ten consecutive trading days preceding the last Business Day before the date of this Agreement or, if this Agreement is modified with respect to a term that relates to the amount or type of the consideration the Company Owner will receive in connection with the Merger, subject to the exceptions set forth in Treasury Regulations Section 1.368-1(e)(2)(ii)(B)(2) and (3), the arithmetic average (for consecutive trading days) of the closing trading price of a shore of AQSP Common Stock on the OTC (for each trading day) as of the close of business during the ten consecutive trading days preceding the last Business Day before the date of such modification.
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such first Person. For the purposes of this definition, “control” (including, 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, by Contract, or otherwise.
“Affordable Care Act” means the Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act (HCERA).
“Agreement” has the meaning set forth in the Preamble.
“Annual Financial Statements” has the meaning set forth in Section 3.4(a).
“AQSP” has the meaning set forth in the Preamble.
“AQSP Balance Sheet” has the meaning set forth in Section 4.4(c).
“AQSP Benefit Plans” has the meaning set forth in Section 5.7(b).
“AQSP Board” has the meaning set forth in the Recitals.
“AQSP Common Stock” has the meaning set forth in the Recitals.
“AQSP Disclosure Letter” means the disclosure letter, dated as of the date of this Agreement and delivered by AQSP to the Company concurrently with the execution of this Agreement.
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“AQSP Equity Award” means an AQSP Stock Option or an AQSP Restricted Share granted under one of the AQSP Stock Plans, as the case may be.
“AQSP Fundamental Representations and Warranties” means those representations and warranties of AQSP set forth in Section 4.1, Section 4.2, Section 4.3, Section 4.4, Section 4.8, and Section 4.9.
“AQSP Material Adverse Effect” means any event, occurrence, fact, condition, or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, condition (financial or otherwise), or assets of AQSP and its Subsidiaries, taken as a whole; or (b) the ability of AQSP to consummate the transactions contemplated hereby on a timely basis; provided, however, that an AQSP Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions, or changes arising out of, relating to, or resulting from: (i) changes generally affecting the economy, financial, or securities markets; (ii) the announcement of the transactions contemplated by this Agreement; (iii) any outbreak or escalation of war or any act of terrorism; (iv) general conditions in the industry in which AQSP and its Subsidiaries operate; (v) any failure, in and of itself, by AQSP to meet any internal or published projections, forecasts, estimates, or predictions in respect of revenues, earnings, or other financial or operating metrics for any period (it being understood that the facts or occurrences giving rise to or contributing to such failure may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to become, an AQSP Material Adverse Effect, to the extent permitted by this definition and not otherwise excepted by a clause of this proviso); or (vi) any change, in and of itself, in the market price or trading volume of AQSP’s securities or in its credit ratings (it being understood that the facts or occurrences giving rise to or contributing to such change may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to become, an AQSP Material Adverse Effect, to the extent permitted by this definition and not otherwise excepted by a clause of this proviso), provided further, however, that any event, change, and effect referred to in clauses (i), (iii), or (iv) immediately above shall be taken into account in determining whether an AQSP Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, or effect has a disproportionate effect on AQSP and its Subsidiaries, taken as a whole, compared to other participants in the industries in which AQSP and its Subsidiaries conduct their businesses.
“AQSP Preferred Stock” means AQSP’s Series A Preferred Stock, par value $0.001 per share and AQSP’s Series B Preferred Stock, par value $0.001 per share.
“AQSP Restricted Share” means any AQSP Common Stock subject to vesting, repurchase, or other lapse of restrictions granted under any AQSP Stock Plan.
“AQSP SEC Documents” has the meaning set forth in Section 4.4(a).
“AQSP Securities” has the meaning set forth in Section 4.2(a)(i).
“AQSP Stockholder Approval Matters” means the approval of this Agreement, the Merger and the AQSP Stock Issuance.
“AQSP Stock Issuance” has the meaning set forth in the Recitals.
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“AQSP Stock Option” means any option, warrant, or right to purchase warrant to purchase AQSP Common Stock granted under any AQSP Stock Plan.
“AQSP Stock Plans” means the AQSP Board approval for the issuance of any warrants or options exercisable or convertible into shares of AQSP Common Stock that has been approved by the AQSP Board.
“AQSP Subsidiary Securities” has the meaning set forth in Section 4.2(c).
“AQSP Voting Debt” has the meaning set forth in Section 4.2(b).
“Business Day” means any day, other than Saturday, Sunday, or any day on which banking institutions located in Chicago, Illinois are authorized or required by Law or other governmental action to close.
“Cash Consideration” means an amount equal to $3,750,000.
“Cash/Share Ratio” means the relative Deemed Value of the Cash Consideration compared to the Deemed Value of the Stock Consideration.
“Charge” has the meaning set forth in Section 9.16(c).
“Charter Documents” means: (a) with respect to a corporation, the charter, articles or certificate of incorporation, as applicable, and bylaws thereof; (b) with respect to a limited liability company, the certificate of formation or articles of organization, as applicable, and the operating or limited liability company agreement, as applicable, thereof; (c) with respect to a partnership, the certificate of formation and the partnership agreement; and (d) with respect to any other Person the organizational, constituent or governing documents or instruments of such Person.
“Closing” has the meaning set forth in Section 1.2.
“Closing Capital Structure Schedule” has the meaning set forth in Section 5.14.
“Closing Date” has the meaning set forth in Section 1.2.
“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Section 4980B of the Code and Section 601 et. seq. of ERISA.
“Code” has the meaning set forth in the Recitals.
“Company” has the meaning set forth in the Preamble.
“Company Audit” means the audit of the Company’s Annual Financial Statements and Interim Financial Statements by Fruci & Associates.
“Company Common Stock” has the meaning set forth in the Recitals.
“Company Continuing Employees” has the meaning set forth in Section 5.7(a).
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“Company Disclosure Letter” means the disclosure letter, dated as of the date of this Agreement and delivered by the Company to AQSP concurrently with the execution of this Agreement.
“Company Employee” has the meaning set forth in Section 3.12(a).
“Company Employee Plans” has the meaning set forth in Section 3.12(a).
“Company ERISA Affiliate” means all employers, trades, or businesses (whether or not incorporated) that would be treated together with the Company or any of its Affiliates as a “single employer” within the meaning of Section 414 of the Code.
“Company Fundamental Representations and Warranties” means those representations and warranties of the Company or each Company Owner set forth in Section 3.1, Section 3.2, Section 3.3, Section 3.6, Section 3.10 and Section 3.14.
“Company IP” has the meaning set forth in Section 3.7(b).
“Company IP Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions, and other Contracts, whether written or oral, relating to Intellectual Property and to which the Company or any of its Subsidiaries is a party, beneficiary, or otherwise bound.
“Company IT Systems” means all software, computer hardware, servers, networks, platforms, peripherals, data communication lines, and other information technology equipment and related systems that are owned or used by the Company or any of its Subsidiaries.
“Company Material Adverse Effect” means any event, occurrence, fact, condition, or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, condition (financial or otherwise), or assets of the Company; or (b) the ability of the Company to consummate the transactions contemplated hereby on a timely basis; provided, however, that, a Company Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to, or resulting from: (i) changes generally affecting the economy, financial, or securities markets; (ii) the announcement of the transactions contemplated by this Agreement; (iii) any outbreak or escalation of war or any act of terrorism; or (iv) general conditions in the industry in which the Company operates; provided further, however, that any event, change, and effect referred to in clauses (i), (iii), or (iv) immediately above shall be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, or effect has a disproportionate effect on the Company compared to other participants in the industries in which the Company conducts its businesses.
“Company Material Contract” has the meaning set forth in Section 3.15(a).
“Company-Owned IP” means all Intellectual Property owned by the Company or any of its Subsidiaries.
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“Company Owner” has the meaning set forth in the Preamble.
“Consent” has the meaning set forth in Section 3.3(c).
“Contracts” means any contracts, agreements, licenses, notes, bonds, mortgages, indentures, leases, or other binding instruments or binding commitments, whether written or oral.
“Deemed Value” means, with respect to cash, the face value of the cash, and with respect to AQSP Common Stock, the value calculated in accordance with the 10-Day Trading Average.
“Direct Claim” has the meaning set forth in Section 7.5(c).
“Effective Time” has the meaning set forth in Section 1.3.
“End Date” means (i) February 15, 2020 but only in the event AQSP has not received any communications from the SEC regarding preliminary Information Statement within ten (10) Business Days of the filing thereof (or has been notified by the SEC that the SEC will not comment on the preliminary Information Statement), otherwise (ii) April 15, 2020.
“Environmental Laws” means any applicable Law, and any Order of any Governmental Entity: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Escrow Agent” means an escrow agent reasonably acceptable to AQSP and the Company Owner.
“Escrow Agreement” has the meaning set forth in Section 5.18.
“Escrowed Cash” means an amount equal to $375,000.
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“Escrowed Shares” means such number of shares of AQSP Common Stock equal to ten percent (10%) of the number of shares of AQSP Common Stock constituting the Stock Consideration.
“Estimated Tax Distribution” means a dividend or distribution to the Company Owner in an amount equal to the product of (a) the estimated taxable income allocated by the Company to the Company Owner for the short Tax year ending on the Closing Date (as reasonably determined by the Company’s accountant), multiplied by (b) the highest effective combined federal, state and local income tax rate (including any tax rate imposed on “net investment income” by Section 1411 of the Code) applicable during such period to an individual residing in the State of Illinois with respect to the type or character of the particular income (whether capital gain, ordinary income or otherwise), and taking into account any limitations on the deductibility of any Expenses or other amount (or the usage of any loss and treating all state and local income taxes as not deductible).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Expenses” means, with respect to any Person, all reasonable and documented out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors, and investment bankers of such Person and its Affiliates), incurred by such Person or on its behalf in connection with or related to the authorization, preparation, negotiation, execution, and performance of this Agreement and any transactions related thereto, any litigation with respect thereto, the preparation, printing, filing, and mailing of the Information Statement, or in connection with other regulatory approvals, and all other matters related to the Merger, the AQSP Stock Issuance, and the other transactions contemplated by this Agreement.
“Financial Statements” has the meaning set forth in Section 3.4(a).
“Fundamental Representations and Warranties” means the AQSP Fundamental Representations and Warranties and the Company Fundamental Representations and Warranties.
“GAAP” has the meaning set forth in Section 3.4(a).
“GMJ” has the meaning set forth in the Preamble.
“Governmental Entity” has the meaning set forth in Section 3.3(c).
“Hazardous Substance” shall mean: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral, or gas, in each case, whether naturally occurring or man-made, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.
“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended.
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“IL Articles of Merger” has the meaning set forth in Section 1.3.
“IL BCA” has the meaning set forth in the Recitals.
“Indemnifiable Company Party” has the meaning set forth in Section 5.8(a).
“Indemnified Party” has the meaning set forth in Section 7.4.
“Indemnifying Party” has the meaning set forth in Section 7.4.
“Information Statement” has the meaning set forth in Section 3.17.
“Intellectual Property” means any and all of the following arising pursuant to the Laws of any jurisdiction throughout the world: (a) trademarks, service marks, trade names, and similar indicia of source or origin, all registrations and applications for registration thereof, and the goodwill connected with the use of and symbolized by the foregoing; (b) copyrights and all registrations and applications for registration thereof; (c) trade secrets and know-how; (d) patents and patent applications; (e) internet domain name registrations, and (f) other intellectual property and related proprietary rights, including, but not limited to any logos, color schemes, packaging materials, fictitious business names, brochures, marketing and explanatory materials, and proprietary formulae.
“Interest Ratio” means a fraction, the numerator of which is one, and the denominator of which is the number of shares of Company Common Stock outstanding immediately prior to the Closing, as set forth in Section 3.2(a) of the Company Disclosure Letter.
“Interim Balance Sheet” has the meaning set forth in Section 3.4(a).
“Interim Financial Statements” has the meaning set forth in Section 3.4(a).
“IRS” means the United States Internal Revenue Service.
“Jacobs Owner” has the meaning set forth in the Preamble.
“Knowledge” means: (a) with respect to the Company, the actual knowledge of each of the individuals listed in Section 9.1 of the Company’s Disclosure Letter; and (b) with respect to AQSP and its Subsidiaries, the actual knowledge of each of the individuals listed in Section 9.1 of the AQSP Disclosure Letter; in each case, after due inquiry.
“Laws” means any federal, state, local, municipal, foreign, multi-national or other laws, common law, statutes, constitutions, ordinances, rules, regulations, codes, Orders, or legally enforceable requirements enacted, issued, adopted, promulgated, enforced, ordered, or applied by any Governmental Entity, other than any US federal or state laws, ordinance, constitution, regulation, statute, treaty, rules or codes to the extent the federal or state laws, ordinance, constitution, regulation, statute, treaty, rules or codes would be violated, or protections under the federal or state laws, ordinance, constitution, regulation, statute, treaty, rules or codes would be unavailable to a party as a result of operating or owning a business engaged in the manufacture,
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sale, distribution or transport of CBD-infused products or services as currently provided by the Company.
“Lease” shall mean all leases, subleases, licenses, concessions, and other agreements (written or oral) under which the Company holds any Leased Real Estate, including the right to all security deposits and other amounts and instruments deposited by or on behalf of the Company thereunder.
“Leased Real Estate” shall mean all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by the Company.
“Legal Action” means any legal, administrative, arbitral, mediation, or other proceedings, suits, actions, investigations, examinations, claims, audits, hearings, charges, complaints, indictments, litigations, or examinations.
“Liability” shall mean any liability, indebtedness, or obligation of any kind (whether accrued, absolute, contingent, matured, unmatured, determined, determinable, or otherwise, and whether or not required to be recorded or reflected on a balance sheet under GAAP).
“Liens” means, with respect to any property or asset, all pledges, liens, mortgages, charges, encumbrances, hypothecations, options, rights of first refusal, rights of first offer, and security interests of any kind or nature whatsoever.
“Mailing Date” has the meaning set forth in Section 5.5.
“Merger” has the meaning set forth in the Recitals.
“Merger Consideration” means the Cash Consideration, the Note Consideration and the Stock Consideration and payable pursuant to Section 2.2.
“Multiemployer Plan” has the meaning set forth in Section 3.12(c).
“Note Consideration” means $3,750,000 in the form of the Promissory Note.
“NW Employment Agreement” has the meaning in Section 5.12.
“OTC” means the Over-The-Counter Bulletin Board.
“Order” has the meaning set forth in Section 3.9.
“Other Governmental Approvals” has the meaning set forth in Section 3.3(c).
“Outside CBD Business Interests” has the meaning set forth in Section 3.18.
“Owned Real Estate” shall mean all land, together with all buildings, structures, fixtures, and improvements located thereon and all easements, rights of way, and appurtenances relating thereto, owned by the Company.
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“PBGC” has the meaning set forth in Section 3.12(d).
“Permits” has the meaning set forth in Section 3.8(b).
“Permitted Liens” means: (a) statutory Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (b) mechanics’, carriers’, workers’, repairers’, and similar statutory Liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (c) zoning, entitlement, building, and other land use regulations imposed by Governmental Entities having jurisdiction over such Person’s owned or leased real property, which are not violated by the current use and operation of such real property; (d) covenants, conditions, restrictions, easements, and other similar non-monetary matters of record affecting title to such Person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses; (e) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses; and (f) Liens arising under workers’ compensation, unemployment insurance, social security, retirement, and similar legislation.
“Person” means any individual, corporation, limited or general partnership, limited liability company, limited liability partnership, trust, association, joint venture, Governmental Entity, or other entity or group (which term shall include a “group” as such term is defined in Section 13(d)(3) of the Exchange Act).
“Promissory Note” means a promissory note in the form attached hereto as Exhibit D (a) which is made and payable by AQSP and the Merger Sub jointly, (b) which is payable to the Company Owner, (c) which accrues interest at the rate of 2% annually, (d) which is secured by a first lien security interest in all of the assets of AQSP and the Merger Sub, and by a pledge of (i) all of the capital stock of the Merger Sub, (ii) all of the common stock of Bendistillery Inc., Bend Spirits, Inc., and Ablis Holding Company owned by AQSP, and (iii) all of the capital stock of any other entity owned by AQSP or any of its subsidiaries, (e) which shall contain a legally binding obligation of AQSP and Merger Sub pursuant to which, following the closing of any equity or debt capital raise by AQSP or Merger Sub following the date of this Agreement, excluding only the capital raise for the Wisconsin Acquisitions referred to in Section 5.23(a), AQSP and Merger Sub shall be obligated to allocate and pay over at least 50% of the net proceeds of such capital raise toward a prepayment of the principal and accrued interest on such promissory note, and (f) which shall be due and payable in full upon the earlier of (i) the date which is thirty (30) days after the last day (the "Aggregate EBITDA Calculation Date") of the calendar quarter during which the aggregate earnings before interest, taxes, depreciation and amortization ("EBITDA") of Merger Sub during the period between the Closing Date and the Aggregate EBITDA Calculation Date, as certified by AQSP's firm of independent certified public accountants, exceeds $7,500,000, or (ii) the date which is the fifth anniversary of the Closing Date.
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“Release Date” has the meaning set forth in Section 7.5(f).
“Representatives” has the meaning set forth in Section 5.3(b).
“Requisite AQSP Vote” has the meaning set forth in Section 4.3(a).
“SEC” has the meaning set forth in Section 4.3(c).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Stock Consideration” means 3,900,455 shares of AQSP Common Stock.
“Subsidiary” of a Person means a corporation, partnership, limited liability company, or other business entity of which a majority of the shares of voting securities is at the time beneficially owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person.
“Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
“Tax Returns” means any return, declaration, report, claim for refund, information return or statement, or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Third-Party Claim” has the meaning set forth in Section 7.5(a).
“WCJ” has the meaning set forth in the Preamble.
“WI Articles of Merger” has the meaning set forth in Section 1.3.
“WI BCL” has the meaning set forth in the Recitals.
Section 9.2Interpretation; Construction.
(a)The table of contents and headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section, Exhibit, Article, or Schedule, such reference shall be to a Section of, Exhibit to, Article of, or Schedule of this Agreement unless otherwise indicated. Unless the context otherwise requires, references herein: (i) to an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions
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thereof; and (ii) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. Whenever the words “include,” “includes,” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation,” and the word “or” is not exclusive. The word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and does not simply mean “if.” A reference in this Agreement to $ or dollars is to U.S. dollars. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words “hereof,” “herein,” “hereby,” “hereto,” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to “this Agreement” shall include the Company Disclosure Letter and AQSP Disclosure Letter.
(b)The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
Section 9.3[Intentionally Omitted].
Section 9.4Governing Law. This Agreement and all Legal Actions (whether based on contract, tort, or statute) arising out of or relating to this Agreement or the actions of any of the parties hereto in the negotiation, administration, performance, or enforcement hereof, shall be governed by and construed in accordance with the internal laws of the State of Illinois without giving effect to any choice or conflict of law provision or rule (whether of the State of Illinois or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Illinois.
Section 9.5Submission to Jurisdiction. Each of the parties hereto irrevocably agrees that any Legal Action with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by any other party hereto or its successors or assigns shall be brought and determined exclusively in the State courts located in Lake County, Illinois. Each of the parties hereto agrees that mailing of process or other papers in connection with any such Legal Action in the manner provided in Section 9.7 or in such other manner as may be permitted by applicable Laws, shall be valid and sufficient service thereof. Each of the parties hereto hereby irrevocably submits with regard to any such Legal Action for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it shall not bring any Legal Action relating to this Agreement or any of the transactions contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim, or otherwise, in any Legal Action with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder: (a) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve process in accordance with this Section 9.5; (b) any claim
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that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); and (c) to the fullest extent permitted by the applicable Law, any claim that (i) the suit, action, or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action, or proceeding is improper, or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
Section 9.6Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT: (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION; (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY; AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.6
Section 9.7Notices. All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by email of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 9.7):
If to AQSP or any Jacobs Owner, to: | Acquired Sales Corp. 31 N. Suffolk Lane |
| Lake Forest, Illinois 60045 |
| Attention: Gerard M. Jacobs |
| Email: lakegeneva91@gmail.com |
|
|
If to the Company or Company Owner, to: | Warrender Enterprise Inc. |
| 12715 210th Ave. Bristol, Wisconsin 53104 |
| Attention: Nicholas Warrender |
| Email: nick@liftedliquids.com |
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or to such other Persons, addresses or facsimile numbers as may be designated in writing by the Person entitled to receive such communication as provided above.
Section 9.8Entire Agreement. This Agreement (including the Exhibits to this Agreement), the Company Disclosure Letter and the AQSP Disclosure Letter constitute the entire agreement among the parties with respect to the subject matter of this Agreement and supersede all other prior agreements and understandings, both written and oral, among the parties to this Agreement with respect to the subject matter of this Agreement. In the event of any inconsistency between the statements in the body of this Agreement, the AQSP Disclosure Letter, and the Company Disclosure Letter (other than an exception expressly set forth as such in the AQSP Disclosure Letter or Company Disclosure Letter), the statements in the body of this Agreement shall control.
Section 9.9No Third-Party Beneficiaries. Except as provided in Section 5.8 (which shall be to the benefit of the parties referred to in such section), this Agreement is for the sole benefit of the parties hereto and their permitted assigns and respective successors and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.10Severability. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
Section 9.11Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither AQSP on the one hand, nor the Company on the other hand, may assign its rights or obligations hereunder without the prior written consent of the other party. No assignment shall relieve the assigning party of any of its obligations hereunder.
Section 9.12Remedies. Except as otherwise provided in this Agreement, any and all remedies expressly conferred upon a party to this Agreement shall be cumulative with, and not exclusive of, any other remedy contained in this Agreement, at Law, or in equity. The exercise by a party to this Agreement of any one remedy shall not preclude the exercise by it of any other remedy.
Section 9.13Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts, all of which shall be one and the same agreement. This Agreement shall become effective when each party to this Agreement shall have received counterparts signed by all of the other parties.
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Section 9.14Expenses. In the event the Closing shall have occurred, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants (that remain outstanding as of the Closing), incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by AQSP. Except as otherwise expressly provided herein, in the event this Agreement is terminated prior to the Closing (for any reason) all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
ACQUIRED SALES CORP. | |||
| |||
By: | /s/ Gerard M. Jacobs | ||
Name: | Gerard M. Jacobs | ||
Title: | CEO | ||
| |||
LIFTED LIQUIDS, INC. | |||
| |||
By: | /s/ Gerard M. Jacobs | ||
Name: | Gerard M. Jacobs | ||
Title: | CEO | ||
| |||
| |||
JACOBS OWNERS: | |||
| |||
/s/ Gerard M. Jacobs | |||
GERARD M. JACOBS | |||
| |||
/s/ William C. Jacobs | |||
WILLIAM C. JACOBS | |||
| |||
| |||
WARRENDER ENTERPRISE INC. | |||
| |||
By: | /s/ Nicholas S. Warrender | ||
Name: | Nicholas S. Warrender | ||
Title: | President | ||
| |||
COMPANY OWNER: | |||
| |||
/s/ Nicholas S. Warrender | |||
NICHOLAS S. WARRENDER | |||
| |||
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EXHIBIT A
Form of Employment Agreement
EXHIBIT A-1
Key Employees Titles and Base Salaries
“AQSP” means Acquired Sales Corp.
“Board” means the Board of Directors of AQSP
“Lifted” means [Lifted Liquids [Inc./LLC]], a wholly-owned subsidiary of AQSP
Name | Title(s) | Base Salary | Responsibilities | Reporting to |
Nicholas S. Warrender | Co-Founder and Vice Chairman of AQSP | $100,000 | Participation in all significant decision making at AQSP | Board and CEO of AQSP |
| Chief Operating Officer of AQSP |
| Consultation with and advice/assistance to CEOs of all AQSP brands and subsidiaries regarding all business activities and opportunities |
|
| CEO of Lifted |
| Leadership of Lifted |
|
EXHIBIT B
Stockholders Agreement
EXHIBIT C
Registration Rights Agreement
EXHIBIT D
Promissory Note
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (this “Agreement”) is made and entered into as of _____________________________ (the “Effective Date”), by and between NICHOLAS S. WARRENDER (the “Executive”) and ACQUIRED SALES CORP., a Nevada corporation (the “Company”).
witnessth:
WHEREAS, the Company desires to employ, and desires to cause Lifted Liquids, Inc., an Illinois corporation, a wholly owned subsidiary of the Company (“Lifted”), to employ the Executive on the terms and conditions set forth herein; and
WHEREAS, the Executive desires to be employed by the Company and Lifted on such terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants, promises and obligations set forth herein, the parties agree as follows intending to be legally bound hereby:
1.Term. The Executive’s employment hereunder shall be effective as of the Effective Date and shall continue until the fifth anniversary thereof, unless terminated earlier pursuant to Section 5 of this Agreement; provided, however, that, on the anniversary of the Effective Date and each annual anniversary thereafter (such date and each annual anniversary thereof, a “Extension Date”), this Agreement shall be deemed to be automatically extended, upon the same terms and conditions, for additional periods of one year (extending the term of this Agreement to five years after each such Extension Date), unless either party provides written notice of the party’s intention not to extend the term of this Agreement at least 90 days’ prior to the applicable Extension Date (providing notice of non-extension at least four years and 90 days prior to expiration of this Agreement). For purposes of this Agreement, “Employment Term” shall mean the period during which the Executive is employed by the Company and Lifted under this Agreement.
2.1Position. During the Employment Term, the Executive shall serve as the Co-Founder, Vice Chairman and Chief Operating Officer of the Company and Chief Executive Officer of Lifted, reporting to the Board of Directors and CEO of the Company. In such position, the Executive shall have such duties, authority and responsibilities as shall be determined from time to time by the Board, which duties, authority and responsibilities shall be consistent with the Executive’s position. The Executive shall, if requested, also serve as a member of the board of directors of the Company (the “Board”) or as a director of any affiliate of the Company for no additional compensation (the Company, together with its affiliates, the “Company Group”). The Executive shall participate in all significant decision making at the Company and consult with and provide advice and assistance to the CEOs of all of the Company’s brands and subsidiaries regarding all business activities and opportunities. The Executive also shall be responsible for leadership of Lifted.
2.2Duties. During the Employment Term, the Executive shall devote substantially all of his business time and attention to the performance of the Executive’s duties hereunder and shall not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the Board, it being expressly agreed and acknowledged by Executive that Executive shall not, directly or indirectly, own any interest in, or assist, advise, participate or otherwise be engaged in any product, brand, company or business, excepting only the Company and its subsidiaries, that involves, directly or indirectly, the purchase, manufacturing, sale, use, marketing, storage, transfer, or other right, title or interest in any hemp, hemp products, hemp extracts, CBDs, CBD-infused products, or other products competitive with any business of the Company or any of its subsidiaries. Notwithstanding the foregoing, Executive, with the prior written consent of the Board (which consent shall not be unreasonably withheld or delayed), shall be permitted to act or serve as a director, trustee, committee member or principal of any type of business, civic or charitable organization and to purchase or own less than 5% of the publicly traded securities of any corporation; provided, however, that, such ownership represents a passive investment and that the Executive is not a controlling person of, or a member of a group that controls, such corporation; and provided further that such activities do not interfere with the performance of the Executive’s duties and responsibilities to the Company as provided hereunder, including, but not limited to, the obligations set forth in Section 2.
3.Place of Performance. The principal place of Executive’s employment shall be 43360 US Highway 41, Zion, Illinois 60099, or elsewhere as the Executive and the CEO of the Company may from time to time mutually agree; provided, however, that, the Executive may be required to travel on Company business during the Employment Term.
4.1Base Salary. The Company shall pay the Executive an annual rate of base salary of $100,000 in periodic installments in accordance with the Company’s customary payroll practices and applicable wage payment laws, but no less frequently than monthly. The Executive’s base salary shall be reviewed at least annually by the Board and the Board may, but shall not be required to, increase the base salary during the Employment Term; provided, however, that the Executive’s base salary may not be decreased during the Employment Term other than as part of an across-the-board salary reduction that applies in the same manner to all senior executives. For purposes of this Agreement, “Base Salary” shall mean the Executive’s annual base salary, as in effect from time to time.
4.2Annual Bonus. For each fiscal year during the Employment Term, the Executive shall be eligible to be considered for an annual bonus (the “Annual Bonus”) as part of a Company-wide management bonus pool arrangement, as generally described in this Section 4.2. During the 4th quarter of each year, the Chairman of the Compensation Committee of the Board (the “Compensation Committee”) shall recommend in writing a consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) target (each, a “Target”) for the following year (the “Target Year”), which Target must be approved in writing by each of the following for as long as he remains employed by the Company: Gerard M. Jacobs, William C. Jacobs, and Nicholas S. Warrender (collectively, and with respect to each for only as long as he is an employee of the Company, the “Executive Management Group”). If the Chairman of
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the Compensation Committee does not recommend in writing a Target for a Target Year that is approved in writing by all of the members of the Executive Management Group prior to the commencement of the Target Year, then the Target for the Target Year shall be equal to the actual consolidated EBITDA of the Company and its subsidiaries during the then-current year (i.e., the year preceding the Target Year) as certified in writing by the Company’s outside firm of independent certified public accountants. If the actual consolidated EBITDA of the Company and its subsidiaries during the Target Year as certified in writing by the Company’s outside firm of independent certified public accountants exceeds the Target (the amount by which the actual consolidated EBITDA of the Company and its subsidiaries during the Target Year as certified in writing by the Company’s outside firm of independent certified public accountants exceeds the Target, the “Excess Amount”), then cash equal to 33% of the Excess Amount shall be set aside by the Company as a cash management bonus pool (the “Bonus Pool”), and the amount of the Bonus Pool shall be allocated and paid out by the Company as bonuses or fees to the officers of the Company and its subsidiaries (and potentially, to directors or third parties who have significantly helped the Company and its subsidiaries during the Target Year), with the amount to be paid to each payee, including the amount of any Annual Bonus to be paid to the Executive, to be determined by unanimous written agreement of the Executive Management Group, in their sole discretion. The Executive expressly agrees and acknowledges that the amount of the Annual Bonus (if any) allocated and paid to the Executive as so determined by unanimous written agreement of the Executive Management Group shall be final, non-appealable, and binding upon the Executive, regardless of whether the Executive receives any Annual Bonus, and regardless of whether any Annual Bonus received by the Executive is higher or lower than any other person’s bonus, under any and all circumstances whatsoever. The Company shall pay the Executive the Annual Bonus, if any, no later than March 15th of the year following the applicable Target Year. In the event that there is funding for the Bonus Pool but the Executive Management Group does not reach a unanimous decision on Bonus allocations, then no annual bonus shall be paid. The Annual Bonus Pool would then be placed in escrow and the Executive Management Group would mediate.
4.3Stock and Stock Option Awards. The Executive and his affiliates shall be entitled to so-called “piggyback” or “tag along” registration rights with respect to any shares of stock of the Company, whether owned by the Executive or an affiliate as a result of the exercise of a stock option, stock warrant or otherwise.
4.4Fringe Benefits and Perquisites. During the Employment Term, the Executive shall be entitled to fringe benefits and perquisites consistent with the practices of the Company and governing benefit plan requirements (including plan eligibility provisions), and to the extent the Company provides similar benefits or perquisites (or both) to similarly situated executives of the Company.
4.5Employee Benefits. During the Employment Term, the Executive shall be entitled to participate in all employee benefit plans, practices and programs maintained by the Company, as in effect from time to time (collectively, “Employee Benefit Plans”), on a basis which is no less favorable than is provided to other similarly situated executives of the Company, to the extent consistent with applicable law and the terms of the applicable Employee Benefit Plans. The Company reserves the right to amend or terminate any Employee Benefit Plans at any time in its sole discretion, subject to the terms of such Employee Benefit Plan and applicable
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law. Notwithstanding the foregoing, the Company agrees and covenants to use good faith efforts to always provide to the Executive an employee benefits package in which the Company pays the entire premiums for family health, vision and dental insurance coverage for the Executive and Executive’s family, which health and dental insurance coverage shall be issued by a Blue Cross/Blue Shield, or equivalent, provider.
4.6Vacation; Paid Time-Off. During the Employment Term, the Executive shall be entitled to paid vacation on a basis that is at least as favorable as that provided to other similarly situated executives of the Company and that is a minimum of four (4) weeks per year. The Executive shall receive other paid time-off in accordance with the Company’s policies for executive officers as such policies may exist from time to time.
4.7Business Expenses. The Executive shall be reimbursed for all reasonable and necessary out-of-pocket business, entertainment and travel expenses, including airfare, rail, taxi, rental cars, parking, tolls, gasoline for business trips, meals, entertainment, hotel, office supplies, mobile phone, internet, hotspot and postage expenses, incurred by the Executive in connection with the performance of the Executive’s duties hereunder in accordance with the Company’s expense reimbursement policies and procedures, which includes the requirement that expense reimbursement reports must be submitted within ten (10) days following the end of the calendar quarter during which expenses were incurred.
(a)In the event that the Executive is made a party or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), other than any Proceeding initiated by the Executive or the Company Group related to any contest or dispute between the Executive and the Company Group with respect to this Agreement or the Executive’s employment hereunder, by reason of the fact that the Executive is or was a director or officer of any member of the Company Group, or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or a partnership, joint venture, trust or other enterprise, the Executive shall be indemnified and held harmless by the Company to the maximum extent permitted under applicable law and the Company’s bylaws from and against any liabilities, costs, claims and expenses, including all costs and expenses incurred in defense of any Proceeding (including attorneys’ fees). Costs and expenses incurred by the Executive in defense of such Proceeding (including attorneys’ fees) shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of: (i) a written request for payment; (ii) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (iii) an undertaking adequate under applicable law made by or on behalf of the Executive to repay the amounts so paid if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company under this Agreement.
(b)During the Employment Term and for a period of six (6) years thereafter, the Company or any successor to the Company shall use good faith efforts to purchase and maintain, at its own expense, directors’ and officers’ liability insurance
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providing coverage to the Executive on terms that are no less favorable than the coverage provided to other directors and similarly situated executives of the Company.
4.9Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based compensation or any other compensation, paid to the Executive pursuant to this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation or stock exchange listing requirement, shall be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
5.Termination of Employment. The Employment Term and the Executive’s employment hereunder may be terminated by either the Company or the Executive at any time and for any reason; provided, however, that, unless otherwise provided herein, either party shall be required to give the other party at least 30 days advance written notice of any termination of the Executive’s employment. Upon termination of the Executive’s employment during the Employment Term, the Executive shall be entitled to the compensation and benefits described in this Section 5 and shall have no further rights to any compensation or any other benefits from the Company Group.
5.1Expiration of the Term, For Cause or Without Good Reason.
(a)The Executive’s employment hereunder may be terminated by the Company for Cause, by the Executive without Good Reason or by either party upon expiration of the Employment Term following such party’s notice to the other party not to extend this Agreement in accordance with Section 1. In the event of such termination, the Executive shall be entitled to receive:
(i)any accrued but unpaid Base Salary and accrued but unused vacation which shall be paid on the Termination Date (as defined below);
(ii)any earned but unpaid Annual Bonus with respect to any completed fiscal year immediately preceding the Termination Date, which shall be paid on the otherwise applicable payment date;
(iii)reimbursement for unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company’s expense reimbursement policy; and
(iv)such employee benefits (including equity compensation), if any, to which the Executive may be entitled under the Company’s employee benefit plans as of the Termination Date; provided, however, that, in no event shall the Executive be entitled to any payments in the nature of severance or termination payments except as specifically provided herein.
(b)For purposes of this Agreement, “Accrued Amounts” shall mean the amounts set forth in Section 5.1(a)(i) through Section 5.1(a)(iv).
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(c)For purposes of this Agreement, “Cause” shall mean the Board concludes, in good faith, after reasonable investigation and by a Supermajority Vote that:
(i)the Executive has been convicted by a court of proper jurisdiction of (or his written, voluntary and freely given confession to) a crime which constitutes a felony and results in material injury to the Company’s property, operation or reputation other than any crime resulting from the violation of any federal or state laws, rules or regulations prohibiting the manufacture, sale, distribution or transport of CBD-infused products or services;
(ii)the Executive violated any material provision of this Agreement or any material written policy of the Company that is applicable to the Executive and has been previously provided to the Executive, provided that such violation has caused demonstrable material economic harm to the Company and provided that (after reasonable written notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) the Board has delivered written notice to the Executive specifying in detail the violation (the “First Notice”), and the Executive fails to cure such violation within 60 days of receipt of the First Notice as determined by the Board by a second Supermajority Vote, and the Board has delivered written notice to Executive specifying in detail the rationale for the Board’s determination that the Executive failed to cure the violations specified in the First Notice (the “Second Notice”), and Executive fails to cure such continuing violation within 30 days of receipt of the Second Notice, as determined by the Board by a third Supermajority Vote:
(d)For purposes of this Agreement, “Supermajority Vote” shall mean the affirmative vote by members of the Board constituting at least 75% of the disinterested directors entitled to vote on a matter submitted to a vote of the Board.
(e)For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following, in each case during the Employment Term without the Executive’s written consent:
(i)a reduction in the Executive’s Base Salary other than a general reduction in Base Salary that affects all similarly situated executives in substantially the same proportions;
(ii)a relocation of the Executive’s principal place of employment by more than 75 miles;
(iii)any material breach by the Company of any material provision of this Agreement or any material provision of any other agreement between the Executive and the Company;
(iv)the Company’s failure to obtain an agreement from any successor to the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to
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perform if no succession had taken place, except where such assumption occurs by operation of law;
(v)a material, adverse change in the Executive’s title, authority, duties or responsibilities (other than temporarily while the Executive is physically or mentally incapacitated or as required by applicable law) taking into account the Company’s size, status as a public company and capitalization as of the date of this Agreement; or
(vi)a material adverse change in the reporting structure applicable to the Executive.
The Executive cannot terminate his employment for Good Reason unless he has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason, and the Company has had at least 30 days from the date on which such notice is provided to cure such circumstances.
5.2Without Cause or for Good Reason. The Employment Term and the Executive’s employment hereunder may be terminated by the Executive for Good Reason or by the Company without Cause. In the event of such termination, the Executive shall be entitled to receive:
(a)the Accrued Amounts;
(b)continued Base Salary (as in effect as of the Termination Date) following the Termination Date payable in equal installments in accordance with the Company’s normal payroll practices, but no less frequently than monthly, through the date on which the Employment Term would have expired if the Employment Term expired solely as a result of the Company delivering notice of non-renewal pursuant to Section 1 on the Termination Date (as determined in accordance with Section 5.5);
(c)a payment equal to the product of (i) the Annual Bonus, if any, that the Executive was paid with respect to the fiscal year immediately preceding fiscal year in which the Termination Date (as determined in accordance with Section 5.5) occurs, multiplied by (ii) a fraction, the numerator of which is the number of days the Executive was employed by the Company during the year of termination and the denominator of which is the number of days in such year (the “Pro-Rata Bonus”). This amount shall be paid on the date that annual bonuses are paid to similarly situated executives, but in no event later than 2-1/2 months following the end of the fiscal year in which the Termination Date occurs;
(d)if the Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall reimburse the Executive for the difference between the monthly COBRA premium paid by the Executive for himself and his dependents and the monthly premium amount paid by similarly situated active executives. Such reimbursement shall be paid to the Executive on the 10th of the month immediately following the month in which the Executive timely remits the premium payment. The
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Executive shall be eligible to receive such reimbursement until the earliest of: (i) the eighteen-month anniversary of the Termination Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive receives substantially similar coverage from another employer or other source. Notwithstanding the foregoing, if the Company’s making payments under this Section 5.2(d) would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the “ACA”), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.2(d) in a manner as is necessary to comply with the ACA.
(e)The treatment of any outstanding equity awards shall be determined in accordance with the terms of any plans under which such awards are granted and any applicable award agreements.
(a)The Executive’s employment hereunder shall terminate automatically upon the Executive’s death during the Employment Term, and the Company may terminate the Executive’s employment on account of the Executive’s Disability.
(b)If the Executive’s employment is terminated during the Employment Term on account of the Executive’s death or Disability, the Executive (or the Executive’s estate or beneficiaries, as the case may be) shall be entitled to receive the following:
(i)the Accrued Amounts; and
(ii)the Pro Rata Bonus.
Notwithstanding any other provision contained herein, all payments made in connection with the Executive’s Disability shall be provided in a manner that is consistent with federal and state law.
(c)For purposes of this Agreement, “Disability” shall mean the Executive’s inability, due to physical or mental incapacity, to perform the essential functions of his job, with or without reasonable accommodation, for 180 days out of any 365-day period or 120 consecutive days.
5.4Notice of Termination. Any termination of the Executive’s employment hereunder by the Company or by the Executive during the Employment Term (other than termination pursuant to Section 5.3(a) on account of the Executive’s death) shall be communicated by written notice of termination (“Notice of Termination”) to the other party hereto in accordance with Section 25. The Notice of Termination shall specify:
(a)the termination provision of this Agreement relied upon;
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(b)to the extent applicable, the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated; and
(c)the applicable Termination Date.
5.5Termination Date. The Executive’s “Termination Date” shall be:
(a)if the Executive’s employment hereunder terminates on account of the Executive’s death, the date of the Executive’s death;
(b)if the Executive’s employment hereunder is terminated on account of the Executive’s Disability, the date that it is determined that the Executive has a Disability;
(c)if the Company terminates the Executive’s employment hereunder for Cause, the date the Notice of Termination is delivered to the Executive;
(d)if the Company terminates the Executive’s employment hereunder without Cause, the date specified in the Notice of Termination, which shall be no less than 30 days following the date on which the Notice of Termination is delivered;
(e)if the Executive terminates his employment hereunder with or without Good Reason, the date specified in the Executive’s Notice of Termination, which shall be no less than 30 days following the date on which the Notice of Termination is delivered; and
(f)if the Executive’s employment hereunder terminates because either party provides notice of non-renewal pursuant to Section 1, the end of the Employment Term, as determined pursuant to Section 1.
Notwithstanding anything contained herein, the Termination Date shall not occur until the date on which the Executive incurs a “separation from service” within the meaning of Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”).
5.6Mitigation. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and except as provided in Section 5.2(d), any amounts payable pursuant to this Section 5 shall not be reduced by compensation the Executive earns on account of employment with another employer.
5.7Resignation of All Other Positions. Upon termination of the Executive’s employment hereunder for any reason, the Executive shall be deemed to have resigned from all positions that the Executive holds as an officer or member of the Board (or a committee thereof) of the Company Group.
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(a)If any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with the Executive’s termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement or otherwise) (all such payments collectively referred to herein as the “280G Payments”) constitute “parachute payments” within the meaning of Section 280G of the Code and shall be subject to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), the Company shall pay to the Executive, no later than the time such Excise Tax is required to be paid by the Executive or withheld by the Company, an additional amount equal to the sum of the Excise Tax payable by the Executive, plus the amount necessary to put the Executive in the same after-tax position (taking into account any and all applicable federal, state and local excise, income or other taxes at the highest applicable rates on such 280G Payments and on any payments under this Section 5.8 or otherwise) as if no Excise Tax had been imposed.
(b)All calculations and determinations under this Section 5.8 shall be made by an independent accounting firm or independent tax counsel appointed by the Company (the “Tax Counsel”) whose determinations shall be conclusive and binding on the Company and the Executive for all purposes. For purposes of making the calculations and determinations required by this Section 5.8, the Tax Counsel may rely on reasonable, good faith assumptions and approximations concerning the application of Section 280G and Section 4999 of the Code. The Company and the Executive shall furnish the Tax Counsel with such information and documents as the Tax Counsel may reasonably request in order to make its determinations under this Section 5.8. The Company shall bear all costs the Tax Counsel may reasonably incur in connection with its services.
6.Cooperation. The parties agree that certain matters in which the Executive shall be involved during the Employment Term may necessitate the Executive’s cooperation in the future. Accordingly, following the termination of the Executive’s employment for any reason, to the extent reasonably requested by the Board, the Executive shall cooperate with the Company in connection with matters arising out of the Executive’s service to the Company; provided, however, that, the Company shall make reasonable efforts to minimize disruption of the Executive’s other activities. The Company shall reimburse the Executive for reasonable expenses incurred in connection with such cooperation and, to the extent that the Executive is required to spend substantial time on such matters, the Company shall compensate the Executive at an hourly rate based on the Executive’s Base Salary on the Termination Date.
7.Confidential Information. The Executive understands and acknowledges that during the Employment Term, he shall have access to and learn about Confidential Information, as defined below.
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7.1Confidential Information Defined.
(a)Definition.
(i)For purposes of this Agreement, “Confidential Information” includes, but is not limited to, all information not generally known to the public, in spoken, printed, electronic or any other form or medium, relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, work-in-process, databases, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, market studies, sales information, revenue, costs, formulae, notes, communications, algorithms, product plans, designs, styles, models, ideas, inventions, unpublished patent applications, original works of authorship, discoveries, experimental processes, experimental results, specifications, customer information, customer lists, client information, client lists, manufacturing information, factory lists, distributor lists and buyer lists of the Company Group or its businesses, or of any other person or entity that has entrusted information to the Company Group in confidence.
(ii)The Executive understands that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.
(iii)The Executive understands and agrees that Confidential Information includes information developed by him in the course of his employment by the Company as if the Company furnished the same Confidential Information to the Executive in the first instance. Confidential Information shall not include information that is generally available to and known by the public at the time of disclosure to the Executive; provided, however, that, such disclosure is through no direct or indirect fault of the Executive or any person acting on the Executive’s behalf.
(b)Company Creation and Use of Confidential Information.
(i)The Executive understands and acknowledges that the Company Group has invested, and continues to invest, substantial time, money and specialized knowledge into developing its resources, creating a customer base, generating customer and potential customer lists, training its employees, and
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improving its offerings in the business of the manufacture, processing, sale or distribution of CBD-infused products and other product offerings ancillary thereto. The Executive understands and acknowledges that as a result of these efforts, the Company Group has created, and continues to use and create Confidential Information. This Confidential Information provides the Company Group with a competitive advantage over others in the marketplace.
(c)Disclosure and Use Restrictions.
(i)The Executive agrees and covenants: (i) to treat all Confidential Information as strictly confidential; (ii) not to directly or indirectly disclose, publish, communicate or make available Confidential Information, or allow it to be disclosed, published, communicated or made available, in whole or part, to any entity or person whatsoever (including other employees of the Company Group) not having a need to know and authority to know and use the Confidential Information in connection with the business of the Company Group and, in any event, not to anyone outside of the direct employ of the Company Group except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of the Board in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent); and (iii) not to access or use any Confidential Information, and not to copy any documents, records, files, media or other resources containing any Confidential Information, or remove any such documents, records, files, media or other resources from the premises or control of the Company Group, except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of the Board in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent). Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation or order. The Executive shall promptly provide written notice of any such order to the Board.
(d)Notice of Immunity Under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 (“DTSA”). Notwithstanding any other provision of this Agreement:
(i)The Executive shall not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that:
(A)is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or
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(B)is made in a complaint or other document filed under seal in a lawsuit or other proceeding.
(ii)If the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Company’s trade secrets to the Executive’s attorney and use the trade secret information in the court proceeding if the Executive:
(A)files any document containing trade secrets under seal; and
(B)does not disclose trade secrets, except pursuant to court order.
8.1Acknowledgement. The Executive understands that the nature of the Executive’s position gives him access to and knowledge of Confidential Information and places him in a position of trust and confidence with the Company Group. The Executive understands and acknowledges that the services he provides to the Company Group are unique, special or extraordinary. The Executive further understands and acknowledges that the Company Group’s ability to reserve these for the exclusive knowledge and use of the Company Group is of great competitive importance and commercial value to the Company Group, and that improper use or disclosure by the Executive is likely to result in unfair or unlawful competitive activity. Reference is hereby made to that certain Agreement and Plan of Merger, dated [January _], 2020, by and among the Company, Lifted and Warrender Enterprise Inc. d/b/a Lifted Liquids (the “Merger Agreement”). The Executive acknowledges that the Company would not have entered into the Merger Agreement but for Executive being bound by the covenants set forth in this Section 8 and the Executive’s allocable share of the Merger Consideration (as such term is defined in the Merger Agreement) constitutes, in part, consideration for the Executive agreeing to be bound by the covenants set forth in this Section 8.
8.2Non-Competition. Because of the Company Group’s legitimate business interest as described herein and the good and valuable consideration offered to the Executive, during the Employment Term and for the 12 months, to run consecutively, beginning on the last day of the Executive’s employment with the Company, for any reason or no reason (except for termination by the Company without Good Reason in which case the restrictive covenants shall be deemed to be waived by the Company) and whether employment is terminated at the option of the Executive or the Company Group, the Executive agrees and covenants not to engage in Prohibited Activity within the United States.
(a)For purposes of this Section 8, “Prohibited Activity” is activity in which the Executive contributes his knowledge, directly or indirectly, in whole or in part, as an employee, employer, owner, operator, manager, advisor, consultant, agent, employee, partner, director, stockholder, officer, volunteer, intern or any other similar capacity to an entity engaged in the same or similar business as the Company Group, including those engaged in the business of the manufacture, processing, sale or distribution of CBD-infused products. Prohibited Activity also includes activity that may
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require or inevitably requires disclosure of trade secrets, proprietary information or Confidential Information.
(b)Nothing herein shall prohibit the Executive from purchasing or owning less than 5% of the publicly traded securities of any corporation, provided that such ownership represents a passive investment and that the Executive is not a controlling person of, or a member of a group that controls, such corporation.
(c)This Section 8 does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. The Executive shall promptly provide written notice of any such order to the Board.
8.3Non-Solicitation of Employees. The Executive agrees and covenants not to directly or indirectly solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of the Company Group during 12 months, to run consecutively, beginning on the last day of the Executive’s employment with the Company. Notwithstanding the foregoing, it shall not be a breach of this provision to hire an employee who responds to a general advertisement that is not targeted to a specific individual.
8.4Non-Solicitation of Customers. The Executive understands and acknowledges that because of the Executive’s experience with and relationship to the Company Group, he shall have access to and learn about much or all of the Company Group’s customer information. “Customer Information” includes, but is not limited to, names, phone numbers, addresses, email addresses, order history, order preferences, chain of command, pricing information and other information identifying facts and circumstances specific to the customer and relevant to sales or services. The Executive understands and acknowledges that loss of this customer relationship or goodwill will cause significant and irreparable harm. The Executive agrees and covenants, during 12 months, to run consecutively, beginning on the last day of the Executive’s employment with the Company, not to directly solicit, contact (including but not limited to email, regular mail, express mail, telephone, fax and instant message), attempt to contact, or meet with the Company’s customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Company. This restriction shall only apply to:
(a)Customers the Executive contacted in any way during the past 12 months;
(b)Customers about whom the Executive has trade secret or confidential information;
(c)Customers who became customers during the Executive’s employment with the Company; and
(d)Customers about whom the Executive has information that is not available publicly.
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9.Non-Disparagement. The Executive agrees and covenants that he shall not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments or statements concerning the Company Group or its businesses, or any of its employees, officers. This Section 9 does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. The Executive shall promptly provide written notice of any such order to the Board. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments or statements concerning the Executive to any third parties.
10.Acknowledgement. The Executive acknowledges and agrees that the services to be rendered by him to the Company are of a special and unique character; that the Executive will obtain knowledge and skill relevant to the Company’s methods of doing business and marketing strategies by virtue of the Executive’s employment; and that the restrictive covenants and other terms and conditions of this Agreement are reasonable and reasonably necessary to protect the legitimate business interest of the Company Group. The Executive further acknowledges that the amount of his compensation reflects, in part, his obligations and the Company’s rights under Section 7, Section 8 and Section 9 of this Agreement; that he has no expectation of any additional compensation, royalties or other payment of any kind not otherwise referenced herein in connection herewith; and that he will not be subject to undue hardship by reason of his full compliance with the terms and conditions of Section 7, Section 8 and Section 9 of this Agreement or the Company’s enforcement thereof.
11.Remedies. In the event of a breach or threatened breach by the Executive of Section 7, Section 8 or Section 9 of this Agreement, the Executive hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.
12.Arbitration. Any dispute, controversy or claim arising out of or related to this Agreement or any breach of this Agreement shall be submitted to and decided by a single arbitrator under binding arbitration. Arbitration shall be administered exclusively by the American Arbitration Association and shall be conducted consistent with the rules, regulations and requirements thereof as well as any requirements imposed by state law. Any arbitral award determination shall be final and binding upon the parties.
13.1Work Product. The Executive acknowledges and agrees that all right, title and interest in and to all writings, works of authorship, technology, inventions, discoveries, processes, techniques, methods, ideas, concepts, research, proposals, materials and all other work product of any nature whatsoever, that are created, prepared, produced, authored, edited, amended, conceived or reduced to practice by the Executive individually or jointly with others
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during the period of his employment by the Company and relate in any way to the business or contemplated business, products, activities, research or development of the Company or result from any work performed by the Executive for the Company (in each case, regardless of when or where prepared or whose equipment or other resources is used in preparing the same), all rights and claims related to the foregoing, and all printed, physical and electronic copies and other tangible embodiments thereof (collectively, “Work Product”), as well as any and all rights in and to US and foreign (a) patents, patent disclosures and inventions (whether patentable or not), (b) trademarks, service marks, trade dress, trade names, logos, corporate names and domain names, and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing, (c) copyrights and copyrightable works (including computer programs), including rights in data and databases, (d) trade secrets, know-how and other confidential information and (e) all other intellectual property rights, in each case whether registered or unregistered and including all registrations and applications for, and renewals and extensions of, such rights, all improvements thereto and all similar or equivalent rights or forms of protection in any part of the world (collectively, “Intellectual Property Rights”), shall be the sole and exclusive property of the Company. For purposes of this Agreement, Work Product includes, but is not limited to, Company Group information, including plans, publications, research, strategies, techniques, agreements, documents, contracts, terms of agreements, negotiations, know-how, web design, work in process, databases, manuals, results, developments, reports, graphics, drawings, sketches, market studies, formulae, notes, communications, algorithms, product plans, product designs, styles, models, audiovisual programs, inventions, unpublished patent applications, original works of authorship, discoveries, experimental processes, experimental results, specifications, customer information, client information, customer lists, client lists, manufacturing information, marketing information, advertising information and sales information.
13.2Work Made for Hire; Assignment. The Executive acknowledges that, by reason of being employed by the Company at the relevant times, to the extent permitted by law, all of the Work Product consisting of copyrightable subject matter is “work made for hire” as defined in 17 U.S.C. Section 101 and such copyrights are therefore owned by the Company. To the extent that the foregoing does not apply, the Executive hereby irrevocably assigns to the Company, for no additional consideration, the Executive’s entire right, title, and interest in and to all Work Product and Intellectual Property Rights therein, including the right to sue, counterclaim, and recover for all past, present and future infringement, misappropriation or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit the Company’s rights, title or interest in any Work Product or Intellectual Property Rights so as to be less in any respect than that the Company would have had in the absence of this Agreement.
13.3Further Assurances; Power of Attorney. During and after his employment, the Executive agrees to reasonably cooperate with the Company to (a) apply for, obtain, perfect and transfer to the Company the Work Product as well as any and all Intellectual Property Rights in the Work Product in any jurisdiction in the world; and (b) maintain, protect and enforce the same, including giving testimony and executing and delivering to the Company any and all applications, oaths, declarations, affidavits, waivers, assignments and other documents and instruments as shall be requested by the Company. The Executive hereby irrevocably grants the Company power of attorney to execute and deliver any such documents on the Executive’s
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behalf in his name and to do all other lawfully permitted acts to transfer the Work Product to the Company and further the transfer, prosecution, issuance and maintenance of all Intellectual Property Rights therein, to the full extent permitted by law, if the Executive does not promptly cooperate with the Company’s request (without limiting the rights the Company shall have in such circumstances by operation of law). The power of attorney is coupled with an interest and shall not be affected by the Executive’s subsequent incapacity.
13.4No License. The Executive understands that this Agreement does not, and shall not be construed to, grant the Executive any license or right of any nature with respect to any Work Product or Intellectual Property Rights or any Confidential Information, materials, software or other tools made available to him by the Company.
14.1Security and Access. The Executive agrees and covenants (a) to comply with all Company Group security policies and procedures, as in force from time to time (“Facilities and Information Technology Resources”); (b) not to access or use any Facilities and Information Technology Resources except as authorized by the Company; and (iii) not to access or use any Facilities and Information Technology Resources in any manner after the termination of the Executive’s employment by the Company, whether termination is voluntary or involuntary. The Executive agrees to notify the Company promptly in the event he learns of any violation of the foregoing by others, or of any other misappropriation or unauthorized access, use, reproduction or reverse engineering of, or tampering with any Facilities and Information Technology Resources or other Company Group property or materials by others.
14.2Exit Obligations. Upon (a) voluntary or involuntary termination of the Executive’s employment or (b) the Company’s request at any time during the Executive’s employment, the Executive shall (i) provide or return to the Company any and all Company Group property, including keys, key cards, access cards, identification cards, security devices, employer credit cards, network access devices, computers, cell phones, smartphones, PDAs, pagers, fax machines, equipment, speakers, webcams, manuals, reports, files, books, compilations, work product, email messages, recordings, tapes, disks, thumb drives or other removable information storage devices, hard drives, negatives and data, and all Company Group documents and materials belonging to the Company and stored in any fashion, including but not limited to those that constitute or contain any Confidential Information or Work Product, that are in the possession or control of the Executive, whether they were provided to the Executive by the Company Group or any of its business associates or created by the Executive in connection with his employment by the Company; and (ii) delete or destroy all copies of any such documents and materials not returned to the Company that remain in the Executive’s possession or control, including those stored on any non-Company Group devices, networks, storage locations and media in the Executive’s possession or control.
15.Governing Law: Jurisdiction and Venue. This Agreement, for all purposes, shall be construed in accordance with the laws of Illinois without regard to conflicts of law principles. Any action or proceeding by either of the parties to enforce this Agreement shall be brought only in a state or federal court located in the state of Illinois, county of Cook. The parties hereby irrevocably submit to the exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.
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16.Intentionally Omitted.
17.Attorneys’ Fees and Costs. If any action at law or in equity, including any action for declaratory relief, is brought by a party to this Agreement, including arbitration under Section 12, to enforce or interpret the provisions of this Agreement, the prevailing party shall recover from the non-prevailing party any actual damages and reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees incurred in connection with such dispute and litigation.
18.Entire Agreement. Unless specifically provided herein, this Agreement contains all of the understandings and representations between the Executive and the Company pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. The parties mutually agree that this Agreement can be specifically enforced in court and can be cited as evidence in legal proceedings alleging breach of this Agreement.
19.Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and executed by the Executive and the Company. Notwithstanding the foregoing, if any provision of this Agreement is not permitted under any applicable law, regulation or rule, including any rule of a listing exchange (such as NASDAQ) on which the Company is, or anticipated will become, listed, the Company may reasonably modify this Agreement to the extent necessary to comply with such law, regulation or rule. No waiver by either of the parties of any breach by the other party hereto of any condition or provision of this Agreement to be performed by the other party hereto shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either of the parties in exercising any right, power or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.
20.Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be enforceable only if modified, or if any portion of this Agreement shall be held as unenforceable and thus stricken, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding upon the parties with any such modification to become a part hereof and treated as though originally set forth in this Agreement. The parties further agree that any such court is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the parties as embodied herein to the maximum extent permitted by law. The parties expressly agree that this Agreement as so modified by the court shall be binding upon and enforceable against each of them. In any event, should one or more of the provisions of this Agreement be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had not been set forth herein.
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21.Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.
22.Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
23.1General Compliance. This Agreement is intended to comply with Section 409A or an exemption thereunder (to avoid acceleration of income or imposition of any penalty, interest or additional tax under Section 409A) and shall be construed and administered in accordance therewith. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest, additional tax or other expenses that may be incurred by the Executive on account of non-compliance with Section 409A.
23.2Specified Employees. Notwithstanding any other provision of this Agreement, if any payment or benefit provided to the Executive in connection with his termination of employment is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and the Executive is determined to be a “specified employee” as defined in Section 409A(a)(2)(b)(i), then such payment or benefit shall not be paid until the first payroll date to occur following the six-month anniversary of the Termination Date or, if earlier, on the Executive’s death (the “Specified Employee Payment Date”). The aggregate of any payments that would otherwise have been paid before the Specified Employee Payment Date and interest on such amounts calculated based on the applicable federal rate published by the Internal Revenue Service for the month in which the Executive’s separation from service occurs shall be paid to the Executive in a lump sum on the Specified Employee Payment Date and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.
23.3Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:
(a)the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year;
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(b)any reimbursement of an eligible expense shall be paid to the Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and
(c)any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.
23.4Tax Gross-ups. Any tax gross-up payments provided under this Agreement shall be paid to the Executive on or before December 31 of the calendar year immediately following the calendar year in which the Executive remits the related taxes.
24.Successors and Assigns. This Agreement is personal to the Executive and shall not be assigned by the Executive. Any purported assignment by the Executive shall be null and void from the initial date of the purported assignment. The Company may assign this Agreement to any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company. This Agreement shall inure to the benefit of the Company and permitted successors and assigns.
25.Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, or by overnight carrier to the parties at the addresses set forth below (or such other addresses as specified by the parties by like notice):
If to the Company, to: | Acquired Sales Corp. |
| 31 N. Suffolk Lane |
| Lake Forest, Illinois 60045 |
| Attention: Gerard M. Jacobs, CEO |
| Email: gerardmjacobs@acquiredsalescorp.com |
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If to the Executive, to: | Nicholas S. Warrender |
| Lifted Liquids |
| 43360 US Highway 41 |
| Zion, Illinois 60099 |
| Email: nick@liftedliquids.com |
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26.Representations of the Executive. The Executive represents and warrants to the Company that:
(a)The Executive’s acceptance of employment with the Company and the performance of his duties hereunder shall not conflict with or result in a violation of, a breach of, or a default under any contract, agreement or understanding to which he is a party or is otherwise bound.
(b)The Executive’s acceptance of employment with the Company and the performance of his duties hereunder shall not violate any non-solicitation, non-competition or other similar covenant or agreement of a prior employer.
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27.Withholding. The Company shall have the right to withhold from any amount payable hereunder any federal, state and local taxes in order for the Company to satisfy any withholding tax obligation it may have under any applicable law or regulation.
28.Survival. Upon the expiration or other termination of this Agreement, the respective rights and obligations of the parties hereto shall survive such expiration or other termination to the extent necessary to carry out the intentions of the parties under this Agreement.
29.Acknowledgement of Full Understanding. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF HIS CHOICE BEFORE SIGNING THIS AGREEMENT.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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| ACQUIRED SALES CORP. | |
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| Name: | Gerard M. Jacobs |
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| Title: | CEO |
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| EXECUTIVE |
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[Signature Page to Nicholas S. Warrender Employment Agreement]
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (as executed and as it may be amended, modified, supplemented or restated from time to time, as provided herein, this “Agreement”), dated as of _______________, 2020, is entered into among each Person identified on Schedule 1 hereto and executing a signature page hereto and each other Person who after the date hereof acquires securities of the Company and agrees or is required to become a party to, and bound by, this Agreement in accordance with Section 4.1 (each referred to herein as a “Stockholder” and, collectively, the “Stockholders).
RECITALS:
WHEREAS, Gerard M. Jacobs ("GMJ"), the Roberti Jacobs Family Trust (the "RJFT") and William C. Jacobs ("WCJ", and, together with GMJ, the RJFT and their Affiliates, the "Jacobs Stockholders") collectively own 1,401,623 shares of Common Stock, and options, warrants, and rights to purchase warrants exercisable into 1,582,948 shares of Common Stock;
WHEREAS, Lifted merged with and into Lifted Sub (with Lifted Sub as the surviving entity (the "Merger")) pursuant to that certain Agreement and Plan of Merger (the "Merger Agreement"), dated January 7, 2020, by and between the Company, Lifted Sub, GMJ, WCJ, Lifted and Nicholas S. Warrender ("NSW"), and in connection with the Merger, NSW was issued 3,900,455 shares of Common Stock; and
WHEREAS, the Stockholders desire to enter into this Agreement to set forth certain understandings and agreements concerning the shares of capital stock held by the Stockholders from time to time, including the voting, and transfer of such shares, and to set forth certain additional provisions concerning the governance and management of the Company.
NOW, THEREFORE, in consideration of the mutual premises and covenants contained in this Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows intending to be legally bound hereby:
Section 1.Definitions
Certain capitalized terms used in this Agreement shall have the meanings set forth below or in the Section of this Agreement referred to below:
“Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with that Person; for purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) shall mean the ownership or control of securities possessing more than fifty percent (50%) of the voting power of all outstanding voting securities of an entity or the power otherwise to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting stock or similar rights.
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“Business Day” shall mean any day other than a Saturday, a Sunday or any day on which banking institutions located in Chicago, Illinois are authorized or required by law or other governmental action to close.
“Change in Control” shall mean: (a) the sale of all or substantially all of the consolidated assets of the Company to a Third-Party Purchaser (whether to a single Person or a group of Persons, or in a single transaction or series of related transactions); (b) a sale resulting in Stock having no less than a majority of the voting power of all the issued and outstanding Stock (on a fully diluted basis, treating any security or other instrument convertible into or exercisable or exchange for any Stock) being held by a Third-Party Purchaser (whether to a single Person or a group of Persons, or in a single transaction or series of related transactions); or (c) a merger, consolidation, recapitalization or reorganization of the Company with or into a Third-Party Purchaser that results in Stock having no less than a majority of the voting power of all the issued and outstanding Stock (on a fully diluted basis, treating any security or other instrument convertible into or exercisable or exchange for any Stock) being held by a Third-Party Purchaser.
“Common Stock” shall mean the common stock, $0.001 par value, of the Company, as set forth in the Company’s Articles of Incorporation, and any capital stock issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or similar reorganization.
“Common Stock Equivalents” shall mean any securities or other instruments of the Company which would entitle the holder thereof to acquire, at any time, any shares of Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive shares of Common Stock.
“Company” shall mean Acquired Sales Corp., a Nevada corporation.
“Company Board” shall mean the board of directors of the Company and any committee granted powers comparable to the full board of directors of the Company.
“Entity” shall mean any general partnership, limited partnership, corporation, joint venture, trust, limited liability company, limited liability partnership, business trust, cooperative or association.
“Failed Vote” has the meaning set forth in Section 3.6.
“Future Group Representative” shall mean, with respect to each Future Stockholder Group, the Initial Representative of such Future Stockholder Group until such time as: (i) the death or other incapacity of the Future Group Representative (in which case, the replacement shall be appointed by Future Stockholder Group Members holding a majority of the shares of Common Stock owned by such Future Stockholder Group which replacement, for the avoidance of doubt, must be (or control) a Future Stockholder Group Member of the applicable Future Stockholder Group); or (ii) the Future Stockholder Group Members holding at least 75% of the shares of Common Stock owned by such Future Stockholder Group sends written notice to each Stockholder Group Representative that the Initial Representative is no longer the Future Group Representative for such Future Stockholder Group and such notice names a replacement Future
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Group Representative (who, for the avoidance of doubt, must be (or control) a Future Stockholder Group Member of the applicable Future Stockholder Group).
“Future Stockholder Group” has the meaning set forth in Section 4.1.
“Future Stockholder Group Member” has the meaning set forth in Section 4.1.
“Jacobs Representative” shall mean GMJ, until such time as the death or other incapacity of GMJ, in which case the replacement Jacobs Representative shall be WCJ.
“Jacobs Stockholders” has the meaning set forth in the Recitals and each other Permitted Transferee of a Jacobs Stockholder who after the date hereof acquires securities of the Company from any of them and agrees or is required to become a party to, and bound by, this Agreement in accordance with Section 4.1.
"Lifted" shall mean Warrender Enterprise Inc. d/b/a Lifted Liquids, a Wisconsin corporation.
"Lifted Sub" shall mean Lifted Liquids, Inc., an Illinois corporation and a wholly-owned subsidiary of the Company.
“Nonvoting Party” has the meaning set forth in Section 3.6.
“Permitted Transferee” of a Stockholder shall mean (a) the Stockholder’s spouse, parent, child, grandchild, sibling, niece or nephew (whether natural, adopted or in the process of adoption) (b) an entity owned 100% by the Stockholder or any of the foregoing individuals and (c) a revocable trust established by the Stockholder for the Stockholder’s benefit and of which the Stockholder is the sole trustee.
“Person” shall mean any individual or Entity, and the heirs, executors, administrators, trustees, legal representatives, successors and assigns of such individual or Entity where the context so admits.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Stock” shall mean all (i) shares of Common Stock issued and outstanding from time to time; (ii) all Common Stock Equivalents issued and outstanding from time to time; and (iii) shares of any other class of voting capital stock of the Company or any securities or other instruments issued and outstanding that are convertible into or exchangeable or exercisable for such voting capital stock.
“Stockholder” or “Stockholders” has the meaning set forth in the Preamble.
“Stockholder Group” means each of the Jacobs Stockholders, NSW, and each Future Stockholder Group that becomes a party hereto.
“Stockholder Group Representative” shall mean the Jacobs Representative, NSW, and each Future Group Representative.
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“Third-Party Purchaser” shall mean a Person that is not a Stockholder or an Affiliate of a Stockholder.
“Transfer” shall mean, in the context of a transfer of Stock, the direct or indirect sale, assignment, pledge, hypothecation, transfer or other disposition (voluntarily or involuntarily, by gift or otherwise, and whether as security or otherwise) by a Stockholder of all or a portion of the Stockholder’s Stock, including (i) the sale, assignment, pledge, hypothecation, transfer or other disposition (voluntarily or involuntarily, by gift or otherwise, and whether as security or otherwise) of an equity interest in any Person, substantially all of the assets of which consist, directly or indirectly, of Stock, or (ii) the merger or consolidation of a Stockholder, or of any Person referred to in clause (i), with another Person.
Section 2.Restrictions on Transfer. No Stockholder shall vote in favor of a Change in Control, unless such Change in Control has been approved by the Company Board and each Stockholder Group Representative.
Section 3.Board of Directors and Management.
Section 3.1Board Composition. Each Stockholder agrees to vote or cause to be voted at a regular or special meeting of stockholders of the Company (or by written consent) all shares of Stock now or hereafter owned or controlled by such Stockholder for such slate of directors (including any weighted vote, if applicable) as unanimously agreed upon by the Stockholder Group Representatives.
Section 3.2Director Removal and Vacancy
(a)Except in circumstances in which a director (pursuant to the Company’s bylaws or any amendment thereof) is proposed to be removed for cause, no party hereto shall vote to remove any member of the Company Board nominated in accordance with the aforesaid procedure unless the removal is unanimously agreed upon by the Stockholder Group Representatives.
(b)In the event of any vacancy on the Company Board created by the resignation, removal, incapacity or death of any person nominated under Section 3.1, each Stockholder agrees to vote or cause to be voted at a regular or special meeting of stockholders of the Company (or by written consent) all shares of Stock now or hereafter owned or controlled by such Stockholder for the individual to fill such vacancy as unanimously agreed upon by the Stockholder Group Representatives.
Section 3.3Charter and Bylaws. Each Stockholder shall vote all of the Stock owned or controlled by such party (whether now or hereafter acquired) to ensure that the charter and bylaws of the Company are consistent with, and do not at any time conflict with, the provisions of this Agreement. No Stockholder shall grant any proxy (other than to representatives of the Company to vote in accordance with the provisions of this Agreement) or enter into or agree to be bound by any voting trust or voting agreement with respect to any Stock nor shall any Stockholder enter into any shareholder agreements or arrangements of any kind with any Person with respect to any Stock on terms inconsistent with the provisions of this Agreement (regardless whether such agreements and arrangements are with other Stockholders or holders of Stock that
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are not parties to this Agreement), including but not limited to agreements or arrangements with respect to the acquisition, disposition or voting of Stock.
Section 3.4Employment Terms and Compensation. Each Stockholder agrees to vote or cause to be voted at a regular or special meeting of directors, of committees of directors, or of stockholders of the Company (or by written consent) all director votes controlled by such Stockholder and all shares of Stock now or hereafter owned or controlled by such Stockholder in favor of only those employment agreements, consulting agreements, fee agreements, base salaries, bonuses, management bonus pools amounts and calculations, management bonus pool allocations and payments, future stock options or warrants issuances, and any other direct or indirect compensation or benefits of any nature whatsoever to any directors, officers, employees, consultants, representatives or agents of the Company, Lifted Sub, or any other subsidiary or affiliate of any of them ("Employment Terms and Compensation"), that are unanimously agreed upon by the Stockholder Group Representatives, and against all Employment Terms and Compensation that are not unanimously agreed upon by the Stockholder Group Representatives.
Section 3.5Acquisitions, Divestitures and Capital Raises. Each Stockholder agrees to vote or cause to be voted at a regular or special meeting of directors or stockholders of the Company (or by written consent) all director votes and all shares of Stock now or hereafter owned or controlled by such Stockholder in favor of only those future acquisitions, divestitures or capital raises that are unanimously agreed upon by the Stockholder Group Representatives, and against all future acquisitions, divestitures or capital raises that are not unanimously agreed upon by the Stockholder Group Representatives.
Section 3.6Grant of Proxy. Upon the failure of any party (a “Nonvoting Party”) to vote such party’s Stock in accordance with the terms of this Section 3 (a “Failed Vote”), the Nonvoting Party hereby grants to its Stockholder Group Representative, a proxy coupled with an interest in all Stock owned or controlled by the Nonvoting Party, which proxy shall be exercisable by such Person (i) not earlier than five (5) days after the Nonvoting Party has received written notice from any other Stockholder identifying the subject of the Nonvoting Party’s Failed Vote and indicating that the Stockholder Group Representative delivering the notice intends to exercise the Stockholder’s right to designate a proxy holder, and (ii) only if, during such period of five (5) days, the Nonvoting Party fails to cure the Failed Vote by voting the Nonvoting Party’s Stock in accordance with the terms of this Section 3. If the proxy becomes exercisable, the proxy shall be exercisable and irrevocable as to the subject of, and until the proxy holder has cast a vote in respect of, such Failed Vote, or until this Agreement terminates pursuant to its terms or this Section 3.6 is amended to remove such grant of proxy in accordance with Section 4.6.
Section 4.Miscellaneous.
Section 4.1New Stockholder Groups. If the Stockholder Group Representatives unanimously agree to allow a Person or group of Persons (with such Group of Persons being referred to as a “Future Stockholder Group” and each individual Person as a “Future Stockholder Group Member”) to become a party to this Agreement, then the members of such Future Stockholder Group may be permitted to become a party hereto as follows:
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(a)The Future Stockholder Group Members owning a majority of the shares of Common Stock owned by the Future Stockholder Group shall have named a Stockholder Group Representative for such Future Stockholder Group (the “Initial Representative”).
(b)Each Future Stockholder Group Member shall have executed a joinder to this Agreement in the form attached hereto as Exhibit A (a “Joinder”).
Upon the occurrence of (a) and (b), each such Future Stockholder Group shall be a “Stockholder Group” hereunder and each such Future Stockholder Group Member shall become a “Stockholder” hereunder. Further, any Permitted Transferee or Affiliate of a Stockholder that, after the date hereof, acquires shares of Stock from a Stockholder must as a condition to the effectiveness of such acquisition become a party to this Agreement. Each such Permitted Transferee shall become a party to this Agreement, without the need for the consent, approval or signature of any other Stockholder, by executing a Joinder, and thereafter, such Person shall become a “Stockholder” hereunder.
Section 4.2Specific Performance; Other Rights. The parties recognize and hereby acknowledge that, in view of the uniqueness of the transactions contemplated hereby, money damages that would result by reason of the failure of any of the other parties to perform any of their obligations under this Agreement may be impossible to measure, and that, in any event, money damages would be an inadequate remedy under such circumstances. Therefore, each party agrees that the other parties shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which they may be entitled at law or in equity. Accordingly, if any party should institute an action or proceeding seeking specific enforcement of the provisions of this Agreement, the party or parties against which such action or proceeding is brought hereby waives the claim or defense that the party instituting such action or proceeding has an adequate remedy at law, and the parties hereby agree not to assert in any such action or proceeding the claim or defense that such remedy at law exists, and shall waive or not assert any requirement to post bond in connection with seeking specific performance. The parties hereby agree that this provision is without prejudice to any rights or remedies that the parties may have at law or in equity for any failure to perform under this Agreement. Except as provided herein, this Agreement is not intended to limit or abridge any rights of the Stockholders which may exist apart from this Agreement.
Section 4.3Compliance with Securities Laws; Notice of Intention to Sell Shares. In addition to any other restrictions provided in this Agreement: (a) no Stockholder shall Transfer any shares of Stock unless the Transfer is either (i) pursuant to an effective Registration Statement under the Securities Act and is in compliance with any applicable state securities or blue sky laws, or (ii) pursuant to an exemption from registration under the Securities Act (including, to a Permitted Transferee) and, if reasonably requested by any Stockholder Group Representative, such Stockholder shall furnish the Company with an opinion of counsel, which opinion of counsel shall be reasonably satisfactory to the Company, to the effect that no such registration is required because of the availability of such exemption; and (b) no Stockholder shall Transfer any shares of Stock unless such Stockholder has provided at least seven (7) days advance written notice to each of the Stockholder Group Representatives of such Stockholder's intention to Transfer such shares of Stock.
Section 4.4Termination. This Agreement shall terminate on the date that is the earliest to occur of: (i) the written agreement to terminate as unanimously agreed upon by the
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Stockholder Group Representatives; (ii) the consummation of a Change in Control; or (iii) the dissolution of the Company.
Section 4.5Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be deemed given, delivered and received (a) when delivered, if delivered personally by a commercial messenger delivery service with verification of delivery, (b) four (4) days after mailing, when sent by registered or certified mail, return receipt requested and postage prepaid, (c) one Business Day after delivery to a private courier service, when delivered to a private courier service providing documented overnight service, (d) on the date of delivery if delivered by facsimile or email and delivery electronically confirmed before 5:00 p.m. (local time) on any Business Day, or (e) on the next Business Day if delivered by facsimile or email and delivery electronically confirmed either after 5:00 p.m. (local time) or on a non-Business Day, in each case to the address, facsimile number or email information set forth on Schedule 1 hereto which shall be supplemented from time to time to the extent updated information is furnished in writing by any Stockholder to the other Stockholders.
Section 4.6Amendments and Waivers. This Agreement may only be amended as unanimously agreed upon by the Stockholder Group Representatives. Except as otherwise expressly set forth in this Agreement, the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only as unanimously agreed upon by the Stockholder Group Representatives. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. Any amendment or waiver in accordance herewith shall be binding upon each party hereto.
Section 4.7Assignment; Successors and Assigns. Except as otherwise provided herein, this Agreement shall not be assignable by any party without the written consent of all of the Stockholder Group Representatives other than to Permitted Transferees. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their Permitted Transferees.
Section 4.8Severability. If any provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflicting of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question, invalid, inoperative or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case.
Section 4.9Counterparts. This Agreement may be executed in two or more counterparts (each of which need not be executed by each of the parties), whether by original, photocopy, email (including pdf or similar format) or facsimile, and each of which shall be
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deemed an original and sufficient as if actual signature pages had been delivered, but all of which together shall constitute one and the same instrument.
Section 4.10Section Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
Section 4.11Number; Gender. Whenever used herein, the singular number shall include the plural, the plural shall include the singular, and the use of any gender shall include all genders.
Section 4.12Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law (other than the law governing conflict of law questions) of the State of Illinois.
Section 4.13Entire Agreement. The parties hereto agree that this Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between them as to such subject matter; and there are no restrictions, agreements, arrangements, oral or written, between any or all of the parties relating to the subject matter hereof which are not fully expressed or referred to herein.
Section 4.14Recapitalizations, Exchanges, etc. The provisions of this Agreement shall apply, to the full extent set forth herein, with respect to the Stock, to any and all shares of capital stock of the Company and of any successor or assign of the Company, whether by merger, consolidation, sale of assets or otherwise, including by virtue of equity securities (or securities or other instruments convertible into or exchangeable or exercisable for equity securities) issued in respect of, in exchange for, or in substitution of Stock, by reason of conversion, stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise.
Section 4.15Submission to Jurisdiction. Each Stockholder hereby irrevocably submit in any suit, action or proceeding arising out of or related to this Agreement or any of the transactions contemplated hereby, except those matters required to be submitted to arbitration, to the jurisdiction of the United States District Court for the Northern District of Illinois and the jurisdiction of any court of the State of Illinois located in Cook County, Illinois and waive any and all objections to jurisdiction that they may have under the laws of the State of Illinois or the United States.
Section 4.16Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY OR DISPUTE THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
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ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS OF THIS SECTION 4.17.
Section 4.17Attorneys’ Fees and Costs. If any action at law or in equity, including any action for declaratory relief, is brought by a party to this Agreement, to enforce or interpret the provisions of this Agreement, the prevailing party shall recover from the non-prevailing party any actual damages and reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees incurred in connection with such dispute and litigation.
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IN WITNESS WHEREOF, the Stockholders have executed and delivered this Agreement as of the date first written above.
STOCKHOLDERS: |
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[Signature] |
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[Print Name of Stockholder] |
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SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
SCHEDULE 1
NAMES AND ADDRESSES OF STOCKHOLDERS
NameAddress/Facsimile Number or Email
1.Gerard M. Jacobs31 N. Suffolk Lane, Lake Forest, IL 60045
Email: LakeGeneva91@gmail.com
2.William C. Jacobs301 Mission Drive #383, New Smyrna Beach, FL 31268
Email: Jake@BeachinCompany.com
3. Roberti Jacobs Family Trust31 N. Suffolk Lane, Lake Forest, IL 60045
Email: LakeGeneva91@gmail.com
3. Nicholas S. Warrender328 55th Street B, Kenosha, WI 53140
Email: Ape.anonymous@gmail.com
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the “Agreement”) is made and entered into as of this ___ day of _______________, 2020, by and among Acquired Sales Corp., a Nevada corporation (the “Company”), and Nicholas S. Warrender, a resident of Wisconsin (the “Lifted Owner”).
RECITALS:
WHEREAS, the Company and Warrender Enterprise Inc. d/b/a Lifted Liquids (“Target”) entered into that certain Merger Agreement, dated as of January 7, 2020 (the “Merger Agreement”) pursuant to which Target was merged with and into Lifted Liquids, Inc., a wholly-owned subsidiary of the Company (the "Merger Sub"), with the Merger Sub as the surviving entity.
WHEREAS, in connection with the Merger Agreement, the Lifted Owner was issued an aggregate of 3,900,455 shares of Common Stock (as defined below) of the Company; and
WHEREAS, in connection with the consummation of the transactions contemplated by the Merger Agreement, and pursuant to the terms of the Merger Agreement, the parties hereto desire to enter into this Agreement in order to grant certain registration rights to the Lifted Owner as set forth below.
The parties hereby agree as follows intending to be legally bound hereby:
1.Certain Definitions.
As used in this Agreement, the following terms shall have the following meanings:
“Board” shall mean the Board of Directors of the Company.
“Common Stock” shall mean Common stock, par value $0.001 per share, of the Company and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other corporate reorganization or other similar event with respect to the Common Stock).
“Demand Registration” shall mean a registration pursuant to Section 2 hereof.
“Holder” shall mean the beneficial owner of a security. For all purposes of this Agreement, the Company shall be entitled to treat the record owner of a security as the beneficial owner of such security unless the Company has been given written notice of the existence and identity of a different beneficial owner.
“Misstatement” shall mean an untrue statement of a material fact or an omission to state a material fact required to be stated in a Registration Statement or Prospectus or necessary to
make the statements in a Registration Statement, Prospectus or preliminary prospectus not misleading.
“Permitted Transferee” of the Lifted Owner shall mean (a) the Lifted Owner’s spouse, parent, child, grandchild, sibling, niece or nephew (whether natural, adopted or in the process of adoption) (b) an entity owned 100% by the Lifted Owner or any of the foregoing individuals and (c) a revocable trust established by the Lifted Owner for the benefit of Lifted Owner or Lifted Owner’s child, grandchild, niece or nephew (whether natural, adopted or in the process of adoption) and of which the Lifted Owner is the sole trustee.
“Person” shall mean a natural person, partnership, corporation, business trust, association, limited liability company, joint venture or other entity or a government or agency or political subdivision thereof.
“Piggyback Registration” shall mean a registration pursuant to Section 3 hereof.
“Prospectus” shall mean the prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance on Rule 430A under the Securities Act or any successor rule thereto), as amended and supplemented by any and all prospectus supplements and as amended by any and all post-effective amendments and including all material incorporated by reference in such prospectus.
“Registration” shall mean Demand or Piggyback Registration.
“Registration Expenses” shall mean out-of-pocket expenses of a Registration, including:
(a)all registration and filing fees (including fees with respect to filings required to be made with the National Association of Securities Dealers);
(b)fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters or selling Holders in connection with blue sky qualifications of the Registerable Securities and determinations of their eligibility for investment under the laws of such jurisdictions as the managing underwriters or Holders of a majority of the Registerable Securities being sold may designate);
(c)printing, messenger, telephone and delivery expenses;
(d)fees and disbursements of counsel for the Company, counsel for the underwriters and of not more than one firm of attorneys for the sellers of the Registerable Securities;
(e)fees and disbursements of all independent certified public accountants of the Company incurred in connection with such Registration (including the expenses of any special audit and “cold comfort” letters incident to such registration);
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(f)fees and disbursements of underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registerable Securities;
(g)premiums and other costs of securities acts liability insurance if the Company so desires or if the underwriters or selling Holders of Registerable Securities so require; and
(h)fees and expenses of any other Persons retained by the Company.
“Registerable Securities” shall mean those Securities which have not been sold to the public.
“Registration Statement” shall mean any registration statement which covers Registerable Securities pursuant to the provisions of this Agreement, including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to such registration statement, and all exhibits to and all material incorporated by reference in such registration statement.
“Securities” shall mean (a) any shares of Common Stock beneficially owned by the Lifted Owner, and (b) any shares of Common Stock issued or issuable with respect to any shares described in subsection (a) above by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other reorganization or other similar event with respect to the Common Stock (it being understood that, for purposes of this Agreement, a Person shall be deemed to be a Holder of Securities whenever such Person has the right to then acquire or obtain from the Company any Securities, whether or not such acquisition has actually been effected).
“Underwritten registrations or underwritten offering” shall mean a registration in which securities of the Company are sold to an underwriter for distribution to the public.
2.Demand Registrations.
(a)At any time beginning on the 120th day following the closing of the Merger Agreement, but only if the Company has not filed a Registration Statement prior thereto with respect to which the Lifted Owner was granted piggyback registration rights pursuant to Section 3 and was permitted to include for registration thereon all of the Registerable Securities, upon the request of the Lifted Owner, the Holders of Registerable Securities shall have the right to request registration under the Securities Act of all or any portion of their Registerable Securities pursuant to a Registration Statement on Form S-1 or any similar long-form Registration Statement (a “Long-Form Registration”) or, if eligible, Form S-3 (a “Short-Form Registration” and, together with each Long-Form Registration and Shelf Registration (as defined below), a “Demand Registration”). Each request for a Long-Form Registration or Short-Form Registration shall specify the number of Registerable Securities requested to be included in the Demand Registration. Upon receipt of any such request, the Company shall promptly (but in no event later than ten (10) days following receipt thereof) deliver notice of such request to all other Holders of Registerable Securities who shall then have ten (10) days from the date such notice is
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given to notify the Company in writing of their desire to be included in such registration. The Company shall prepare and file with (or confidentially submit to) the Securities and Exchange Commission (the “Commission”) SEC a Registration Statement on Form S-1 or Form S-3 (as applicable) or any successor form thereto covering all of the Registerable Securities that the Holders thereof have requested to be included in such Demand Registration as promptly as practicable following the date such initial request is given and shall use its good faith efforts to cause such Registration Statement to be declared effective by the SEC as soon as practicable thereafter. The Lifted Owner shall be entitled to no more than one (1) Demand Registration in any twelve (12) month period pursuant to this Section 2 and three (3) Demand Registrations pursuant to this Section 2 in the aggregate.
(b)The Company may postpone for up to 180 days the filing or effectiveness of a Registration Statement for a Demand Registration if the Board determines in its reasonable good faith judgment that such Demand Registration would (i) materially interfere with a significant acquisition, corporate organization, financing, securities offering or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, provided, that in such event the Holders of a majority of the Registerable Securities initiating such Demand Registration shall be entitled to withdraw such request and, if such request for a Demand Registration is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations hereunder and the Company shall pay all registration expenses in connection with such registration. The Company may delay a Demand Registration hereunder only once in any period of 12 consecutive months. Notwithstanding anything to the contrary herein, no Demand Registration shall be required where in the judgment of the Company, its legal counsel, and/or SEC guidance and comments the registration would be deemed a primary offering pursuant to Securities Act Rule 415, which is interpreted by the SEC staff to prohibit registrations of stock for resale where the seller is deemed to be engaged in a primary offering of behalf of the issuer.
(c)The Company shall not include in any Demand Registration any securities which are not Registerable Securities without the prior written consent of Lifted Holder, which consent shall not be unreasonably withheld or delayed. If a Demand Registration involves an underwritten offering and the managing underwriter of the requested Demand Registration advises the Company and the holders of Registerable Securities in writing that in its reasonable and good faith opinion the number of shares of Common Stock proposed to be included in the Demand Registration exceeds the number of shares of Common Stock which can be sold in such underwritten offering and/or the number of shares of Common Stock proposed to be included in such Demand Registration would adversely affect the price per share of the Common Stock proposed to be sold in such underwritten offering, the Company shall include in such Demand Registration (i) first, the shares of Common Stock that Lifted Holder proposes to sell, and (ii) second, the shares of Common Stock proposed to be included therein by any other Persons (including shares of Common Stock to be sold for the account of the Company and/or other holders of Common Stock) allocated among such Persons in such manner as they may agree.
(d)Notwithstanding anything to the contrary herein, the Company is not required to register Securities reasonably deemed by the Company’s securities counsel or by the staff of the
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U.S. Securities and Exchange Commission to be a “primary offering” not qualifying as a secondary offering pursuant to Securities Act Rule 415(a)(1)(i).
3.Piggyback Registrations.
(a)Participation.
Each time the Company decides to file a registration statement under the Securities Act (other than on Forms S-4 or S-8) covering the offer and sale by it or any of its security holders of any of its securities for money, the Company shall give written notice thereof to all Holders of Registerable Securities. The Company shall include in such registration statement such shares of Registerable Securities for which it has received written requests to register such shares within 30 days after such written notice has been given.
(b)Underwriter’s Cutback.
If in the good faith judgment of the managing underwriter of such offering the inclusion of all of the shares of Registerable Securities and any other Common Stock requested to be registered would interfere with the successful marketing of a smaller number of such shares, then the number of shares of Registerable Securities and other Common Stock to be included in the offering (except for shares to be issued by the Company in an offering initiated by the Company) shall be reduced to such smaller number with the participation in such offering to be in the following order of priority: (1) first, the shares of Registerable Securities requested to be included, and (2) second, any other shares of Common Stock requested to be included. Any necessary allocation among the Holders of shares within each of the foregoing groups shall be pro rata among such Holders requesting such registration based upon the number of shares of Common Stock and Registerable Securities owned by such Holders.
All shares so excluded from the underwritten public offering shall be withheld from the market by the Holders thereof for a period (not to exceed 30 days prior to the effective date and 90 days thereafter) that the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering. Notwithstanding anything to the contrary herein, no Piggyback Registration shall be required where in the judgment of the Company, its legal counsel, and/or SEC guidance and comments the registration would be deemed a primary offering pursuant to Securities Act Rule 415, which is interpreted by the SEC staff to prohibit registrations of stock for resale where the seller is deemed to be engaged in a primary offering of behalf of the issuer.
4.Hold-Back Agreements.
Upon the written request of the managing underwriter of any underwritten offering of the Company’s securities, a Holder of Registerable Securities shall not sell, make any short sale of loan, grant any option for the acquisition of; or otherwise dispose of any Registerable Securities (other than those included in such registration) without the prior written consent of such managing underwriter for a period (not to exceed 30 days before the effective date and 90 days thereafter) that such managing underwriter reasonably determines is necessary in order to effect the underwritten public offering; provided that each of the officers and directors of the Company
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shall have entered into substantially similar holdback agreements with such managing underwriter covering at least the same period.
5.Registration Procedures.
If and whenever the Company is required to register Registerable Securities in a Demand Registration or a Piggyback Registration, the Company will use its best efforts to effect such registration to permit the sale of such Registerable Securities in accordance with the intended plan of distribution thereof; and pursuant thereto the Company will as promptly as practicable:
(a)prepare and file with the Securities and Exchange Commission (“SEC”) as soon as practicable a Registration Statement with respect to such Registerable Securities and use its good faith efforts to cause such Registration Statement to become effective and remain effective until the Registerable Securities covered by such Registration Statement have been sold;
(b)prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement, and such supplements to the Prospectus, as may be requested by any Holder of Registerable Securities or any underwriter of Registerable Securities or as may be required by the rules, regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and regulations thereunder to keep the Registration Statement effective until all Registerable Securities covered by such Registration Statement are sold in accordance with the intended plan of distribution set forth in such Registration Statement or supplement to the Prospectus; and
(c)otherwise use its good faith efforts to comply with all applicable rules and regulations of the SEC, and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of any 12-month period (or 90 days, if such period is a fiscal year) (x) commencing at the end of any fiscal quarter in which Registerable Securities are sold to underwriters in an underwritten offering, or, if not sold to underwriters in such an offering, (y) beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the Registration Statement, which statements shall cover said 12-month periods.
6.Registration Expenses; Indemnification.
All Registration Expenses will be borne by the Company.
The Company shall indemnify and hold harmless, to the fullest extent permitted by law, each Holder of Registerable Securities, such Holder’s officers, directors, managers, members, partners, stockholders and affiliates, each underwriter, broker or any other Person acting on behalf of such Holder of Registerable Securities against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages, liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment thereof or
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supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading; and shall reimburse such Persons for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, action, damage or liability, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such Holder expressly for use therein or by such Holder’s failure to deliver a copy of the Registration Statement, Prospectus or any amendments or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such Holder with a sufficient number of copies of the same prior to any written confirmation of the sale of Registerable Securities. This indemnity shall be in addition to any liability the Company may otherwise have.
In connection with any registration in which a Holder of Registerable Securities is participating, each such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company, each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf of the Holders of Registerable Securities against any losses, claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of material fact contained in the Registration Statement, Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information so furnished in writing by such Holder; provided, that the obligation to indemnify shall be several, not joint and several, for each Holder and shall not exceed an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such Holder from the sale of Registerable Securities pursuant to such Registration Statement. This indemnity shall be in addition to any liability the selling Holder may otherwise have.
7.Exchange Act Reporting Requirements.
The Company shall use good faith efforts to timely file such information, documents and reports as the SEC may require or prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange Act. In addition, the Company shall take such other measures and file such other information, documents and reports, as shall hereafter be required by the SEC as a condition to the availability of Rule 144 under the Securities Act (or any successor provision).
8.Requirements for Participation in Underwritten Offering.
No Person may participate in any underwritten offering pursuant to a Registration hereunder unless such Person (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
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9.Suspension of Sales.
Upon receipt of written notice from the Company that a Registration Statement or Prospectus contains a Misstatement, each Holder of Registerable Securities shall forthwith discontinue disposition of Registerable Securities until such Holder has received copies of the supplemented or amended Prospectus required by Section 5 hereof; or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holders possession, of the Prospectus covering such Registerable Securities current at the time of receipt of such notice.
10.Expiration of Registration Rights.
This Agreement shall terminate and be of no further force or effect when there shall no longer be any Registerable Securities outstanding; provided, that the provisions of Section 6 shall survive any such termination.
11.Miscellaneous
(a)Notices.
All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, email, fax, or air courier guaranteeing overnight delivery:
If to the Company:Acquired Sales Corp.
Attention: Gerard M. Jacobs, Chief Executive Officer
31 N. Suffolk Lane
Lake Forest, IL 60045
Email: GerardMJacobs@AcquiredSalesCorp.com
If to the Lifted Owner:Nicholas S. Warrender
328 55th Street B
Kenosha, WI 53140
Email: Ape.Anonymous@gmail.com
All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if faxed; when receipt acknowledged, if emailed; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery.
(b)Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Company may assign this Agreement at any time in connection with a sale or acquisition of the Company, whether by merger, consolidation, sale of all or substantially all of the Company’s assets, or similar
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transaction, without the consent of the Lifted Owner; provided, that the successor or acquiring Person agrees in writing to assume all of the Company’s rights and obligations under this Agreement. The Lifted Owner may assign his rights hereunder only to a Permitted Transferee; provided, that such Permitted Transferee shall, as a condition to the effectiveness of such assignment, be required to execute a counterpart to this Agreement agreeing to be treated as a Lifted Owner whereupon such Permitted Transferee shall have the benefits of, and shall be subject to the restrictions contained in, this Agreement as if such Permitted Transferee was originally included in the definition of a Lifted Owner herein and had originally been a party hereto.
(c)Counterparts.
This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
(d)Headings.
The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(e) Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois.
(f)Severability.
In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.
(g)Forms.
All references in this Agreement to particular forms of registration statements are intended to include all successor forms which are intended to replace, or to apply to similar transactions as, the forms herein referenced.
(h)Entire Agreement.
This Agreement and any warrants issued pursuant to such agreements are intended by the parties as the final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein with respect to the registration rights granted by the Company with respect to the securities sold pursuant to the warrants issued pursuant to such agreements. This Agreement and the warrants issued pursuant
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to such Agreements supersede all prior agreements and understandings between the parties with respect to such subject matter.
[remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.
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| Name: Gerard M. Jacobs |
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| Title: Chief Executive Officer |
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The Lifted Owner: |
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| NICHOLAS S. WARRENDER |
PROMISSORY NOTE
$3,750,000.00_____________, 2020
FOR VALUE RECEIVED, Acquired Sales Corp., a Nevada corporation ("AQSP"), and Lifted Liquids, Inc., an Illinois corporation and a wholly-owned subsidiary of AQSP ("Merger Sub") (AQSP and Merger Sub being referred to individually as a "Payor" and collectively as "Payors") HEREBY JOINTLY AND SEVERALLY PROMISE TO PAY to the order of Nicholas S. Warrender, a Wisconsin resident with his principal residence at 328 55th Street B, Kenosha, WI 53140 (“Payee”), the principal sum of THREE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND 00/100 ($3,750,000.00), payable as set forth below. Interest on this Promissory Note shall be calculated on the basis of actual number of days elapsed and a 365-day year and shall be at a rate per annum equal to two percent (2.00%) (the “Interest Rate”). This Promissory Note is being issued to memorialize that certain Promissory Note constituting the Note Consideration in accordance with that certain Agreement and Plan of Merger dated January 7, 2020 by and among Payors, Gerard M. Jacobs, William C. Jacobs, Warrender Enterprise Inc. d/b/a Lifted Liquids, and Payee (the “Merger Agreement”). Any capitalized term used but not defined herein shall have the meaning ascribed to such term as set forth in the Merger Agreement.
1.Principal and Interest Payment Date. The principal and all accrued interest on this Promissory Note shall be due and payable in full upon the date (the "Payment Date") which is the earlier of (a) the date which is thirty (30) days after the last day (the "Aggregate EBITDA Calculation Date") of the calendar quarter during which the aggregate earnings before interest, taxes, depreciation and amortization ("EBITDA") of Merger Sub during the period between the Closing Date and the Aggregate EBITDA Calculation Date, as certified by AQSP's firm of independent certified public accountants, exceeds $7,500,000, or (b) the date which is the fifth anniversary of the Closing Date.
2. Voluntary Prepayments. This Promissory Note may, at the option of Payors, be prepaid in whole or in part, at any time and from time to time, without premium or penalty.
3. Mandatory Prepayments. Within five (5) business days following the closing of any equity or debt capital raise by any Payor following the date of the Merger Agreement, excluding only the capital raise for the Wisconsin Acquisitions referred to in Section 5.23(a) of the Merger Agreement, Payors shall be obligated to allocate and pay over at least 50% of the net proceeds of such capital raise toward a prepayment of the principal and accrued interest on this Promissory Note.
4.Maximum Lawful Rate. If any payment of interest hereunder in excess of the amount permitted by applicable law is received by Payee, the amount of such excess payment shall automatically be applied to reduce the principal amount outstanding hereunder in the order of maturity.
5.Place of Payment. Payments of principal and interest are payable in lawful money of the United States of America to Payee at Payee’s address listed above or at such other address as Payee may direct in writing to Payors.
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(a) This Promissory Note shall be secured by a first lien security interest in all of the assets of Payors; and
(b) This Promissory Note shall be secured by a pledge of: (i) all of the capital stock of Merger Sub; (ii) all of the common stock of Bendistillery Inc., Bend Spirits, Inc., and Ablis Holding Company that is owned by Payors; and (iii) all of the capital stock of any other entity owned by any Payor or any of its subsidiaries, pursuant to a Collateral Stock Pledge Agreement of even date herewith, between Payee, as Secured Party, and Payors, as Pledgors.
7.Notice of Default. Payors shall promptly notify Payee of any condition or event that constitutes an Event of Default as defined below.
8.Events of Default. Each of the following occurrences shall constitute an “Event of Default” under this Promissory Note:
(a)Payors fail to pay when due and payable any amount of principal or interest under this Promissory Note, and such failure to pay is not cured within ten (10) days;
(b)Payors fail to perform or breach (other than a failure or breach which constitutes an Event of Default under another clause of this Section 8) in any material respect any of their obligations or the terms or provisions hereunder, and fail to cure such breach or failure within thirty (30) days following their receipt of notice from Payee describing such failure or breach;
(c)Any Payor makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating any Payor bankrupt or insolvent; or any order for relief with respect to any Payor is entered under the Federal Bankruptcy Code; or any Payor petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of such Payor or of any substantial part of the assets of such Payor, or commences any proceeding relating to such Payor under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against any Payor and either (i) such Payor by any act indicates its approval thereof, consent thereto or acquiescence therein, or (ii) such petition, application or proceeding is not dismissed within 60 days.
9.Acceleration.
(a)If an Event of Default of the type described in Section 8(c) has occurred, the principal amount of this Promissory Note (together with all accrued interest hereon and all other amounts due and payable with respect hereto) shall become immediately due and payable without any action on the part of Payee, and Payors shall immediately pay to Payee all amounts due and payable with respect to this Promissory Note.
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(b)If any other Event of Default has occurred and is continuing, Payee may declare the outstanding principal amount of this Promissory Note (together with all accrued interest thereon and all other amounts due and payable with respect thereto) to be immediately due and payable and may demand immediate payment of the outstanding principal amount of this Promissory Note (together with accrued interest thereon and all such other amounts then due and payable).
(c)Payee shall also have any other rights which Payee may have pursuant to applicable law.
(d)Payors hereby waive diligence, presentment, protest and demand and notice of protest and demand, dishonor and nonpayment of this Promissory Note and all other notices except as expressly provided herein, and expressly agree that this Promissory Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of Payors hereunder.
10.No Waiver. No delay or omission on the part of Payee in exercising any right hereunder shall operate as a waiver of any right under this Promissory Note.
11.Amendment; No Assignment. No amendment, modification, termination or waiver of any provision of this Promissory Note shall be effective unless the same shall be in writing and signed by Payors and Payee. Payee may not assign this Promissory Note without the prior written consent of Payors.
12.Governing Law. THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO ITS CONFLICT OF LAW PRINCIPLES.
13.Costs of Collection. If (a) the Promissory Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; (b) an attorney is retained to represent Payee in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under the Promissory Note; (c) an attorney is retained to represent Payee in any other proceedings whatsoever in connection with the Promissory Note as a result of the action or inaction of Payors, then Payors shall pay to Payee all reasonable attorneys’ fees, costs and expenses incurred in connection therewith, in addition to all other amounts due hereunder.
14.WAIVER OF JURY TRIAL. EACH OF PAYORS AND PAYEE WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED IN CONNECTION HEREWITH OR HEREAFTER AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. ANY DISPUTES ARISING UNDER OR RELATING TO THIS PROMISSORY NOTE WILL BE LITIGATED ONLY IN THE STATE COURTS LOCATED IN LAKE COUNTY, ILLINOIS
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AND THE PARTIES HEREBY CONSENT TO THE PERSONAL JURISDICTION AND EXCLUSIVE VENUE OF THESE COURTS AND AGREE THAT ANY SUCH ACTION WILL BE TRIED BEFORE THE COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, this Promissory Note is hereby executed and delivered as of the ___ day of ____________, 2020.
ACQUIRED SALES CORP.LIFTED LIQUIDS, INC.
By____________________________By__________________________
Gerard M. Jacobs, CEOGerard M. Jacobs, on behalf
of the Board of Directors
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